Archive for the 'Selling A Duplex' Category

Comments Off on Vacant or Full? How Should You Sell Your Minneapolis Duplex?

Empty DuplexI am often asked by Minneapolis and St Paul duplex sellers who are thinking about putting their property on the market whether it’s better to have the building leased, or a vacant unit when it goes up for sale.

The best answer is, it depends. If your property is one an owner occupant may find appealing, know that it is a requirement for FHA insured mortgages that the buyer be able to move in within 60 days of closing. If both your units are leased, you have made it difficult for any owner occupant to consider your duplex; and right now, that’s a large percentage of today’s duplex buyers.

So should you just leave it vacant? This certainly makes showings easier and gives you a chance to put it in tip top shape. It also provides a new owner with an opportunity to lease it at market rent,. However, if it’s a financial burden to you, it isn’t necessary.

One option may be to have a tenants or tenants on month to month leases. This may concern residents, as they frequently believe that if the duplex goes up for sale, they won’t have time to find a place to live.

Clearly explaining the process to tenants may help alleviate these fears. Most lenders are taking 30-45 days to complete the funding of a loan on a property. Additionally, standard lease language usually requires tenants to receive 60 days notice before being required to move.

Duplex sellers should never agree to give a tenant notice until the day of closing. After all, if you tell a tenant to leave early, and the buyer fails to perform on the purchase, you’re left with a vacancy!

Simply explain to your tenants that at minimum, they will have 90 to 100 days or more between the time you accept an offer and having to move — that is, if they are even asked to do so. Any amount of time you’re on the market before your property sells will add give them even more time.

And of course, there is always the possibility they won’t be asked to move at all and can stay right where they are!

Comments Off on Three Reasons Minneapolis Duplex Prices are Soaring — And Why That May Be About To Change

Minneapolis Duplex Prices RiseBy now, you’ve probably heard that duplex prices in Minneapolis and St Paul have rebounded to at or near the healthy highs of 2005.

This price rebound is the result of three things:

  1. Historically low interest rates – One of the rare silver linings of a slower economy is interest rates are often kept low by the Federal Reserve in order to help stimulate economic activity. The economic downturn resulted in nearly a decade of inexpensive loans, which helps duplexes cash flow better than at higher rates.
  2. Lack of inventory – Low interest rates gave many would-be duplex sellers an opportunity to refinance their loans, which made their duplex cash flow like never before. This resulted in fewer owners putting their properties on the market. If you think back to high school economics class, you’ll recall the law of supply and demand. When supply is low, prices go up.
  3. Low vacancy rates – During the economic crisis, many would-be homeowners lost their homes to foreclosure or sold for less than what they owed. With their credit tarnished and perhaps even a job loss, many became renters. Meanwhile, many would be first time home buyers found themselves burdened by large student loan debt or simply unable to get a job. Others came to view home ownership as risky. They too chose to rent, rather than buy.

All of this has resulted in a giant shortage of Minneapolis duplexes, triplexes and fourplexes on the market in the Twin Cities.

In fact, there are currently just 195 small multi-family properties available for sale on the Multiple Listing Service. This includes the seven county metro area, as well as western Wisconsin and out state locations.

To put this in perspective, in December of 2007, there were 1104 properties on the market.

In other words, it’s a great time to be a duplex seller, because you won’t have as much competition.

That is, until spring.

You see, many long term duplex owners have told me they are ready to make a change in their lifestyle, and for the first time in more than a decade, are thinking of selling. And if they do, then the lack of inventory part of the rising price equation goes away.

You may also have heard that the government’s economic report has been entirely positive since September, leading many to believe the Federal Reserve will raise interest rates when they meet later this month.

And if interest rates go up one percent, that changes the cash flow on a $300,000 duplex by roughly $3000 a year. That can make a duplex that was a good investment to one with negative cash flow in a hurry.

If you’re thinking of selling, please contact me. Even if you decide the time isn’t right, I’ll be sure to give you my thoughts on how you can make sure your property is a good investment for you for years to come.

Comments Off on Should You Sell Your Minneapolis Duplex Now or Wait Til Spring?

There’s a nip in the air, the leaves have begun to change, the Vikings still have a winning record and you’d really like to sell your Minneapolis duplex.

And because you’ve lived here a while, if not your whole life, you know snow is just around the corner.

Is it even worth it to try to sell your duplex now? Or should you just wait until spring?

After all, who wants to move in the ice and snow, right?

Lots of people. In fact, they’re looking — and starting to look, right now.

For the last two to three years, we’ve had more Minneapolis and St Paul duplex buyers in the market than we’ve had sellers. That’s due largely to low vacancy rates, which have resulted in higher rent and more cash flow for most duplex owners.

Because the supply of duplexes for sale is lower than demand, prices have risen. This has largely not deterred buyers, as historically low interest rates, coupled with higher rent, has meant the properties were still affordable and/or made financial sense.

As more and more duplex owners hear prices are up, however, the amount of inventory has inched up ever so slightly. Come spring, this trickle may become a deluge.

With more inventory, duplex sellers will face more competition. Buyers won’t feel quite the same sense of urgency to pounce on a great listing, as they become confident another one will come along.

Worse yet, if interest rates go up as little as one percent, prices will change. That’s because a one percent raise in interest on a $300,000 mortgage means an increase in payments of $3000/year or $250 a month. That can take a property from a positive cash flow to a negative, or from affordable to expensive in an instant.

Of course, none of us can know the future.  And the more certain we are of things as they are, the more likely they are to change.

If you’ve been thinking about selling your Minneapolis or St Paul duplex, now is a great time to do so. Feel free to email or give me a call to talk about it.

 

Comments Off on One More Way To Exchange Your Captial Gains: Without The Management Headaches

As many seasoned investors approach retirement, they become less interested in dealing with the down sides of duplex investment; mainly tenants, trash and toilets.

The problem with long term real estate investment is when you no longer wish to be a landlord, the IRS believes you should compensate them for your exit strategy – through capital gains tax and depreciation recapture.

Of course, there is a way out through a 1031 or Starker Exchange. But what, if like so many others, real estate is such a great investment and you have so many properties that you can’t find a property with no to little management to exchange your money into?

Enter tenants in common (TIC) investment, which we detailed last week, and Delaware Statuatory Trusts (DST).

A DST are derived from Delaware Statutory law as a separate legal entity which is created as a trust, that qualifies for a 1031 exchange. A real estate sponsor firm simply buys a large property under the DST umbrella and opens up the trust  to potential investors, who may purchase an interest.

Because up to 100 investors or more may be pooling their money, the assets in a DST are usually large institutional properties that most investors could not afford on their own. For example, a DST property may be a 500 unit apartment complex, a large shopping mall, or a large, prestigious office building in a desirable location.

There are a couple of advantages to investing in a DST, rather than in a Tenants in Common property. First, because DST’s may have more than 35 investors, the size and quality of the property may not only be greater, but the cost per investor may be considerably lower as well.

Lenders prefer DST’s as well. With a TIC, each investor gets their own loan for their share of the property. In a DST, however, there is one loan, which gives lenders greater security.

Of course, with any type of investment, you should be sure to do your due dilligence on not only the financial performance of the property, but also the sponsor of the DST.

As always, be sure to talk with your tax advisor before you sell a duplex, triplex or fourplex so you know the potential tax ramifications; if any.

 

Comments Off on How To Sell Your Duplex And Own Investment Real Estate — Without the Headaches of Property Management

Where to Invest?Things in life change.

For many long term Minneapolis and St Paul duplex sellers, those changes include coming to a time when children, grandchildren, or a simple desire to simplify life mean an interest in selling their investment property.

The challenge in doing so, however, is the often substantial capital gains tax and depreciation recapture, which can leave many duplex sellers with very little to show for decades of toil.

That leaves you with a 1031 exchange into another piece of real estate. That is, if you can find one that makes financial sense.

Aren’t there alternatives?

Yes!

We recently discussed NNN properties, which afford investors rental income with stable tenants and very few management demands.

That isn’t the only option available however.

In recent years, a popular real estate investment alternative has become tenancy in common investments, often referred to as a TIC. This is a property that is co-owned with a pool of other investors. And, since the taxpayer gets a deed to real estate as a tenant in common, it qualifies for a 1031 exchange.

With the pooled resources of multiple investors, many TICs are able to purchase larger commercial properties with established tenants, while management responsibilities are handled by management companies.

Syndicators of TICS are called sponsors. Investment opportunities can be made directly by the sponsor or by brokers. Most sponsors treat TICs as if they are securities, as they meet the definition in the state or states the properties are located in. In spite of this, TICs still qualify for 1031 exchanges.

It’s important to know that while TICs are a great real estate investment that don’t require hands on management, they aren’t as liquid as a property you own alone. It’s also crucial you check on the credibility of the sponsor and his or her track record.

If you are thinking about selling your duplex, call or email me today. The market is hot, and there are ways for you to continue your career as a real estate investor, without the day to day responsibilities of property management.

Comments Off on What If I Sell My Duplex And Can’t Find A Replacement Property?

Working With a Exchange

Working With a Exchange

I’ve spoken with many longtime Minneapolis and St. Paul duplex owners in recent months who would love to sell and retire from a career in rental property if only they could avoid capital gains tax.

Of course, as seasoned investors, they are aware of  the option of doing what’s known as a 1031 or Starker Exchange, which allows you to reinvest the money into another property without paying taxes. The challenge with this, however, is right now, it’s either difficult to find a good replacement multifamily property or the duplex owners are just tired of managing property.

Believe it or not, there are other solutions.

Duplex sellers don’t have to exchange into other multifamily property. In fact, commercial investment properties, triple net properties, TIC investments, and Delaware Statuatory Trusts are all viable alternatives to owning duplexes.

But what if you don’t want to manage property any longer?

Today, let’s talk about something called a triple net property, which is often identified by the letters NNN. A net leased property is often a retail store or mall. The tenant, or tenants, pay a Central Area Maintenance fee which covers all basic maintenance to the property, insurance and property taxes. Landlords are only responsible for structural repairs, like replacing a roof or HVAC system.

Of course, this results in greatly reduced managerial duties, as the tenants are taking care of most items.

Typical NNN lease tenants include stores like Walgreens, Starbucks and Sprint.

Not owning their stores frees capital for these companies to grow their businesses. In return, solid, stable companies with good credit ratings reduce the risk to NNN investors.

While these properties can be expensive,  the proceeds from the sale of many metro duplexes may be more than enough for the down payment on a property like this.

Next time, we’ll talk about TIC invesments.

Comments Off on What Stops You From Selling Your Minneapolis Duplex?

The dude 3D character x2 climbing Brick wall.

The dude 3D character x2 climbing Brick wall.

What’s the biggest obstacle to selling your Minneapolis duplex?

Tenants.

Having tenants is a good thing. But having tenants who refuse to allow Realtors to show the property because they haven’t been given 24 hour notice is a problem.

Why?

Two reasons.

First, because there is no such law requiring a landlord to give tenants 24 hour notice.

Second, duplex buyers typically want to go see several listings at a time. An opportunity to do that may open on their calendar 23 hours before they want to go. Their Realtor will typically schedule properties to see that are in the same geographic area.

The next time they go look at duplexes for sale, they will likely be looking in another neighborhood.

According to page 17 of the Minnesota Landlord and Tenants Handbook, a landlord may enter a tenant’s unit for “reasonable business purpose” after making a good faith effort to give the tenant reasonable notice.

No where in the handbook are “good faith effort” or “reasonable notice” defined.

What is defined, however, are examples of a reasonable business purpose. They include:

  1. Showing the unit to prospective tenants.
  2. Showing the unit to prospective buyers or an insurance agent.
  3. Performing maintenance work.
  4. Showing the unit to state, county or local officials (such as building inspectors).
  5. Checking on a tenant causing a disturbance within the unit.
  6. Checking on a tenant the landlord believes is violating the lease.
  7. Checking to see if a person is staying in the unit who is not on the lease.
  8. Checking the unit when a tenant moves out.
  9. Performing housekeeping work in a senior housing unit.

When signing a lease with a tenant, or before you put your Minneapolis duplex up for sale, it’s paramount you be clear with the tenant as to what their rights are…and are not.

Minneapolis Duplex Tenants May Become Harder To Find

said on June 13th, 2016 categorized under: Selling A Duplex

Comments Off on Minneapolis Duplex Tenants May Become Harder To Find

DUPLEX VACANCY Let’s talk about something we haven’t discussed in a while: vacancy rates.

First, the vacancy rate is the percentage of built units in an area that are currently vacant and for rent.

The keeper of the vacancy rates in Minneapolis and St Paul is a company called Marquette Advisors, who release quarterly reports, which they just did. It’s important to note while their data is not specific to duplexes, triplexes and small apartment buildings, there is generally a correlation between the two.

According to the recently released report, the vacancy report in the first quarter topped 3 percent. The average vacancy rate had been hovering near 2.3 percent for the last five years.

A vacancy rate of 5 percent is considered indicative of a balanced market.

So what does this mean to Minneapolis duplex owners?

That brings up “rent growth”, which is business speak for rent increases.

Rising vacancy rates mean less demand for rental units. This leads to smaller rent increases and, when vacancy rates pass the 5 percent mark, rent concessions from landlords. Think back to “first month free” and “free cable and internet” ads of a decade ago.

Higher vacancy rates mean less cash flow. Less cash flow not only means less money in your pocket, that smaller income stream may contribute to a slowing in the appreciation of the property, and a reduced value when you go to sell it.

With an expected 3900 new market-rate apartments expected to come into the market by year’s end, Marque
tte is predicting the average vacancy rate by year’s end will be somewhere between 3.6 and 3.8 percent, and rise above 4 percent next year.

Rent gains are expected to be moderate this year as well, with increases in the 2.5 – 3 percent range.

None of this means, of course, that the sky is falling. It’s just a subtle shift in the market to bear in mind as you make decisions about improving your property, leasing it, or perhaps, even selling it.

It remains a duplex sellers market in Minneapolis and St Paul. If you are considering selling, it may be a great time to do so.

 

Comments Off on Minnneapolis Duplex Buyers and Sellers Near Their Limits

duplex loan restrictionsIf you’re thinking of buying to owner occupy or selling a Minneapolis or St Paul duplex, you may think you can pay or ask any price in the world. After all, with an FHA insured loan, all a buyer needs is 3.5 percent down, right?

Not so fast.

Here’s a conversation we haven’t had in a long time.

FHA has limits to the size of the mortgage insurance they’ll provide.

While these numbers vary by where the property is located, it’s important to remember that there are caps.

In the Twin Cities seven county metro area, for example, FHA loan limits are:

  • Single Family – $326,600
  • Duplex – $418,100
  • Triplex – $505,400
  • Fourplex – $628,050

While these numbers don’t limit the amount you can spend, they do restrict the amount of the FHA insured mortgage you can get.  You are welcome to come up with a bigger down payment to make up the difference.

What do I mean? Well, If you write an offer on a duplex for $450,000, your minimum down payment is 3.5% or $15,750. The purchase price of $450,000 – your down payment of $15,750 leaves you with $434,250. FHA will lend you $418,100. $434,250 – $418,100 leaves you with an additional $16,150 in cash you must come up with to purchase the property.

This also impacts Minneapolis duplex, triplex and fourplex sellers. After all, the lower the down payment requirement is for a loan, the bigger the pool of prospective buyers you have. Less buyers means fewer people competing for the opportunity to purchase your property, which may impact value.

After nearly a decade of not having to worry about hitting the ceiling of FHA mortgage insurance, it’s important to be aware of how the reduced limits of the real estate crash may still effect Minneapolis duplex values today.

Comments Off on 10 Reasons It’s A Bad Idea To Sell Your Minneapolis Duplex Yourself

Duplex For Sale By Owner Real Estate Home Open House SignIf you’ve been thinking about selling your Minneapolis or St Paul duplex, you may have heard they seem to be the hottest thing going in the real estate market. And, well, if they’re selling like crazy, you may even have thought about selling it yourself.

Of course, I’m a Realtor, so you may not be surprised to learn I think that may be a really bad idea. And you probably think my beliefs are because if you sell it yourself, a Realtor won’t get paid a commission.

The facts, however, tell a different story.

In fact, here are 10 Reasons It’s a Bad Idea To Sell Your Duplex Yourself:

  1. According to the National Association of Realtors, last year the average for sale by owner netted 9 percent less on the sale of their property than they would have had they used a Realtor. That’s net – in other words, after they paid commissions.
  2. Serious buyers work with Realtors. If you’re serious and in a hurry, or serious and cautious, are you going to be driving around looking for for sale by owner signs? Or are you going to be working with a Realtor in order to see as many properties quickly or have as much protection and guidance as possible?
  3. Realtors are free to buyers. The only reason a buyer would want to purchase a for sale by owner is to save the same commission the seller hopes to keep.
  4. If you’re willing to pay a Buyer’s Agent a commission, remember, the Realtor only represents the Buyer’s best interest. As such, you’re negotiating with someone who’s studies the market and negotiates deals daily.
  5. If the appraiser questions the value of your property, you’re on your own. In a hot market, properties often appraise for less than a buyer is willing to pay. An appraised value for an FHA loan stays with your property for six months and is difficult if not impossible to contest. A Realtor knows the market and can discuss specifics of comparable properties with the appraiser.
  6. 89 percent of all buyers search online for properties. An experienced listing agent has a proven marketing plan to maximize your duplex’s Internet presence and exposure.
  7. Contracts. While the legalease in real estate contracts isn’t too bad, it is, nonetheless, a legally binding contract.
  8. Lawyers cost money, whether you sell or not. If your plan is to have an attorney review your contracts, remember, they charge by the hour. And their fees are payable whether you close on the sale of your duplex or not.
  9. For Sale By Owner companies charge whether you sell or not. Sure, you can pay as you go for the services a Realtor provides. And like an attorney, that money is paid whether your duplex sells or not.
  10. The only time you pay a Realtor is when your duplex sells. Realtors work on commission. That means they aren’t paid unless they succeed in selling your duplex. And if we don’t? We are out all of the money we spent marketing your property.

If you’re thinking of selling your Twin Cities duplex, and want to net as much money as possible in the least amount of time,  call or email me. I’d be happy to help you maximize your return.