Archive for the 'Selling A Duplex' Category

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.

 

Beat the Truth In Housing Inspector Before He Shows Up

said on April 14th, 2016 categorized under: Selling A Duplex

Comments Off on Beat the Truth In Housing Inspector Before He Shows Up

minneapolis duplex for saleIf you’re thinking of selling your Minneapolis or St. Paul duplex, you’ll be required to have what’s known as a Truth In Sale of Housing report before the property goes on the market.

This report is not the same as a buyer’s inspection. This is a city required inspection the seller is required to pay for which simply measures the property against current building code and requires that certain minimum standards be met to ensure consistency in the community’s housing stock.

The most common items labeled as “Required Repairs” by city licensed inspectors seem to be items like making smoke detectors operable, installing carbon monoxide detectors and back flow prevention device.

What’s a back flow prevention device? It’s a brass fitting that attaches to any faucet you normally would attach a hose to – whether it be outside the house or in your laundry room.

So what’s it for and why is it important? If there would suddenly be a drop in water pressure as a result of high demand, a burst pipe or frozen pipes, the drop in pressure could result in unclean water being sucked back in to the city’s water supply.

This simple little brass fitting keeps that from happening.

To put them on before the inspector tells you that you must, simply run to your nearest hardware store. They’re a few dollars each – which isn’t much compared to the fee the inspector may charge to come back and see that you installed them after he told you to.

The Downside of an Up Minneapolis Duplex Market

said on March 17th, 2016 categorized under: Selling A Duplex

Comments Off on The Downside of an Up Minneapolis Duplex Market

Happy child on a jungle gymIn the 9 years since the real estate market crash of 2007, many Minneapolis and St Paul duplex owners who lived in their properties found a reason to move.

It may have been the result of a job, a growing family, a much-needed life change– regardless, life brought new opportunities, and thanks to duplexes being worth less than what was owed, many found it necessary to rent their properties out.

With vacancy rates as low as two percent in some areas of the Twin Cities, this turned out to be a good thing. Rent is high, causing many duplexes to produce more cash flow than they ever have before.

Now that the market’s rebounded and there’s very little inventory for duplex buyers to chose from, it’s a great time to sell your Minneapolis duplex.

There may be a snag in your plans, however. If you haven’t lived in your duplex two of the last five years, your proceeds from the sale may be subject to capital gains tax.

Now that the duplex market has fully rebounded, it’s important for duplex sellers to be aware of all of the ramifications of having made money on their property. There is no one, sweeping rule as to who owes what, so be sure to check with your tax professional before the duplex is active on the Multiple Listing Service.

Is A Shift In The Duplex Market Imminent?

said on February 25th, 2016 categorized under: Selling A Duplex

Comments Off on Is A Shift In The Duplex Market Imminent?

Keller Williams Chairman Gary Keller

Keller Williams Chairman Gary Keller

Last week 15,000 Keller Williams agents descended on New Orleans for the company’s annual Family Reunion convention. I was one of the thousands who experienced three days of intensive training from among the real estate industry’s best trainers and most accomplished Realtors.

For me, the highlight of this annual gathering is always our Chairman of the Board and co-founder Gary Keller’s annual Vision Speech. In this yearly 90 minute lecture, he analyzes the previous year in real estate, current economic trends and factors that may influence the coming year, and what impact he believes this may have on the current real estate market.

This year, Keller pointed out that 2015 was the third best year in real estate history. That seems tough to believe compared to the boom years of the mid 2000’s, but the data bears it out. And, as we know from our experience over the last decade, what goes up must come down.

While not forecasting a market crash of historic proportions like the decade we just experienced, Keller did believe we are facing a coming shift in the market. In other words, what currently may be labeled a sellers market may morph into a balanced one, or, perhaps even a buyers market.

His reasoning for this is twofold. Historically, real estate runs in 7-10 year cycles (he believes we are in year 8 or 9 of the recovery cycle), and there are several economic factors which if they change at all, could speed change in the market.

The chief contributor in this prediction is low interest rates and the Federal Reserve’s quite public position that as soon as the economy appears healthy enough, they intend to raise interest rates. After all, interest rates are basically the only tool they have in their toolbox to stimulate the economy in a crisis. If those rates are already low, there’s no place for them to go.

These low interest rates are the very thing that has helped housing remain affordable in spite of a rising median sales price. A one percent increase in interest rates reduces a buyer’s ability to qualify for a mortgage by $10,000.

More importantly to duplex buyers, it changes the annual cash flow by one percent of the annual mortgage. That’s enough to turn a very good investment to a mediocre or even bad one.

A second economic factor Keller cited was the large amount of student loan debt many potential first time home buyers are carrying. The national average is nearly $30,000, with monthly loan payments of $333 per month. This expense, along with high rent have made it difficult for first time home buyers to save enough for a down payment or make have a budget for a mortgage at all.

First time home buyers are the engine on the housing train. Without them, home owners can’t move up to bigger housing.

Normally, first time home buyers are responsible for 40 percent or more of annual housing sales. Last year, they accounted for just 32 percent. This may ultimately put a drag on the market.

Keller added that economic uncertainty in global economies, losses suffered by businesses in the oil industry and an anemic gross domestic product may hasten a coming real estate market shift.

If you’ve been thinking about selling your Minneapolis or St Paul duplex, this may mean it’s time to investigate selling. I’d be glad to sit down and talk with you about your duplex’s value and what your options are. Just give me a call.

To see the Powerpoint of Kellers speech in its entirety, click here.

Comments Off on Scarce Listings Put Minneapolis Duplex Prices On Par With 2006

Creepy hands behind doorIn an effort to prove to myself I’m not hallucinating that there’s a lack of duplex inventory, I looked up the number of newly for sale duplex, triplex and fourplex properties that came on the Minneapolis and St Paul Multiple Listing Service in January.

Last month, there were 80 listings that were new to the market in the Twin Cities and their surrounding suburbs. (I excluded listings in places like Eveleth and Waseca.)

Looking back, in January of 2015, there were also 80 new listings that came on the market. So perhaps I am imagining monsters in the closet after all.

Then, just for fun, I thought I’d take a look back at 2006; a year which most experts believe was the peak of the duplex market.

Guess what?

There were 338 new listings; at a time when real estate was thought to be a sellers market.

Here’s where things get really interesting. In January of 2006, there were 206 duplexes, triplexes and fourplexes that sold for an average price of $275,737.

In January of 2016, there were 59 multifamily properties that sold. Their average sales price? $271,641.

And since we currently have so little inventory compared to 2006, what do you imagine will happen if you sell now?