Archive for the 'Selling A Duplex' Category

Comments Off on Minneapolis Duplex Shortage Brings Sellers A Financial Winfall

When I tell clients there is a limited supply of duplexes, triplexes and small apartment buildings on the market in Minneapolis and St Paul, they often look at me as if I’m making it up.

So, to prove my point, I did a little research.

According the data from Northstar Multiple Listing Service, in December of 2017 there were just 217 active duplex, triplex and four unit properties available for sale in the Twin Cities and other nearby markets. This total is 14 percent lower than the number of available properties in any other month in more than a decade.

To illustrate this even more dramatically, consider this: in January, 2008, there were 1643 properties on the market for buyers to choose from!  This is a drop of  87 percent!

What does this mean if you’ve been considering selling your duplex? Well, it’s a GREAT time to be a duplex seller. Buyers are scouring the MLS every day to find something to purchase. When a new property comes on the market, they rush out to see it and in many cases, get in a bidding war with other buyers to purchase it!

The limited number of properties buyers have to choose from helps yours stand out and drives prices up.

And if you’re a buyer, well, the bad news is you’ll have to scramble to find something to buy that’s either currently on the market, or a pocket listing. Chances are, it also means you may end up paying a bit more for the property that’s right for you.

If you are considering selling your duplex, give me a call. With so little competition, odds are high you’ll fare better than you thought you could!

Comments Off on Winter Minneapolis Duplex Sellers Stand Out From The Crowd

Selling your Minneapolis or St Paul duplex is a lot like trying out to be the starting quarterback on your high school football team.

If there aren’t a lot of duplexes currently for sale, it’s like being an athlete in a small school. It isn’t hard to make the team or start if there are only 300 kids in the entire school. Heck, in that case, you may not even have to work out.

However, if you transfer to a large school, where there are 1200 students, odds are you may have to actually lift weights, go to a football camp and train to even make the team at all.

Waiting to sell your duplex in the spring is exactly like that.

Most people think that the best time to sell is in the spring. But so does everybody else. That means there’s a lot more competition and as a result, you’re going to need to do a lot more to stand out and achieve a sale.

The irony is, there are a lot of buyers in the market for a duplex in the fall and winter too. They get frustrated because they have fewer properties to choose from. Many times, they are so happy to find something that just comes close to what they’re looking for, that they will purchase a property they wouldn’t have considered in the spring.

Did you know there are currently just 312 duplexes, triplexes and fourplexes for sale in the 7 county metro area? Last November, there were 400. But from December through April, there were fewer than 270 every month. That’s almost 30% fewer fellow duplex sellers to compete with!

If you’re thinking of selling your Minneapolis or St Paul duplex, give me a call at 612-290-5998. I’d be happy to tell you how to make the team.




Comments Off on Is There Rent Control In Minneapolis Duplex Owners Future?

Better cash flow and higher resale value are just two of the many important reasons to keep the rents in your Minneapolis or St Paul duplex at or near market value.

But there is one more casting its shadow among multifamily property owners in the Twin Cities: rent control.

Minneapolis and many of its surrounding communities are suffering from an acute lack of affordable housing.

The majority of residents in Minneapolis are renters, with more homes in the city being rented than owned.  The vacancy rate in the city is at just 3.4 percent; a historic low.

It’s the old law of supply and demand: when supply is low, the cost of rent skyrockets.

To combat this, the city has tried a number of strategies including passing an ordinance that prohibits landlords from renting to tenants using Section 8 vouchers, as well as trying to incentivize the construction of workforce housing by changing some zoning laws to spur the development of smaller apartment buildings.

They are considering other ideas as well, like:

  • requiring landlords to renew tenants leases unless they have legal grounds to evict them
  • requiring landlords to give the city and tenants advance notice when they intend to sell the property
  • giving tenants the right to buy a building before it goes on the market
  • rent control

As horrifying as those may sound to Minneapolis landlords, rent control is the one that would impact every aspect of investment property ownership.

And while it hasn’t been passed by the city council, it has been a topic of conversation.

Rent control prohibits landlords from increasing rent more than an amount or percentage determined annually by the city.

If your rent is below market value if rent control is implemented, the only way you will be able to raise it is if the tenant vacates the unit. If rent is artificially low, a resident may stay for a lifetime.

This low rent will not only have a negative effect on a duplex owner’s cash flow, but also dramatically decrease the value of the property when it comes time to sell.

It’s nice to have good tenants who stay. But is your tenant so great that they have the right to impact the value of your portfolio?

Most residents won’t move if their rent is below market value. And that’s just as true if it’s $100 below what they can rent any other unit for as it is for $400 less.

Keep your rent near market value. It will pay off in more ways than one.


Comments Off on 3 Ways To Attract Buyers Who Will Pay More For Your Minneapolis Duplex

In today’s Minneapolis and St Paul duplex market, the buyers willing to pay the most money are the first time home buyer owner occupants.

This group is typically looking for a duplex that is in great shape, with some updates and a tenant paying enough rent to make their portion of the mortgage and expenses less than they are currently paying to rent themselves.

While cash flow is important to them, most of the time they are looking for a property that will at least break even if they ever move out.

If you are a Minneapolis or St Paul duplex seller, it stands to reason then that you would want to make sure of three things:

  1. Your property is in good enough condition that it would appeal to a first time home buyer.
  2. At least one unit is either on a month to month lease or vacant so a buyer can move in (this is usually mandatory for their financing).
  3. The unit(s) you have rented is at or near market rent. Many landlords are afraid if they raise the rent they will lose good tenants. What many owners forget, however, is if that tenant leaves, they will likely have to pay market rent to someone else. A buyer will still be interested in your property and keeping your tenant if your rent is 5-10 percent below the market rate. However, if the rent is 50 percent below market rate they are going to a) offer you less money and b) raise the rent to close to market value the moment they can.

If you’re thinking of selling your duplex in the spring, you may want to make improvements with owner occupants in mind over the winter. It’s the best way to ensure your duplex sells for the most money possible.



Why An FHA Duplex Loan Isn’t The Big Bad Wolf

said on August 22nd, 2017 categorized under: Financing, Selling A Duplex

Comments Off on Why An FHA Duplex Loan Isn’t The Big Bad Wolf

Just like you can’t believe everything you read on the Internet, you can’t believe everything you hear in real estate.

Take, for instance, the urban myth that Minneapolis and St Paul duplex sellers shouldn’t even consider an offer for a buyer using an FHA insured mortgage, even if, in multiple offers, it is for significantly more than an offer from another buyer.

An FHA mortgage is one in which the buyer may put as little as 3.5 percent down to qualify for a loan to owner occupy a duplex, triplex or fourplex. While the money is lent to the buyer by a traditional bank, the Federal Housing Administration (FHA) agrees to insure the loan against the buyer defaulting. Just like any insurance, there is a cost to this which is passed on to the buyer as a monthly premium.

Before agreeing to insure the loan, the FHA wants to know that the duplex is safe for someone to live in. So, when the lender sends an appraiser to the property, FHA sends along a checklist. They ask the appraiser to compare the property to their health and safety standards. If the property fails, the item or items must be repaired before they will agree to ensure the buyer’s loan.

Sounds scary, right? Here’s the deal. Almost everything they look for can either be seen by the buyer or their Realtor when they first look at the property or will be called out if the buyer hires a professional inspector.

I think you’ll be surprised when you see how minor the items on the FHA checklist are. They include:

  • The lot needs to be sloped away from the foundation. In other words, water shouldn’t be coming into the basement because the exterior grade drains toward the duplex.
  • All bedrooms need egress windows. (This is required in order for a room to be considered a bedroom anyway!)
  • If the property was built before 1978, it may contain lead-based paint. This can potentially be a health hazard. So, the appraiser makes sure it isn’t cracked or peeling anywhere.
  • All steps and stairways must have a handrail.
  • The duplex has to have a working heating system that’s big enough to heat the property.
  • The roof shouldn’t be leaking – or look like it will leak in the near future.
  • The foundation should be in good enough shape to support the duplex.
  • There shouldn’t be any cracked or broken glass in windows.

In my 16 plus year career, I have had an FHA appraiser have issues with a duplex or single family home less than a handful of times. They involved a cracked pane of glass, some peeling paint, and a handrail. I don’t think a single one of those repairs cost the sellers more than a couple hundred dollars or an hour or two of time; and they were all items that had come up during the buyer’s home inspection!

Refusing a strong clean offer that has an FHA loan because it might require the seller to do minor repairs seems rather ridiculous, doesn’t it?

Comments Off on It’s A Great Time To Be A Minneapolis Duplex Buyer Or Seller

Great news for duplex buyers and sellers!

If you read this morning’s Minneapolis Star Tribune,  you may have seen two articles that may affect your decision to either buy or sell a multifamily investment property in the Twin Cites any time in the next decade.

The first headline screamed the Twin Cities will need nearly 71,000 new apartments in the next 13 years in order to keep up with demand.  The story was based on a report from the National Multifamily Housing Council and National Apartment Associations.

It cited decreasing home ownership, international immigration, and delayed home purchases thanks to shifts in the timing of the drivers of home ownership, like getting married and having children.

Whether you’re thinking of becoming a real estate investor or already own and are considering buying more, this bodes well for the long-term return on your investment. With low interest rates and skyrocketing rents as a result of demand exceeding supply, it is still a good time to buy; despite rising prices and low inventory.

In the same section of today’s news, another story brought good news for Minneapolis and St Paul duplex, triplex and apartment sellers. The number of listings on the market for sale in May fell to a 14-year low. While there were 8,744 new listings, which was roughly the same number as last year, they sold so fast that by month’s end, there were 17 percent fewer than at the same time last year.

In other words, it’s also a GREAT time to be a seller.

If you’re considering buying, selling, or exploring the idea of investing in real estate, please give me a call or send an email. I’d be happy to help you find the path that’s right for you.


Comments Off on What Every Minneapolis Duplex Seller Should Know About Equity

For the last decade, so many duplex owners have found themselves owing the bank more than their property was worth that the words and phrases equity, capital gains tax and 1031 or Starker exchange have rarely appeared in this blog.

My how times have changed.

If you’ve never heard these phrases, you’re about to hear them a whole lot more.

The Internal Revenue Service views your duplex as an investment. And, to that end, if you make a profit on it when you sell, they would like you to give them a cut. Oh, by the way, if you depreciated it all during the time you owned it, they would also like you to give them a piece of that.

By the time it’s all said and done, that nice check you thought you’d get at closing goes from fat to thin in a hurry.

So what can you do about it?

Enter a tax deferred exchange, otherwise known as a 1031 or Starker Exchange.

A 1031 exchange allows you to “trade” your equity from the sale of one property for equity in another property.

This DOES NOT mean you need to find a property just like the one you’re selling, or that you and another seller must literally trade properties.

Rather, it means you must follow a very strict set of rules laid out by the IRS. They are:

  • Buy something of equal or greater value. It may be one property or two, but the sales price of your replacement property needs to be equal to or greater than the one you sold.
  • Don’t touch the money. Any time you touch money from the sale of an investment property, it’s known as “boot”. You will be taxed on whatever amount of proceeds you put in your pocket from the sale. If for example, you have $200,000 in equity and take $20,000 out of it to pay some bills, you will be taxed on the $20,000.
  • Give the money to a Qualified Intermediary. At closing, your proceeds from the sale need to be wired or given to someone known as a qualified intermediary. There are many companies who specialize in this, as well as title companies and attorney’s who may qualify to provide this service. For a small fee, they hold your money until you tell them to wire it as a down payment on your replacement property.
  • 45 days. From the day of closing, you have 45 calendar days to name up to three properties that you may want to purchase as replacements for the property you sold.
  • 180 days. You must successfully close on one of the three replacement properties no later than 180 days from the date you closed on the relinquished property.

Perhaps the best news of all in this is you can continue to exchange into bigger and bigger properties throughout your life. If you choose to cash out at any point, you will have to pay taxes and depreciation recapture back to the day you started this chain.

And if you leave the properties to your kids? All they pay is an inheritance tax.

Give me a call today to find out how much equity you would have to reinvest!

Minneapolis Duplex Theme: Make More Money!

said on June 27th, 2017 categorized under: Selling A Duplex

Comments Off on Minneapolis Duplex Theme: Make More Money!

Sometimes it seems like there’s a theme when I meet with Minneapolis and St Paul duplex owners who are thinking of selling. The past few weeks have been a very good example of just that.

Many duplex owners who bought at the height of the market in 2004-2007 have spent the last decade waiting for the time when their property was worth as much or more than they paid for it. And that time has finally come.

And while that’s one of the themes I’m finding with recent appointments, it’s not the one that stands out the most.

It’s the fact that time and again, these very same owners who have struggled so long to stay afloat are charging far less than market rent! In several instances, simply following my suggestion to raise rent closer to the market rate meant more than $500 per month more in the owners pocket!

More importantly, perhaps, these duplexes finally became the great investment their owners were hoping for when they bought them years ago.

Keeping the rent you charge at or near market rate not only helps your peace of mind as an owner, but remember, it also plays an important role in what your duplex is ultimately worth. After all, it’s an income property, and its value is determined, in part, by the amount of money it generates!




Comments Off on Selling Your Minneapolis Duplex Contract For Deed – The Good, Bad and The Ugly

In the last year, many Minneapolis and St Paul duplex and investment property owners told me they would sell if not for one thing: taxes.

I suggest a 1031 exchange to all of them. Many, however, realize they will have a difficult time during a time of little inventory finding a replacement property. And others want nothing more to do with rental property whatsoever, so they are in a bind.

There is another solution. While it doesn’t always spring immediately to mind, a contract for deed can help reduce tax obligations. Capital gains tax and depreciation recapture are only levied when you touch the money from a sale. Therefore, if a seller carries a contract on a property, there is time to tax plan and offset any gain realized on an annual basis.

Other benefits of a contract for deed for a seller include:

  • Income – Sellers who don’t have a mortgage on their duplex can use the monthly payments as income. Contracts for deed are often at an interest rate that’s a higher return than other investment options generally return.
  • More Buyers – While we’re currently in a seller’s market,  in times when either the market favors buyers or banks are reluctant to lend money, sellers can broaden their pool of potential buyers by offering more competitive interest rates than a traditional lender or extending credit to buyers who otherwise are not able to qualify for a loan.
  • Cancel the contract and resell the property. If a buyer misses two payments, the seller can reclaim the property without having either a foreclosure sale or going to court. The seller may keep everything the buyer has paid to date and resell the property to another buyer.

Of course, there are also some potential pitfalls of selling a property on a contract for deed. They include:

  • Due on sale clauses in mortgages – If you have a mortgage on your property, selling it on a contract for deed may trigger what’s known as a due on sale clause. Most mortgages have it. Basically, if the lender learns you have sold the property, they can accelerate the repayment schedule and demand to be paid in full.
  • Buyer is unable to make the balloon payment.  Real estate and job markets change. If the buyer is unable to refinance either by using the equity accrued over the time of the contract or as a result of a job loss, the seller is left holding the contract. In this case, the seller can choose either to extend the contract and continue to receive monthly payments or to cancel the contract and evict the buyer.
  • Buyer fails to make monthly payments. If the buyer fails to make payments, the seller will have to formally cancel the contract in a manner consistent with what the law dictates.

While not terribly common in today’s hot duplex and investment property market, contracts for deed can be an excellent way to sell property.


Comments Off on Is Your Minneapolis Duplex Right For A First Time Home Buyer?

A recent news story about the lack of houses for sale for Twin Cities first time home buyers said a lot about the duplex market without ever naming it at all.

According to the broadcast, there were fewer houses on the market in January of 2017 than there have been in any other month in the last 14 years. The biggest shortage of inventory is in homes priced below $300,000.

While the story didn’t say it, the same is true of duplexes. In fact, in January there were just 253 active duplex, triplex and fourplex listings on the Multiple Listing Service; compared to well over 800 at the height of the market in 2005-2006.

What do starter homes have to do with duplex values?

When the prices for houses in the first time home buyer category  (below $300,000) rise and become less affordable, buyers start exploring other options; like duplexes.

If you’re a duplex owner with a property in a highly walkable neighborhood that’s in great condition, this is good news for you. One of the first alternatives first time home buyers explore as a means of keeping payments within their budget is duplexes. After all, the rent allows a more expensive duplex to actually be more affordable for a homeowner than a less expensive single family home.

One of the first alternatives first time home buyers explore as a means of keeping payments within their budget is duplexes. After all, the rent in effect reduces the cost of a more expensive duplex for the owner occupant, making as, if not more affordable than a single family home.

As a result, duplex prices go up as a result of increased demand from home buyers.

Right now, demand is high because supply of both quality duplexes and entry level single family homes is so low.

This has resulted in rising prices, making it a good time to be a duplex seller.