Archive for the 'What Does That Mean?' Category
Comments Off on My Duplex Buyer Wants Me to Pay What?
It’s been a long time since many Minneapolis duplex owners have thought about selling.
With rising prices, changing life circumstances and age, however, many are starting to. With that, they are discovering much of the language involved has changed since the last time they sold property.
One thing many sellers may not understand is language in a purchase agreement that asks the seller to pay the buyer’s closing costs.
Closing costs are extra fees charged when ownership changes hands. They include things like the origination fee the buyer pays to the lender for the loan, prepaid property taxes and insurance, warranty costs, and various other state and county fees.
When a buyer asks a seller to pay for these costs, on the surface, it appears as if it reduces the net amount the seller takes home from closing. After all, 3 percent in seller paid closing costs on a $100,000 property is $3000. This essentially makes the purchase price to the seller $97,000.
As a result, many sellers tell me the buyer needs to pay those costs themselves.
However, it isn’t quite that simple.
It takes a considerable amount of time to save money for a down payment; especially if this is the buyer’s first home purchase.
And while many buyers have saved far more than the amount they need for the down payment and closing costs, they also want to be sure they have ample reserves in the event something needs to be repaired at the duplex.
This is where seller paid closing costs come in. When a buyer asks a seller to pay their closing costs, in a way, the buyer is simply asking to include their closing costs as part of their loan. By folding it in to the total purchase price of the duplex, and asking the seller to pay these expenses, they have, in effect, financed them.
There is a way to do this that doesn’t effect the sellers net at all. This is done simply by increasing the purchase price by the amount of closing costs the buyer is asking the seller to pay.
For example, rather than including the costs in the list price of $100,000, the purchase price is raised to $103,000. After the buyer’s closing costs are paid, the effective net price to the seller is $100,000, rather than the $97,000 cited above.
This scenario is a win for both the duplex buyer and seller. The buyer gets to preserve her savings, while the seller nets the amount they would have had the buyer paid the costs out of her pocket.
Comments Off on What Is A Duplex Anyway?
Do you know the difference between a duplex and a twin home?
Many people don’t.
A duplex is two residences with a common wall or floor. However, these properties have one property identification number (PID) from the county. They are bought and sold has one piece of real estate.
A twin home is also two residences with a common wall. Unlike a duplex, these units each have their own PID, and can be bought and sold as separate pieces of real estate.
Where this is often most confusing for people is when both sides of a structure that was built with the intention of being a twin home are purchased or owned by the same entity, operated as a duplex, but retain their individual PIDs.
This is actually more common than you think. In fact, the other day I visited with an owner who said she had a duplex for sale. The price she was asking seemed light for a duplex, and when I asked whether it included both sides, she said it did.
When I arrived, however, I quickly established she meant she would sell each unit for that price. This, of course, doubled what she was thought the property was worth, and put it out of step with the marketplace.
Comments Off on Is This Duplex Owner In A Zone?
If you’re thinking of converting your duplex to a triplex, or adding bedrooms to your existing investment property, what city department do you call?
Zoning? Building permits? Or, if you’re in a city that requires one, rental licensing?
This morning I had a duplex investor call with exactly that question. He was considering adding two bedrooms to his 1950’s built side by side duplex, and after speaking with many departments in the city, was more confused than ever.
And the fact is, the answer is pretty simple insofar as who he needs to talk to. The question is– is he changing the use, condition, or residents of the property?
First, the zoning of a property is restricted according to the kind of properties a city has decided should be in a given area. In other words, the use.
A fast food restaurant, for example, may not be appropriate in the middle of a residential block. And the way a local government creates those unifying standards is by creating mapped zones for different land uses. Zoning may also regulate things like the size of building you can put on a lot on and how tall it can be.
Zoning may also limit the number of units allowed on a given piece of land. This issue is quite common in Minneapolis, where a duplex owner may be required to bring the entire property up to current building code and standards when changing it from a duplex to, say, a triplex, and regardless of the fact it was first constructed over 100 years ago.
Building permits and codes involve new or changes in construction to a property. The local government has created a set of rules in terms of public safety, health and general welfare. Those standards, however rigid or lax, are what must be adhered to during construction.
Rental permits or licenses involve the health, safety and welfare of tenants. Those may be similar to what’s required of a regular, single family home, like the presence of smoke and carbon monoxide detectors within 10 feet of any bedroom. Or, they may be quite different, like restricting the number of unrelated people who can legally live in the same unit.
Yes, there are times when some of the departments overlap, and others when their standards are quite different. Just remember to ask yourself: use, condition or residents?
Comments Off on Why You Should Consult Your GPS For Duplex Escrow
One of the most confusing terms for first time duplex buyers is the word “escrow”.
There are at least two meanings for the word in real estate, and, oddly, which definition applies seems to depend largley upon where you live.
In California, for example, a duplex is “in escrow” when the buyer and seller have come to terms on a purchase. The seller has a neutral third party (like a title company) hold the deed to the duplex, which will be given to the buyer upon completion of the sale.
Generally speaking, “in escrow” in this case refers to the period of time between an accepted purchase agreement and closing, during which the title company and the lender draft all the required paperwork and verify the title to the property is clean.
In Minnesota, however, “escrow” is a term more often used to refer to a mortgage lender’s requirement that the borrower pay 1/12th of the required property taxes and hazard insurance into an account maintained by the lender. The lender will then pay those fees on behalf of the borrower when they become due.
This process helps protect the lender from loss due to unpaid property taxes or loss due to a catastrophic event.
In other words, if you want to know how to use the word, you need to check a map!
Comments Off on What Does Multifamily Mean Anyway?
Sometimes I’m guilty of getting so caught up in the details of buying, selling and investing in Minneapolis and St Paul duplexes, that I overlook the obvious.
I don’t think I’ve ever stopped to define or explain the term “multifamily”.
Multifamily properties include duplexes, triplexes and apartment buildings with four or more units.
Logic dictates that condominium buildings and townhouse developments should be considered multifamily properties as well. However, they actually fall under the category of single family homes.
The answer lies in the fine print.
Even though more than one family lives in those units, the difference lies in each property’s identification number with the county. Townhomes and condominiums each have their own property identification number so they may be sold individually. And when someone buys that unit, that identification number follows the unit from one owner to another.
Townhouse developments have as many property identification numbers as there are owners.
And while multifamily properties may have just as many residents as a townhouse complex, there is only one property identification number, and one owner, making it a single property with multiple families living there.
Comments Off on Keller Williams Gets Out The Red
No matter where you live, you may have seen a bunch of Keller Williams agents in red shirts today.
That’s because it’s Red Day.
Red Day is always on May 10. It serves two purposes.
First, it’s because it’s our Vice Chairman Mo Anderson’s birthday. Mo is big on giving back to the communities in which we live.
And that’s the second reason for Red Day.
Today, for example, all the Realtors in my office, Keller Williams Realty Integrity Edina, went to a local park to weed, trim back brush, and mulch.
It seems budget cuts have meant there simply isn’t the money in the community to maintain our public spaces the way we once did.
Other offices are doing things like canned food drives, or painting homes for senior citizens.
If you see us, feel free to wave.
We aren’t hard to spot. After all, we’re all wearing red.
Comments Off on Help Keller Williams Celebrate Mo’s Birthday
Today is Red Day.
What is Red Day?
It’s a day when every Keller Williams Realty International office in the United States and Canada goes out into their community and performs a day of service.
It’s up to each office what service they’d like to perform. In mine, we’re conducting a canned food drive for VEAP, which is a local food shelf.
Other offices are conducting blood drives, working with Habitat for Humanity, or doing any number of other things to give back.
While Keller Williams’ company color is red, in this instance, RED also stands for Renew, Energize, Donate.
The event was started as a way to honor and celebrate company Vice Chairman Mo Anderson’s birthday, which is May 12. Mo’s big on giving, so this is a perfect way for us to wish her a “Happy Birthday”.
So if you see us out and about, stop and say “Hi”.
You’ll be able to recognize us. After all, we’ll all be wearing red.
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Whether you’re interested in investment property or simply happen to scan an ad for an income-producing property, odds are good that sooner rather than later, you’re going to hear the term “cap rate” or “cap”.
So what exactly is it?
A cap rate, or “capitalization rate” is simply the ratio between the net operating income a property produces, and the original price paid for the property.
To determine the net operating income or NOI, simply take the gross revenue a building produces and subtract all of its expenses except the mortgage and depreciation.
Then simply divide the NOI into the price of the property.
For example, if a building has a net operating income of $10,000, and it could be purchased for $100,000, it would have a cap rate of 10. $100,000/$10,000 = 10.
There are several ways of looking at a cap rate. One perspective is that it is simply a measure of how fast an investment will pay for itself.
Using the property above as an example, the purchased property will pay for itself, or be “fully capitalized” after 10 years (100% divided by 10 percent). If the cap rate were 5 percent, it would take 20 years for the property to be paid off.
Another way to view the cap rate is how much return the building would provide if it were completely paid off. The 10 cap would be ten percent of the purchase price, which, compared to a savings account, is a nice return.
How can the cap rate be helpful when looking for investment property?
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We’ve all seen them: orange, yellow, pink, blue– brightly colored pieces of copier paper boldly attached to the doors or windows of countless duplexes and homes in the Minneapolis area.
What do they mean? Well, unless you park your car and get out to look, we usually haven’t a clue. We only know it must be bad. After all, this is Minnesota. We don’t usually like to draw attention to ourselves.
So what are they?
According to the city of Minneapolis, they’re notices placed on buildings as a result of city housing inspections. Each color has its own specific meaning and level of alarm.
Bright Orange – Condemnation. The building is condemned and residents must move by the date on the placard.
It’s also important to know the water department also uses bright orange stickers to notify occupants that the water will be shut off due to payment delinquency if not paid by a specified time.
Faint Yellow -Warning: Do Not Occupy. The building is hazardous and tenants have to move by the date on the sticker.
Bright Yellow- Notice. This notice states if necessary improvements haven’t been made by the date mentioned on the sticker, the property may be condemned. Occupants may have to move if the repairs aren’t completed in time.
Gold Yellow – Unlawful Occupancy. This notice offers an explanation of the specific reason it was posted in the middle of the page. Reasons may include: too many people living in the property, too many units, no rental licencse or non-conforming units in the building.
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Comments Off on What Is A Minneapolis Duplex Anyway?
Every now and then I get called by someone to either come out and tell them what I think their duplex is worth, or, I have a buyer send me a link to a property they like and believe is a duplex.
Inevitably, as I get closer to the address, I realize I’m in a sub-division. And I know instantly there’s been a misunderstanding.
Many people confuse twin homes and duplexes. While the two property types bear many similarities, as well as the potential to change categories, there are some significant differences.
A duplex is a house that has separate apartments or living quarters for two families or groups of people. While the units may share a wall, or floor and ceiling, they do have separate entrances.
Of course, these characteristics are true of a twin home as well.
So where do they differ? Well, a duplex has one legal description and property identification number. It is usually owned by one party, who is responsible for the the lot and insurance.
On the other hand, a twin home has two separate legal descriptions and property identification numbers. The sides or floors of the property are generally owned by different parties. There may also be a home owner’s association or set of rules as to how the units maintain the exterior of the property, which may require a monthly fee.
Can a duplex become twin homes? Yes, through some legal work which generally involves forming an association and getting each property separate property identification numbers.
During the real estate boom, many duplexes were purchased and subdivided with the intention of being resold as twin homes. When they didn’t sell, the owners simply continued to use them as rental properties.