Duplex Chick

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If you’ve ever been broken up with by someone you love, you know the heartache afterward can last a long time; sometimes, it even long after you think you’re healed.

A bad FHA appraisal is kind of like that. Now, when I saw “bad”, I don’t mean the appraiser was abusive, or cheated on you, or anything like that.

What I mean is he didn’t think your duplex was worth what you and the buyer thought it was.

Let’s say, for example, you agreed to sell it for $225,000, but the appraiser said it was only worth $200,000. And the buyer, who intended to live in your duplex, doesn’t want to part with her cash

So the bank won’t lend the buyer any more than $200,000, less whatever down payment she needs for the loan.

This leaves duplex buyers with three options: coming up with the difference out of their own pockets, asking you for a price reduction to match the value determined by the appraiser, or walking away altogether.

Now, in my experience, most buyers aren’t willing to pay more than the place is worth.

So what if you truly believe your duplex is worth what you’re asking for it and refuse to alter your price?

Odds are, the buyer is going to fall out of love and break up with your duplex; leaving you to find another buyer.

Perhaps you’re thinking, “Well, I can do better anyway.”

And, well, maybe you can.

But here’s the deal. Even if Prince Buyer rides up two months later on his perfect white horse and says he loves your duplex so much he’s willing to pay you twice what you’re asking (provided he can get an FHA loan for it, of course), the bank won’t let him.

Because sooner or later, his lender is going to find out about your broken hearted bad appraisal.

FHA appraisals stick with a duplex for six months, regardless of who buys the property. So, the minute the new buyer goes to his bank for the money, his banker will refuse to give him a loan.

It’s a dead giveaway.  Kind of like crying over your ex on a first date.

And unfortunately, the only way to fix either a bad FHA duplex appraisal or a broken heart is time.

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One of the most common things I find duplex buyers confused about at closing is title insurance.

After all, most have already had to buy an insurance policy to protect the property in the event of a catastrophe.

So why do you need title insurance?

Title insurance is usually purchased the day you buy the duplex and involves a one time fee that’s part of your closing costs.

It protects you as the duplex owner in the event there are any problems with the property’s title that weren’t discovered by your title company or escrow officer prior to closing.

What kind of problems could those be? Well, let’s say one of the property’s previous owners had some construction done on the property but didn’t pay the contractor; who was slow to put a lien on the property.

Or, perhaps a previous owner failed to pay property taxes, or there were heirs to the property who only now discovered they’d inherited it.

In each of these cases, you could find yourself having to hire an attorney to defend you and your property from these claims.

An owner’s title insurance policy would cover those expenses for you.

And those expenses can be significant.

I had one buyer whose $700 title insurance policy covered almost $100,000 in legal fees and settlement charges.

For what? A litigious neighbor who simply liked to sue people for money involving a driveway easement.

And just this morning, a duplex seller I was working with, was glad he was protected by the policy he’d purchased with the property. It seems the previous owner hadn’t notified anyone his sale was part of a divorce.

As a result, his ex-wife could have a claim to the duplex, even though he no longer owned it!

I realize buying a duplex can be an expensive endeavor. But title insurance is something you should never be without.

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I went out of town for a few days last weekend.

While I was gone, I managed to help two clients write offers on Minneapolis duplexes.

Neither was  an active listing on the Multiple Listing Service (MLS).

In fact, one was a property where an accepted offer on it was about to be cancelled. The other duplex was not coming on the market until next year.

This proves three things I’ve been saying for months.

1. It’s a great time to sell a duplex.

2. If you want to buy a duplex, working with the right Realtor will help you get access to properties you either won’t find on your own, or would be missed by an agent who doesn’t specialize in duplexes and small multi family properties.

3. If you’re thinking of selling, but aren’t quite ready to stage your property or leave the duplex for showings, letting a Realtor who’s a duplex specialist know, and/or agreeing to do a “pocket listing” with her, may help you avoid the inconveniences altogether.

Let me know if you’re either in the market to buy a Minneapolis duplex or sell one. While values are nowhere near where they were in 2005-2006, the market is better than you think.

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As going green has become increasingly important, I’ve suddenly had some of my duplex buyers  me they didn’t like the “walkability score” of a prospective property.

What’s that?

Well, it’s a score that’s calculated by the web site Walkscore.com.

They’ve designed a system where they rate properties according to their proximity to things like neighborhood restaurants, grocery stores, public transportation and recreational activities.

Needless to say, duplexes located in more heavily urban neighborhoods tend to generate higher scores than, say, a duplex planted in the middle of a corn field.

Not only does the site rate specific properties, it also ranks neighborhoods and major metropolitan cities around the county.

It’s no surprise that New York is the nation’s most walkable city. However, Minneapolis is ranked 9th; ahead of Los Angeles, which didn’t even finish in the top ten.

In Minneapolis, duplexes in the Calhoun, University, Seward, and many of the southwestern neighborhoods ranked among the most walkable.

If you’re considering buying a duplex, a walkability score be something you factor in your decision.

Odds are your prospective tenants are doing just that.

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According to the National Association of Realtors (NAR), sales of investment properties, including duplexes, constituted 17 percent of all home sales in the United States in 2010.

As there were 5.28 million homes sold last year, that means 897,600 were  duplexes and investment properties. Divide that by 50 states, and it’s an average of 17,952 per state.

That’s a lot of real estate investing!

According to recent data, there’s uptick in that figure this year.

In fact, in July alone, NAR found 29 percent of all purchases were all-cash deals; likely involving real estate investors.

In a down economy featuring high unemployment, just who are these real estate investors anyway?

Half of them are people under the age of 45, while those under 54 comprise another 26 percent.

Are they millionaires?

Hardly; 58 percent of them earn less than $100,000 a year.

While 39 percent of last year’s investment property buyers used a mortgage, 59 percent of them did not.  And of those who used a loan, 50 percent contributed more than 30 percent toward the down payment.

Of these buyers, 45 percent saw real estate as a good opportunity to diversify their investment portfolio.

A whopping 77 percent of all real estate investors in 2010 think now is a good time to purchase real estate. So good, in fact, that 52 percent of them plan to buy another duplex in the next two years.

What’s holding you back?

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You might have noticed there’s a bit of a media buzz about the Twin Cities duplex and apartment vacancy rate.

In fact, Marquette Advisors, the local company that tracks such things, reports at the end of June, the vacancy rate was just 2.4 percent; the lowest it’s been in a decade.

Perhaps that incredibly low number is why people who want to buy a Minneapolis duplex are having such a hard time finding one.

And perhaps that’s why local developers have proposed building as many as 8,500 new market-rate apartments across the metro area.

Remember all of the condos that were built downtown? Well, they’re filling in for apartments at the moment. In fact, Joe Grunnet, of Downtown Resource group, which rents out apartment units, recently told Finance and Commerce they’re renting out about 33 units a month; at $1640 a pop!

Low vacancy rates always result in rent increases. Rent increases always result in higher duplex sales prices; because values are driven, in part, by the amount of rental income.

In other words, if you’re thinking of buying a Minneapolis duplex, waiting to do so might cost you more money.

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Have you ever wanted to ask someone out, and by the time you finally got up the nerve, discovered they’d just started dating someone else?

Buying a great duplex investment can be exactly like that.

Because great duplexes don’t stay on the market for long, just like all the attractive, smart, funny, kind, financially secure people who are actually interested in dating don’t stay single for long.

I am constantly amazed that buyers think the greatest duplex deal in the world will last the 5 to 7 days it takes them to decide to write an offer.

Even in a down real estate market, the great duplex deals are snapped up quickly.

And when they’re gone, no amount of shoulda, coulda, wouldas will bring them back.

If you’re thinking of buying a Minneapolis duplex, be ready to act quickly. Have your mortgage pre-approval letter ready to go, be committed to a Realtor who specializes in duplexes, and don’t be afraid to write an offer.

And remember, if it’s rejected, it’s not because you dress funny or smell weird.

It’s because the seller wanted more money, more time, or simply changed her mind. However, if the answer is yes..

Just be sure to make your purchase contingent on an inspection. That will give you, and if you choose, a qualified inspector, an opportunity to go over the property thoroughly before you go forward with the purchase.

And if you and the seller can’t come to an understanding about how to fix any problems, whether physically or financially, you can break up with the duplex.

Just like dating.

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I love duplex estate sales.

Not the kind where there’s a bunch of stuff displayed in the driveway and if you’re lucky, you’ll find something you can buy for a dollar and score big with later on Antiques Roadshow.

I’m talking about duplexes that were owned by people who have passed away, and their heirs are now trying to sell the place.

I don’t mean to sound morbid.

Really, I don’t.

But here are three great reasons to buy duplexes from dead people:

1. America’s Greatest Generation Took Care Of Things – Having survived the Great Depression, there was a generation of people who grew up knowing the importance of maintaining what they had rather than buying more of something new. For example, while their 1950’s-installed linoleum may not be the latest product featured on HGTV, it often looks like it was installed yesterday. The roof, the furnace, the windows– all of the expensive items– however, are likely to be new or in perfect working order.
2. Rents Are Usually Low – If a seller has owned a property for a long time, odds are he or she no longer has a mortgage payment, and has become friendly with the tenants. And if they’re good tenants who have always paid on time, odds are the owner didn’t increase rent for fear of them leaving – for years.  The good news with income property is that banks lend on the current revenue a property generates (unless it’s vacant, when market rents are projected) vs. the revenue the property could or should bring in.
3. Rehabbing Is Easy- Because the big things, like furnaces and roofs, have been maintained, most improvements these duplexes need are cosmetic. The carpet might need to be removed (revealing pristine hardwood floors), or the wallpaper. You may find the kitchen cabinets are so old they’re actually wood and can be painted or stained rather than replaced.

There’s only one problem with duplex estate sales. You can’t predict where or how you’re going to find them!

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Some of the best duplex deals out there are short sales.

Not only are they often in better shape than the foreclosures, but there tends to be a better selection of duplexes to choose from.

Some people even think they are such good deals that you can outright steal them.

This is such a common belief that I’ve been getting lowball offers on my Minneapolis duplex listings all summer long.

I understand the impulse. After all, the seller may need to get out, no matter what, and the buyer has to wait a long time for an answer. So heck, that’s worth a good deal, right?

Except there are some problems with that thinking.

First, the seller may be required by the lender, especially if the duplex has a second mortgage, to bring money to the table to keep the mortgage holder from pursuing a deficiency judgment even after the property has been sold or lost to foreclosure.

Needless to say, the bigger the offer the seller receives, the greater the likelihood is there will be some money available to give the second lien holder.

So don’t be surprised if the seller gives you a counter offer.

Second, not every short sale owner is in foreclosure or behind on payments. Many need to sell their duplexes due to a job relocation, marriage, divorce, death or any number of other legitimate reasons.

“Short sale” is NOT synonomous with foreclosure, it simply means the seller owes more than the property is currently worth, and is “short” in the amount he or she owes the bank.

Third, the banks aren’t stupid. Well, not always. They hire Realtors to do something called a Broker’s Price Opinion or BPO before they agree to any sale. Essentially, they retain an agent who doesn’t represent the buyer or the seller, for independent opinion of what  a property is worth.

These agents are familiar with the market, and have access to not only data on duplexes that have recently sold, but also those currently for sale. If an offer on a duplex seems way out of line with the market, they will advise the bank to respond to the purchase agreement with either a counter offer or an outright rejection of the price.

All of this doesn’t mean you can’t simply make an offer on a duplex listing. Just know the odds and be realistic.

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Whether you’re an investment property owner or prospective duplex buyer, when you read or hear RealtyTrac Vice President Rick Sharga share their monthly foreclosure statistics, you should mentally respond with the following thought…

“And all of those people will need to rent.”

For example, while the headline on this week’s report was “Foreclosure Activity Falls to 44-Month Low in July”, the rest of the story went on to state that while lenders already have 850,000 homes on their books nationally, there are another 1.1 million property owners in earlier states of foreclosure…and all of those people will need to rent.

There may also be as many as three million more properties that will be foreclosed upon before the housing market improves…and all of those people will need to rent.

Remember the pay option mortgages? The ones where you could pay interest only, interest plus principal, and so forth? Well, $200 billion of those mortgages are due to start resetting this year. It will be difficult for those homeowners to refinance, because the mortgages are on properties that have lost a great deal of value.

And if those folks face foreclosure?

All of those people will need to rent.

The greater the demand for places to live, the higher rents go.

Has there ever been a better time to invest in duplexes?

Probably not in our lifetimes.