Comment
I stumbled into a story on MSHNBC the other day that reminded me why there has never been a better time to become the owner-occupant of a Minneapolis duplex.
The story chronicled the struggles of a pair of first time home buyers in Phoenix, Ariz. who had written no less than 15 offers on single family homes only to be outbid in multiple offers every time. In several cases they hadn’t even lost to other potential home owners. Instead, they’d lost out to investors; with cash, no need for appraisals and fast closing dates.
Needless to say, they were getting pretty down about it.
While Minneapolis isn’t Phoenix, it’s happening here too. The most affordable homes in desirable neighborhoods are being scooped up either as potential rehab and sell properties, or to be held as rental units.
But aren’t investors buying duplexes as income properties?
Yes and no.
With tightened lending practices now requiring duplex investors to have a minimum o Read the rest of this entry »
Comment
This morning I stumbled upon the worst real estate investment advice I’ve ever read.
Which was?
Not to use a Realtor in the early stages of looking for property.
The rationale?
You might get pressured into buying something.
I suppose smoking is really good for you too.
If I could make people buy property, would I still be working? Or would I be retired?
And if I were working just to “keep busy”, would it be here? Or in Malibu, where both the weather and the prices are sunnier?
Just as in every other profession, there are good agents and well, stereotypes. By en large, most of the agents left in the business are the former.
A good Realtor is your advocate. The state says she has a fiduciary duty to look out for her clients best interests at all times. If she’s a member of the National Association of Realtors, she also has an ethical duty to do so. And, in light of all of the present suffering in the real estate market, most agents believe they also have a moral responsibility to protect their clients.
A good Realtor, competent in the multi-family field, will be your teacher. She will show you how to calculate the numbers, guide you in evaluating opportunities, and continue to be a resource long after you’ve been given the keys to your first building.
A good Realtor will develop an understanding of what your ideal property looks like. When she sees one; either on the MLS or while speaking with potential sellers, you will be her first phone call.
Even in this “buyer’s market”, the great deals go from “just listed” to “sold” in a single day. By the time buyers not working with agents see these listings on Trulia.com or Realtor.com, it’s too late; they’re usually already sold.
Most importantly, an experienced agent will keep you from making a bad deal. And to me, there’s nothing more important than that.
Comment
The Minneapolis Star Tribune reported last week that the city of Minneapolis has changed the rules for “relative homesteading”.
Relative homesteading is when an individual owns a second home, and allows a relative to live there, rent free. This helped the property owner qualify for owner-occupied property tax status, and, until now, avoid paying a $65 rental license fee and the avoid the required city inspections for rental property.
A 2008 change in state law requires a property to be registered with the city if the owner receives any kind of compensation for allowing occupancy of any part of the property.
Compensation does not have to be in the form of rent. It may be as simple as the relative living there maintaining the property in lieu of rent.
As a result of the new statute, the City of Minneapolis’ Inspections Department decided to require all single-family relative homesteaded properties to get licensed. This was done with a goal of increasing the safety of these properties through inspections.
The new rule doesn’t apply to small multi-family properties like duplexes and triplexes.
Comment
The other day I sent a listing for a four-plex to a client. While he’s not actively looking, and this one wasn’t an especially good deal, it reminded me in both appearance and location of one of the ones he already owns.
My client has invested and occupied income properties for many years. And he asked whether he was correct in not seeing the precipitous price drops in the four unit buildings that are occurring in the duplex market.
Yes and no.
Remember that old law of supply and demand? How if the demand for a product is greater, the price goes up? Well, this law applies when it comes to small multi-family properties (one to four units) as easily as everything else.
While FHA loans are available for duplexes, tri-plexes and four-plexes, most owner-occupants simply prefer duplexes. And while the amount of rent the other unit generates still played a role in a purchase, it didn’t carry nearly the weight of the more emotional nature of buying a home to live in. The duplexes that triggered those feelings typically sold for the higher prices that emotions always command. Consequently, they also rode the great wave of appreciation.
Well, aren’t there four-plexes with charm? Of course! But the prospect of coming home to three tenants with issues was and is, to many, far more daunting than the thought of simply one renter. This higher level of demand helped drive up prices during the boom years.
Comment
People always ask me to call if I find a good deal on a property.
During the peak of the market (which was the valley for investors who stopped to a the numbers), they’d hear from me once every 4-6 months. And, that property was usually gone within a day.
Now it seems I get to contact people once every couple of weeks. And the property I call about is usually gone in a day or, every now and then, a week.
I found one this morning, with a huge positive cash flow. And I sent it to the people working with me.
Contrary to popular belief, Realtors don’t always save the “best deals” for themselves. Especially now. I do, however, save them for the people who have commited to working only with me by signing a buyer’s exclusive representation agreement.
What’s that? Well, in the simplest terms, an exclusive representation agreement states that you’ll work only with me in the process of locating and purchasing a property. It runs a specific length of time and can be cancelled, in writing.
Read the rest of this entry »
Comment
OK, no. I don’t mean those pages in the back of the newspaper with all the obituaries. I mean the MLS’ expired list.
One of the biggest mistakes I see most residential Realtors make when pricing a duplex is measuring all of the finished spaces in both units, adding it up, then multiplying it by the average price per square foot other properties in the area have sold for.
In fact, I saw a case like this recently. Great duplex, tons of updates, terrific location. The tax value of the place is right around $600,000. The agent put it on the market for over $1,000,000. Yes, it’s a big place. And it’s apparent to me that the agent multiplied the finished square feel by the average cost per foot, then maybe added a bump for location.
But, remember…
Finished square feet have nothing to do with pricing a duplex. Well, almost nothing.
As I’ve explained before, the amount of rent has more to do with pricing a duplex than anything else. Of course, location matters too. But, if you have two identical duplexes next to one another on the market, the one with the highest annual rent will be more expensive.
Of course, it is conceivable that having more space in the rental unit would generate more rent. That would be reflected in the revenue. And, if the property is appealing to an owner occupant, the size of the living space will play a part. However, if the rent from the other half is small in comparison to others on the market, it won’t be as affordable as the competition.
Properties that linger on the MLS forever (often due to pricing) cause buyers to wonder what’s wrong with the place. And they begin to ignore it when they search. In fact, every now and then, Realtors do it too.
Price your property correctly the first time, and it will sell.
