Comment
Last week’s good news in MAAR’s Weekly Activity Report continued for single family home sales for the week ending January 31.
Want proof?
New listings are down 15.3 percent from this time last year.
Pending sales are 25 percent above the mark set by the comparable week in 2008. And, the months supply of inventory has dropped from 8.9 to 7.7 months. For those who don’t remember, a 5 month supply is considered a balanced market.
One figure we haven’t spoken of here is the Housing Affordability Index. It jumped to 202. What does that mean? Well, it means the median family income in the Twin Cities is 202 percent of what would be required to qualify for the median-priced home.
There’s continued good news in the small multi-family sector as well. Like single family, pending sales also jumped 25 percent. As 98 percent of these transactions were lender-mediated, the average off market price was a mere $94,820. The 2008 mark for the week was 91 percent lender-mediated, with an average sales price of $138,260.
The number of Minneapolis duplex listings also continues dropping; 16 percent for the week. Of particular interest is the fact that the percentage of properties involving lenders was down for the first time in ages, with 77 percent of the 2009 inventory involving a bank. For the same seven days in 2008, 83 percent of the new listings did.
Pending Congressional decisions regarding the president’s stimulus package, specifically the proposed $15,000 tax credit, should be resolved within days. A real estate market explosion may well follow.
Comment
Over the past few weeks, I have been reminded that just because someone holds a real estate license, they are not necessarily qualified when it comes to buying or selling multi-family housing.
I saw evidence of this over and over during the boom years. Countless Realtors sold their clients over-priced properties that didn’t cash flow.
I see many of those properties re-listed now. The MLS information almost always reflects a short sale or foreclosure, which makes me angry. I truly believe if the buyer had competent representation, the foreclosure could have been avoided (because the property would not have been purchased at that price in the first place).
Many of those types of agents have been shaken out of the business this year. As a result, most of the Minneapolis and St Paul duplexes that sell today make financial sense. However, I don’t think anyone can sound the all clear alarm just yet.
The other day a property came on the market that I thought might be suitable for a client. As I studied the MLS listing, however, I noticed while it stated that the tenants were responsible for their own fuel costs, the seller was also reporting annual heat and electric expenses of thousands and thousands of dollars. Certainly a mixed message there.
I called the listing agent for clarification. It seems the property owner had called the power and gas companies, gotten the annual totals for both units and reported them to the agent. While the tenants were in fact responsible for paying for everything but water and sewer, the data reported the owner was. As I’ve explained before, if the landlord pays for heat, the property has a different value. The listing agent didn’t understand.
I also recently received an e-mail from an agent who had property their client wanted to do a 1031 or Starker exchange with. The agent did not explain what the property was, so I called with the hope that it would be multi-family housing. It was a chunk of land. And it was the agent’s understanding that a 1031 exchange was a straight up trade of one piece of property for another. Nope.
When getting a real estate license, the educational background for the state test is broad and general. After that, it is up to individual agents to pursue continuing education courses and expertise in an area they’re interested in. Commercial and multi-family properties, as well as land for development, each have their own unique sets of challenges and rules.
It is absolutely essential that you work with an agent who understands the nuances of the investment you’d like to make. After all, not every foreclosure is the result of predatory lending.
Comment
I do a lot of math in my job. Which is funny, considering my history with high school algebra.
Whenever I find a duplex I think may be of interest to a client, I quickly do an investment property analysis worksheet before I send it on.
I do this exercise regardless as to whether the property might be suitable for an investor or an owner occupant. All have highly personalized goals. Some want a certain rate of return on their money. Others want to be sure their portion of the house payment stays within the confines of their budget.
I’ve had to add a calculation to my worksheet this year: property taxes.
I’ve always counted the taxes as an operating expense. That’s nothing new. This year, however, I’m calculating how much they are likely to drop on January 1, 2009.
Yes, I said drop.
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Comment
There are several questions I get asked repeatedly in my job. One of the most common is, “What did it sell for?”
I usually hear this when a client was interested in and missed out on a property that just went from “Active” status on the MLS to “Pending”.
The trouble is, I can’t answer this question. At least not right away.
When a property owner has accepted an offer, there is a gap between his or her signing the document and the sale closing. Unless the buyer is purchasing with cash or a contract-for-deed, it usually takes 30 to 60 days for the a loan to be readied in order for the property to change hands.
In this waiting period (which is called “escrow” in states like California), there is still a possibility that the sale may not come together. The buyer may be unable to obtain financing, suddenly receive notice of a job transfer…while not necessarily common, things do happen.
Were either the buyer or seller’s agent to share what the final negotiated sales price was during this time, and the transaction not close, the seller’s position in the marketplace could be seriously compromised.
How so?
Well, it would be public knowledge what the seller “would take” for the property. If he then needed to put his duplex back on the market, he would not be able to do so at a price higher than the one he had just agreed to; at least not without looking greedy.
I can eventually tell you what that duplex sold for…just as soon as the keys change hands.
Comment
Seasoned real estate investors know there are many advantages to owning income property; benefits like cash flow, principal pay down, and the tax deductions for loan interest and depreciation.
Most new investors are familiar with all of those terms except depreciation. So, what is it? Well, it’s an accounting term that basically says assets wear out or get used up over a period of time. Depreciation is a way to spread the purchase cost of something over the number of years it’s expected to last before it finally wears out.
Understandably, different kinds of things have different lifespans. A refrigerator, for example, has a shorter lifespan than oh, say, a garage. Therefore, it has a faster depreciation schedule. Land, on the other hand, never gets used up. I hate to be the bearer of bad news, but even if greenhouse gas gets the best of us, the land will still be here. We won’t.
Somewhere along the line, Congress, and the accountants, businesses, and I suppose, even the I.R.S. got together and decided that if you’re going to invest in America — through real estate, or a business, you should get a break on your taxes. Collectively, they came up with something called a depreciation schedule for four different categories. The categories are:
- Land – which, of course, never gets used up. No tax break here.
- Personal Property – in a rental, this would be things like the appliances. Personal property has a 5 year depreciation schedule.
- Building – For residential property, 27.5 years, for other types of property it’s 39 years.
- Land improvements – includes landscaping, driveways, the garage, the water line. This is spread over 15 years.
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