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How Your Minneapolis Duplex Purchase Can Be Like A Wes Craven Movie

April 8th, 2010 categories: Multi-Family Property Investing

There’s nothing like a good adrenaline rush.

That’s why people jump out of airplanes, line up for horror movies, watch the Vikings and fall in love.

It’s also what some new investors are looking for when they start hunting for their new duplex.

They want to score a big return; usually in the form of a property that’s worth twice what they paid for it and also throws off so much positive cash flow every day that they can quit their day job. Next week.

They’re looking for that high reward duplex.

Trouble is, experienced investors in every market know that high rewards come only from one kind of investment; one with high risk.

What kind of risk? Well, tenants that require a great deal of hands-on management, buildings in higher crime neighborhoods, and often, properties in disrepair.

Granted, these places generally have a great return on investment; if you’re up for the challenge. Many investors are. Many are not.

When you’re first starting out and want to know what constitutes a good rate of return on your duplex investment, ask yourself some questions. Is the property in a neighborhood where you could potentially lose money? How much time are you willing to spend managing your property? Making repairs?

Most importantly of all, ask yourself what percentage increase in the rate of return your time and effort are worth.

Ever investor has different levels of risk tolerance.

Making a killing on an investment not only provides a huge adrenaline rush, but also fodder for hours of storytelling with friends. So does getting mugged. 

For that kind of thrill, it might be easier to just go to the movies.

Spoken by Kari Lundin | Discussion: No Comments »

What Is A Good GRM On Your Minneapolis Duplex?

March 29th, 2010 categories: Multi-Family Property Investing

On real estate blogs across the nation new investors ask for guidance as to what is a “good” gross rent multiplier (GRM) on multi family property.

Remember, to determine a duplex’s gross rent multiplier, divide the purchase price of the property and by the gross amount of rent the property generates annually. So, if a building is listed at $200,000 and grosses $20,000 a year in rent, then $200,000/20,000 = 10. The GRM on the property is 10.

So is 10 a “good” number?

I wish there was a broad, all encompassing answer. But there isn’t.

Why?

There are a couple of reasons.

First, all real estate is local. A “good” gross rent multiplier in Beverly Hills, Calif., is likely one at which a duplex doesn’t come anywhere near breaking even in terms of the revenue it generates. However, a gross rent multipler of say, 18, may in fact be “good” because most duplexes in the market are selling at a GRM of 24.

The second reason there isn’t a sweeping general answer for the nation as to the definition of a “good” gross rent multiplier is GRM’s fail to take into account expenses.

They are, nonetheless, effected by things like who pays the heat, how much the property taxes are, where the building is located, and so on.

When I first obtained my real estate license, I did hundreds if not thousands of income property analysis spreadsheets for MLS properties. By doing so, I quickly realized there were consistent numbers at which properties cash flowed. And that number differed between properties where the landlord paid the heat and those where the tenants did.

Those figures worked pretty consistantly for years. And then the seven metro area counties caught up in what they perceived the taxable market values of Twin Cities area duplexes to be.

As a result, property taxes increased and with them, so too did gross annual expenses.

The result? The Minneapolis and St Paul definitions of the gross rent multiplier at which a duplex will cash flow changed.

In fact, the gross rent multiplier numbers I use to eyeball whether or not a property will break even or cash flow dropped in each of the heat-paying categories by two.

What are those numbers?

Call me. We’ll talk.

Spoken by Kari Lundin | Discussion: No Comments »

Traditional Minneapolis Sellers Take It To The Banks

March 17th, 2010 categories: Twin Cities Real Est

If the Minneapolis duplex market were a prize fight the week ending March 6, 2010, traditional sellers would have adminiistered a ninth round pummeling to lender owned and mediated sales.

Of the duplex owners that received and accepted purchase agreements, 44.83 percent were traditional sellers. By traditional sellers, I mean people with names; as opposed to corporations.

These traditional sellers helped boost the average off-market price for the week to $156,293. This shatters last year’s average for the same week of $78,022; a week in which 100 percent of the pended properties were offered or negotiated by lenders.

As if to send the banks back to their corner for smelling salts, traditional sellers were also responsible for 59.46 percent of the new inventory on the market. Last year, the banks had mom and pop sellers in a corner, where they could only produce 24.5 percent of the new listings.

Unfortunately, the single family market didn’t fare as well. New listings were up 24.6 percent from a year ago, while pended home sales were down 6.9 percent. In fact, in the first quarter of the year, pending sales are up just 2 percent from their mark during the same stretch in 2009.

Nonetheless, bravo to the traditional duplex sellers for having the courage to take on the market. Maybe we’re not down for the count yet after all.

Spoken by Kari Lundin | Discussion: No Comments »

Congress Threatens To Require Higher FHA Down Payments

March 12th, 2010 categories: Financing

Once upon a time, way back in 2005 and 2006, you could buy a duplex with no money down.

Then the housing crisis happened. And in an effort to make sure buyers had more at stake, banks decided they would only give loans to investors with 20 to 25 percent down, or owner occupants who qualified for FHA insured financing and had three percent for a down payment.

Then the Federal Housing Administration decided they would only insure loans of owner occupants who had 3.5 percent for a down payment.

Fair enough. That increase didn’t deter too many borrowers.

However, according to a report in the Wall Street Journal, a bill now in Congress advocates for FHA insured loans to require a 5 percent down payment. The thinking goes that if borrowers have a bigger equity position, they are less likely to default.

While that still doesn’t seem like nearly as big of a jump as a 20 percent down payment would, FHA Commissioner David Stevens testified that slight adjustment would eliminate 40 percent of new FHA loans; the equivalent of 300,000 transactions a year.

Fewer sales would, of course, result in fewer mortgage insurance premiums being paid to FHA, which doesn’t make loans, but simply insures them. This loss of revenue, Stevens contends, would in turn put the already financially stressed institution on still shakier ground.

No word on which way Congress is leaning.  The imminent expiration of the first time and repeat home buyer tax credits, looming interest rate increases and the threat of higher down payments, however, mean now is the perfect time to buy.

Spoken by Kari Lundin | Discussion: No Comments »

What’s The Most Common Type of Rental Housing Anyway?

March 11th, 2010 categories: Multi-Family Property Investing

When I say “rental housing”, what image springs to mind?

Is it a large apartment complex with hundreds of units sprawling over acres of earth?

Or is the image one of single family homes, duplexes or fourplexes?

Most of us dream of parlaying a collection of duplexes into a massive apartment complex or two capable of cash flowing our retirements. And yet, according to a 2008  Joint Center for Housing Studies of Harvard University,  less than 10 percent of all rental units are in buildings with 50 units or more.

Ironically, more than one third of rental units in the country are single-family homes. However, more than half of all rental units are in buildings with less than five units.

In all, the study counted 6.3 million two to four unit rental properties; 1.3 million of which are owner occupied. Eighty-five percent of these smaller properties are owned by either individual owners or couples.

The study also reports the number of households that reported at least some rental income from one to four-unit properties increased by almost a million between 2001 and 2007.

Guess it’s time to replace that mental image of a rental unit.

Spoken by Kari Lundin | Discussion: No Comments »

Deadline Pushes Minneapolis Duplex Market

March 9th, 2010 categories: Twin Cities Real Est

There are less than 60 days left to qualify for either the first time home buyer or repeat buyer tax credit.

That looming deadline may well have inspired the Twin Cities housing market’s 13.9 percent year-over-year jump in accepted offers for the week ending February 27.

While not as dramatic, the duplex and small multifamily property market also saw an increase in pended transactions; up 4.4 percent year-over-year.

Of the properties that pended, 19.46 percent were offered by traditional sellers; up from 11.6 percent for the same week in 2009.

While neither year posted particularly inspiring average off-market prices, the figure for the week in 2010 of $83,746, did nonetheless represent an increase of $805 over the year before.

The amount of new duplex inventory continued to trail last year’s mark, with just 45 properties coming on the market for the week. This represents a 30.7 percent drop from last year.

Of these new listings, 28.9 percent were offered by traditional sellers. While that’s a figure that appears thin, it is still more than twice as many as last year.

As the tax credit deadlines loom, let’s hope for continued good news.

Spoken by Kari Lundin | Discussion: No Comments »

Go Green And Save When You Fix Your Minneapolis Duplex

March 8th, 2010 categories: Home Repair

When I sit down with someone considering buying their first rental property, I always go over not only the potential revenue the property can generate, but also the certain and probable expenses.

The one expense most prospective owners (and to be honest, listing agents) seem to omit most often is the cost of repairs.

Let’s face it. No matter how new or old your duplexor house is, sooner or later something’s going to break, become outdated or wear out.

I have fixed numbers I use as projected repair costs for each unit per year. Of course, some years nothing breaks and others, everything does. So my estimates are just that; estimates.

It’s usually about then that I also share the names of some of my favorite local shops.

Of course, when and if  something needs repair or improvement, the obvious locations to look for supplies are Home Depot, Menards and Lowe’s.

However, if the repair or upgrade isn’t urgent, it might be easier to stay under budget by shopping at a couple of local treasures.

Building Materials Outlet (formerly Cannon Recovery) is just over the Mendota Bridge in Eagan. For over forty years they’ve specialized in liquidating excess inventory from national distributors and manufacturers.

While their inventory isn’t as reliably consistent as the retail stores, the savings are significant. On any given day you can find French doors, new windows, rolls of carpeting or pallets of tile for as a third less or more than at traditional home improvement stores.

Another local institution that’s not only a great place to save money, but also a green solution is The ReUse Center in Minneapolis.

Read the rest of this entry »

Spoken by Kari Lundin | Discussion: No Comments »

The Question Most Often Asked On Duplex Chick Is…?

March 4th, 2010 categories: Tax Credits

As a Realtor, I get asked a lot of questions.

They range from, “What were they thinking when they installed the bathroom here?” to “Won’t people just make us an offer, even if we list our duplex at a higher price?”

I don’t know the answer to the first question. And the answer to the second is usally no.

But these days, the question I get asked most often is “Does a duplex qualify for the $8000 first time home buyer tax credit?”

And while I’ve discussed it here before, then answer was and is yes.

For the record, multifamily homes like triplexes, four-plexes and apartment buildings qualify too. However, the property must be used as your principal residence. It’s also important to note you can only get credit for the part you live in.

The credit has been structured so that any first time home buyer who has a binding purchase agreement in place by April 30, 2010, can receive up to 10 percent of the property’s purchase price, not to exceed a total of $8000 in the form of a tax credit.

Since only one half of the duplex would be used as your principal residence, you can only use the value of one half of the property to qualify.

For example, if you pay $160,000, your half would be worth $80,000.  If you buy a duplex for $100,000, however, your half is worth $50,000. Your tax credit would then be 10 percent of your half , or $5000.

The same would be true if you bought a four-plex for $200,000 and lived in one of the units. The value would again be $50,000, giving you a credit of $5000.

Of course, to receive this credit, you must not have owned a home in the past three years. If you’re single, you can’t earn more than $125,000 a year and if you’re married, the two of you can’t earn more than $225,000.

Purchase agreements must be signed no later than April 30, and the transaction must close no later than 60 days after that.

Call me if you want to beat the deadline.

Spoken by Kari Lundin | Discussion: No Comments »

Minneapolis Duplex Market Hints At Thaw

March 2nd, 2010 categories: Twin Cities Real Est

Believe it or not, in some sectors of the Twin Cities housing market have begun to thaw. In fact, it feels like spring: of 2006.

Realtors and our clients are once again experiencing multiple offers and having to rush to see newly listed properties before they’re gone.

Unfortunately, the bulk of this activity is in first time home buyer territory; namely, those properties below $225,000.

But there are hints in MAR’s Weekly Market Activity Report that perhaps things are loosening up. For the week ending February 20, pending sales were actually 9.9 percent higher than they were for last year. This is the first year-over-year increase we’ve seen in weeks.

With just 5.39 homes available for each active buyer in the market, a 17.7 percent increase in the number of new listings for the week may help those facing multiple offers find homes. There are 6.9 percent fewer homes available for purchase this year than there were at this point in 2009.

In the small multifamily sector, traditional sellers continued to gain ground on the banks. Twenty-five percent of the owners of properties that received purchase agreements were people, not corporations. Of those listings new to the marketplace, 48.14 percent were being sold by people with actual names.

While the number of pended duplex sales was down 38.5 percent, the good news is the average price they left active status at was $121,509. This represents a significant leap over last year’s sold price of $94,671.23.

As we head toward the $8000 first time home buyer and $6500 repeat buyer tax credit April 30 deadline,  we’re sure to see even more signs of spring.

Spoken by Kari Lundin | Discussion: No Comments »

Don’t Count On Reduced Property Taxes When You Buy A Foreclosed Duplex

February 25th, 2010 categories: Buying A Duplex

If you want to get a muddy answer, call your local property tax assesor and ask what the city or county’s policy is on resetting the market value on a foreclosed property after you’ve purchased it.

Some time ago I heard Dakota County, for example, would not reduce a foreclosed property’s market value to the amount it sold for.

That seemed incredible to me. After all, if something has a tax assesed market value of $300,000, but sells for $150,000, hasn’t the market established that it’s only worth $150,000?

Apparently not. Well, sort of not.

Dakota County is working off of property values from two years ago. This year’s sales, for example, will be logged into their computer program. Whatever standard it arrives at is applied to all the properties in the county, calculated, and new values determined.

The following year the county then sends out a notice to property owners informing them of what their property taxes will be in the year that follows.

So, sales in 2008 were tallied, and new totals sent out in 2009. These totals informed property owners what they would be paying in 2010; giving them much of 2009 to argue against the county’s case.

In other words, if the real estate market is bad this year, we should see overall reduced market values for tax purposes, which will result in lower property taxes in 2012.

According to the assessor’s office in the city of Minneapolis,  their model calculates market values on “open market arm’s length transactions”.  A property is valued on whatever the comps are and, as the city realizes most foreclosures and short sales are sold at deep discounts, those transactions are largely excluded from the valuation process.

So, taxable market value is largely based on what properties offered by traditional sellers sold for. Of course, these properties are down in value too, but not nearly to the extent of those involving banks in the transactions.

Buying a foreclosed duplex may or may not result in lower property taxes down the road. And it’s important to not project any sort of savings as part of the income property analysis worksheet you do prior to writing an offer.

Clear as mud?

Spoken by Kari Lundin | Discussion: No Comments »

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