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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.
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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 No matter how new or old your duplexor house is, sooner or later something’s going to break, become outdated or wear out.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.
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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.
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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.
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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?
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8 Reasons A Minneapolis Duplex Is Still A Good Investment
November 13th, 2009 categories: Multi-Family Property Investing
In today’s turbulent real estate market, it’s easy to dismiss the idea of real estate as a long term investment strategy.
On one level, this makes sense. Prices are down; there’s a threat of more foreclosures on the horizon which may cause prices to tumble further. Vacancy rates are up, causing more landlords to scramble to find quality tenants and, in the competition to do so, rents to go down.
Maybe it’s better to just leave your money in the stock market, right?
Real estate as an investment isn’t just about how much a duplex goes up in value. In fact, appreciation is just one of the eight ways you benefit by owning investment property.
Real estate provides you with:
- Equity Growth – due to your ability to use leverage, your equity grows much more quickly in real estate than it does in other investments.
- Principal Paydown – every month a portion of your mortgage payment on the property is paid off by rent collected from tenants. Even if the duplex never goes up in value, and you continue to pay off the mortgage over thirty years, at the end of that time you would have the equivalent of the initial purchase price in equity. Managed properly, the only money you would have into it would be the original downpayment required to obtain the loan.
- Increasing Annual Income Stream – on average, the amount of rent you collect every year will increase. This revenue will continue to grow in accordance with the cost of living; providing you with spendable income that has adjusted to economic conditions.
- Leverage - using some of your money as a down payment, banks are, for all intents and purposes, willing to partner with you on a property. If you want to buy a $100,000 duplex, simply put up $25,000, they’ll put up the other $75,000, and pay them back with some interest. Left to your own devices, you’d only be able to buy a $25,000 duplex. But thanks to banks, you can leverage your way into real estate wealth.
- Early Withdrawal Penalties/Annual Contribution Limits – the positive cash flow your property earns is spendable income. It is not subject to early withdrawal penalties or limits to the amount of money you can save.
- Depreciation/Tax Shield – every year that you own a duplex, the government allows you to shield some of your income in the form of depreciation. Essentially, depreciation is the rate at which the government says something gets used up. And because something is, at least theortetically, wearing out, you get a tax break.
- Appreciation – there will come a time in the not too distant future that property goes up in value again. The duplex my grandparents lived in before World War II is today worth approximately 22 times what it was when they were tenants. Historically, there’s no reason to think a duplex won’t cost even more twenty years from now.
- 1031 Exchanges/Cash Out Refinances – both of these are methods for you to harvest the money you’ve earned in both appreciation and principal paydown and reinvest it in bigger properties with greater returns; tax free.
Not all of these reasons to invest in real estate are obvious to a new investor. However, they are the very reasons real estate will always be a terrific financial strategy.
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Twin Cities Duplex Market Develops Facial Hair
November 10th, 2009 categories: Twin Cities Real Est
The Minneapolis duplex market is like a 12-year-old boy. On the surface, it looks the same as it has for the past few months or years. And yet, every now and then, there’s a hint of a new, deeper voice.
MAAR’s weekly activity report came out today. And while single family home sales are still up 42.9 percent over the same stretch last year, with most properties receiving offers that are, on average, 94.6 percent of the list price, the truly interesting news is in the duplex market.
One year ago, just 10.53 percent of the Minneapolis and St Paul duplexes that received purchase agreements were owned by traditional sellers.
This year, banks were not present in 33 percent of the pending transactions.
Last year, the average off market price for the week of a Twin Cities duplex was $120,860. This year, that number was $137,883.
While there were eight percent fewer listings year over year, the better news is that 44.44 percent of that new inventory this year is offered by traditional sellers. This represents a growth spurt of 20 percent year over year, which will ultimately be good news for the market.
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FHA Ruins Minneapolis Fourplex Party
October 1st, 2009 categories: Buying A Duplex, Multi-Family Property Investing
In a lending market that requires an investor to put 25 percent down on a four unit property, and an owner occupant just 3.5 percent on the same building, it would seem happy days are here again for live-in landlords.
After all, don’t more units always mean more money?
In this case, yes. And yes.
It seems the FHAdoesn’t want any one of us to have too much fun. So, they’ve imposed something of a curfew on the triplex and fourplex market.
Guess what?
Before they’ll even think about giving you a loan, they want to know the net rental income of the property is greater than or equal to the monthly payment. In addition to the mortgage itself, the monthly payment also includes property taxes and insurance.
And with property taxes being based on the artificially high values of a few years ago, that’s tough to do.
What’s the net income? Well, that’s 75 percent of the rent collected from the three units you don’t intend to live in. In other words, the property has to be able to pay for itself with 75 percent of the revenue collected from just 75 percent of the units. Read the rest of this entry »
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Minneapolis Duplex Market Race Heats Up
September 29th, 2009 categories: Twin Cities Real Est
On your mark. Get set. Go!
As the summer drew to an end, the race to qualify for the $8000 first time home buyer tax credit before the November 30 deadline started a mad dash toward the finish line.
The numbers are staggering.
Pending home sales for the week ending September 19 were up 33.5 percent over last year’s total for the same week.
New listings were up slightly too, with 3.2 percent more new inventory coming on the market than the same week in 2008.
Duplex and small multi-family sales in the Twin Cities were also up 35 percent from their 2008 mark.
But here’s the staggering part. The average number of days a duplex was on the market before selling last year was 89.9. This year? 41.5. In other words, the average market time for a duplex has dropped by more than half.
Of those properties that received purchase agreements for the week, 84.8 percent involve negotiations with a lender. This is up slightly from the 79.4 percent of the sales for the same week in 2008. Last year, 76.5 percent of the properties that sold were at prices under $200,000. For the same week this year, 66.7 percent fell below that mark.
The average off market price of a Minneapolis or St Paul duplex for the week was $128,780. This represents a drop of a mere one percent when compared with 2008.
The amount of new inventory also continues to drop; down 27.7 percent from the week in 2008.
Again, much of this activity may be the result of the approaching deadline for the tax credit. We’ll have to wait until December to analyze the results.
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Minneapolis Duplex Sales Weekend At The Lake
September 22nd, 2009 categories: Twin Cities Real Est
MAAR released its weekly activity report today and, once again, due to Labor Day falling late this year, it skews any comparisions of the first weeks of September for 2008 and 2009.
At least in the single family sector anyway.
New listings for the week ending September 12, 2009, were down 12.9 percent from the same week in 2008. While pending sales dropped dramatically during the holiday stretch from the week before, the good news is they were actually 7.3 percent higher than they were one year ago.
Meanwhile, the small multi-family market buyers and sellers didn’t seem to notice there was a three day weekend.
Pending sales were actually up 25 percent week over week, with 73 percent of this year’s purchase agreements coming on lender mediated properties. This is not dramatically different from the 23 percent involving a lender at the negotiating table in 2008.
The average off market price for the week, however, was $111,890; down from 2008’s $124,100.
There were 43 percent new listings for the week than last year. While upon initial glance this may seem to be last-weekend-at-the-cabin related, the 46 new listings are not too far off the weekly average for the year. Seventy percent of these new duplex opportunities will involve lenders in the negotiations, compared with the 59 percent that did for the week last year.
Next week should provide a more accurate reflection of marketplace patterns.
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