Duplex Chick

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You may have noticed things look a little different around here.

Well, at least if you go to my home page at www.duplexchick.com, they do.

In May, Duplex Chick was three years old. In Internet time, I think that’s roughly the equivalent of being 50, so it was time for an update.

I have a lot of visitors to and readers of my site who aren’t from Minnesota. And while I certainly have some geographically specific information, most of what I share fits duplex owners everywhere. So, my main home page reflects that.

For example, if you click on my Thinking of Selling or Considering Buying links, you can register to have my basic guides to either sent to your email account. The information in each is true nationwide, and I hope you find it helpful.

However, if you’re interested in more Minneapolis and St Paul specific information, you can either click on the Minnesota link or favorite this address: http://minneapolis.duplexchick.com/, you’ll arrive on a page that will allow you to access more Minneapolis and St Paul flavored information.

I hope you understand if there are some glitches here and there. This revamp has been underway for more than a year and in spite of all my best efforts, I’m sure I missed something.

Anyway, I hope you like it. And, as always, if you have any duplex or small investment property questions, just ask. I’ll do my very best to find an answer.

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It seems there’s some confusion about what, exactly, an FHA appraiser does and how that differs from a home inspector.

First, what is FHA? FHA is the division of the federal Department of Housing and Urban Development (HUD) that insures residential mortgages of one to four units.

When a buyer chooses to get an FHA loan, he or she is usually able to purchase a property using a down payment of as little as 3.5 percent, in exchange for agreeing to make a monthly mortgage insurance premium payment.

An FHA appraisal is conducted by a regular duplex appraiser. His or her primary job is to determine whether or not the property is worth the amount you’ve offered to purchase it for. That appraiser is also simply required to check whether or not the property meets FHA’s minimum criteria for them to be willing to insure the mortgage.

Some FHA red flags include things like peeling paint, broken windows and leaking plumbing. If the appraiser finds these things, he or she can require them to be repaired or replaced before telling the bank it’s OK to issue the loan.

A home inspector, on the other hand, is an independent contractor who goes through the duplex with a fine tooth comb on your behalf, looking for any immediate health and safety concerns, as well as anything that may be in imminent or future need of repair.

For example, a roof may be in good enough shape for the FHA appraiser to accept. However, the inspector can tell you the roof is nearing the end of its useful life and will need replacement.

An appraiser will check to see if a furnace is working.

A good home inspector will look to see if there’s a cracked heat exchanger in that same furnace which is emitting carbon monoxide and can kill you.

An appraiser will tell you if you’re overpaying for a duplex.

An inspector will tell you whether or not you’re going to have to put a lot of money into it.

A good inspector should give you an extensive report of the issues he or she found with the property. I have yet to see a perfect inspection report, so know that there will always be items for you to note.

Most will probably not be worth asking the seller to address. In fact, the most important are those that will concern the health and safety of you and your tenants.

Consider the rest a “to do” list.

For someday.

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I’ve recently met with several prospective duplex home sellers who, facing a slower real estate market, were surprised to find the IRS could save the day.

In each case, the property owners had owner-occupied their duplexes at some point in the last five years, ultimately moving out and renting their old unit.

Of course, one of the benefits of owner occupying a duplex is the ability to avoid any capital gains tax on the unit that wasn’t leased; provided the owner lived in the premises two of the last five years.

While I encouraged all of these sellers to consult a qualified tax professional, most reported back by selling now and avoiding capital tax on their half of the duplex, they would be saving thousands of dollars.

This was a bit of a silver lining for them, as it was as if they’d found some of the money they thought they’d lost; in the sofa.

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So if you’re facing foreclosure because you don’t have the money to pay your mortgage, how are you going to pay a Realtor to get the duplex sold as a short sale?

Simple.

You don’t have to.

Just as with any duplex home sale, Realtor’s commissions are paid out of the proceeds of the transaction. Typically, the seller agrees to pay the listing agent’s broker a percentage if the property sells successfully. That broker, in return, agrees to share a portion of the commission with the buyer’s agent’s broker.

And even though the duplex owner being foreclosed upon or conducting a short sale retains all the rights to the property up until six months after the Sheriff’s Sale, she isn’t responsible for the commission. After all, she’s not taking any proceeds from the sale.

But the bank is.

The Realtor’s commissions come out of the funds the bank will receive.

Short sales are among the most lengthy, labor-intensive transactions Realtors face; Realtors who, for all intents and purposes, work for the seller for free!

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Sometimes I wonder if duplex foreclosures have been good for Sears.

See, foreclosures often come with many things; abandoned socks, broken toys, dust bunnies…

But they don’t always come with appliances.

Believe it or not, big items like refrigerators, stoves, washers and dryers are considered personal property. As such, the party who lost the duplex to foreclosure has the right to either sell them on Craigslist before they leave, or put them on the moving truck. 

Even if there are appliances on the premises after the bank has taken possession, they can’t guarantee they’ll be there after closing. Most of the time they are, but theoretically anyway, they belong to the previous owner.

As a result, it’s always a good idea to budget for new appliances as you begin the duplex buying process.

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I have a high mileage Ford F-250 pickup that’s in the shop for the third time this year.  And I have to confess: I have a love/hate relationship with it.

On the one hand, when it’s running well, it helps me move heavy things, haul lumber home from Home Depot or pull lesser cars out of snow banks in the winter.

On the other, due to the 300,000 plus miles on the odometer, it breaks down a lot. Especially as of late.

So I’ve been thinking about selling it. Kelly’s Blue Book says it’s worth about $11-12,000 in it’s present condition. But I was thinking if I advertised it enough, I could get $30,000 for it.

After all, I’ve got at least that much into it.

Are you laughing?

You should be.

Believe it or not, as flawed as my truck logic may be, I hear it all the time from duplex sellers.

They tell me all about the repairs and improvements they’ve made to the property. They tell me about all its wonderful qualities. And then, inevitably, they tell me why they’re selling it.

More often than not, it’s due to a desire to change their lifestyle. That change may involve simplifying or streamlining their lives. Or, it may involve moving up to a bigger property.

No matter their motives, the fact is this: no buyer is going to pay a price for a property that’s based on what the seller “has into it”.

Just like my truck’s value, a buyer and her agent have determined value based on all the other properties they’ve seen on the market and those that have sold recently.

That’s also how the listing agent arrives at a suggested price.

In other words, I could spend a half a million dollars advertising my truck. And at the end of an elaborate ad campaign, a buyer and Kelly’s would still say the truck is worth $11,000. No one would be willing to pay more for it than the truck next door simply because it had its own web site.

True, advertising and marketing help drive buyers to properties.

But at the end of the day, it’s the market that tells you what it’s truly worth.

Just like my truck.

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One man’s junk is another man’s treasure.

According to the state of Minnesota anyway.

I was reminded of this last night when I a unit tenants had recently vacated.

It was a mess. Everywhere my clients and I looked there were pieces of broken furniture, abandoned clothing, framed posters on the walls…

All of which needs to be stored and taken care of by the owner, for the next 60 days.

Of course, that would involve cleaning up the duplex, boxing and packing the departed tenant’s belongings, and moving them to a storage unit. Or moving them to the garage. Or, I suppose, leaving them right where they are, which, I assure you, would not entice anyone to rent the place.

While it’s a pain, and the likelihood of recouping damages is remote, the landlord does have a claim against the tenant for the costs she incurs in boxing, moving and storing the property. Of course, recouping that may involve legal fees.

There is some good news. As a result of the passage of the “Tenants Bill of Rights”, after August 1, 2010, the number of days a landlord has to store abandoned property will drop to 28 days.

What’s more, regardless of the length of time, the duplex owner may sell the abandoned belongings once the required storage time has expired.

The owner must make a reasonable effort to notify the tenant of the pending sale at least 14 days before it occurs.  Notification must be in writing; either by personal service or certified mail.

Who knows? After all, there might be the Antiques Roadshow treasure buried in the trash.

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Thank God that shipment of newly listed single family homes and duplexes hit the market just in time for the expiration of the first time and repeat buyer tax credits.

I’m being sarcastic, of course.

But with 2,147 new single family listings for the week ending April 24, representing an increase of 19.1 percent over last year, and duplex and multifamily listings up 32.7 percent year over year, it does appear sellers were rushing to get their properties on the market before the incentives ended.

Traditional sellers represented a clear majority of the new to market duplexes, with 60,9 percent of the new listings. This represents a significant jump from last year’s 21.2 percent market share.

Of the multifamily properties that received purchase agreements over the week, 38 percent were offered by traditional sellers. While not the majority of the transactions, this figure nonetheless represents healthy improvement over last year’s 7.9 percent.

This increase in traditional seller market share may also account for the average off market price of $155,428 compared to $88,026 for the same week last year.

Have the tax credits had an impact? We won’t know until the numbers for last week come in, but pended single family home sales for the week were up 9.8 percent over the same stretch last year.

Guess we’ll have to wait until next week’s report to see if sellers, as well as buyers, benefited from the tax credit’s end.

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If you could swear you’re seeing fewer “For Rent” signs in area lawns and windows, you’re right.

A report by GVA Marquette Advisors released on Friday announced that Twin Cities vacancy rates dropped to 6.1 percent for the first three months of 2010.

This figure, while still historically high, represents a significant drop from last fall’s 7.3 percent vacancy rate.

While GVA Marquette Advisors tracks this data for communities with at least 10 units, trends in this sector also influence smaller multi-family properties.

Marquette’s report estimates that job growth and an improving economy lead to 1800 vacancies being filled in the metro area, with affordable urban and close-in units going first.

Of course, the increased numbers of vacancies the last few years has lead to more rent concessions and incentives. Collectively, this has lead to an average effective rental rate which is 2 percent lower than it was one year ago.

Continued vacancy rate reduction should, over the long term, force a shift in this trend as well.

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With just hours left to take advantage of either the $8000 first time home st  buyer or $6500 repeat buyer tax credits, you may find the inventory of decent dupelxes offered by traditional sellers and banks gone.

In fact, with time running out, you may feel a bit like Cinderella. Your carriage is about to revert to a pumpkin.

But fairy tales aren’t the only place where magic happens.

In this case, have your fairy godmother Realtor wave her wand at a short sale.

Legal counsel for Coldwell Banker Burnet’s parent company, NRT, has found that in order to qualify for either credit, a fully executed contract must be in place no later than 11:59 pm on April 30, 2010. Counsel further advises that a short sale is considered a legally binding contract when both the buyer and seller have signed the purchase agreement.

The fact that the lender still has to approve the terms doesn’t prevent the contract from being created. Therefore, that contract qualifies the buyer to earn the credit.

Of course, Cinderella still had to wait for her glass slipper to be returned. Duplex tax credit sales are no different. They must still close no later than June 30, 2010, in order for the buyer to earn the credit, which may or may not be problematic.