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Is It A Good Time To Rent A Minneapolis Duplex? Or Buy?

January 7th, 2010 categories: Multi-Family Property Investing

Today’s Wall Street Journal real estate blog post debated whether or not it’s a good time to sign a lease.

With higher vacancy rates due to unemployment, the article suggested rents will continue falling for the next few months. 

After all, landlords are offering incentives and slashed rents just to fill vacant units. Therefore, the article stated, it might be a good time to negotiate a better deal on a lease.

Of course, if you’re a prospective landlord, those words cause a sick feeling to start brewing in the pit of your stomach. Who would want to invest at a time when it will be so hard to fill vacant units?

As the article continued, however, there was a single line that nearly screamed out the fact that it is, in fact, a great time to buy.

It read, “Demographics favor landlords as the echo-boomers (the children of the baby boomers) will swell the ranks of apartment renters at a time when new supply is limited.”

Echo-boomers?

At a population of nearly 80 million, they are the largest generation since the 1960’s. In fact,  they represent nearly one-third of the entire U.S. population.

So?

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Spoken by Kari Lundin | Discussion: No Comments »

Why That Foreclosed House May Not Be A Good Investment

October 26th, 2009 categories: Multi-Family Property Investing

With the bargain basement prices on single family home foreclosures in the marketplace, I’ve been getting calls from homeowners who, seeing the cheap house down the street, are thinking about becoming first time real estate investors.

I like that they’re thinking like that. Real estate offers investors growth in equity, an annual passive income stream that grows with the cost of living, appreciation, leverage, and the opportunity to use depreciation as a tax shield from other income.

However, most of these novice investors are thinking of single family home ownership as a path to wealth. What they don’t realize is more often than not, single family homes as rental properties do not cash flow.

In other words, the investor will have to reach into her pocket every month for money to pay the bills the rent doesn’t cover.

A duplex, on the other hand, will pull its own weight.

Surprised?

For the first time in decades, small multi-unit properties like duplexes are actually breaking even or producing positive, spendable cash flows.

To illustrate this point, this morning I pulled two properties from the Nokomis neighborhood from the MLS. The first is the least expensive home listed in the area of 42nd and Cedar.  It’s a short sale, built in 1949 with two bedrooms and two bathrooms, listed at $149,900.

Just a couple of blocks away is a 1947 built duplex, priced at $145,000. It has two bedrooms on each side, appears to be in reasonable condition,  and is a bank owned property.

Both require similar down payments, and will have mortgages at the same amortization and interest rates.

Assuming rent of $950 per month on the single family home, with the tenants paying all utilites, and the investor responsible for insurance and property taxes, this home actually has a negative cash flow of $1149.54 per year. In other words, every month, the owner has to reach into her pocket for cash in order to make up a shortfall of $95.80.

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Spoken by Kari Lundin | Discussion: 1 Comment »

There’s No Free Lunch With Minneapolis Duplex Ownership

October 23rd, 2009 categories: Multi-Family Property Investing

Among the many advantages of being a Realtor with a national and internationally known company like Coldwell Banker are the networking and educational opportunities available as a result of having a presence in so many diverse locations.

For example, today Coldwell Banker Burnet brought in Jon Swire, a multi-residential investment agent from Coldwell Banker, Beverly Hills, Calif., and author of the book, There’s No Free Lunch In Real Estate.

An income property owner himself, Swire stressed time and again in the day-long seminar why now is one of the best markets in years to get started in real estate investing.

First, interest rates on mortgages are at historic lows, meaning the cost of the debt on an investment property is cheap.

Second, due to the foreclosure crises and overall meltdown in the real estate market, prices are low.

Finally, Swire reminded us that all the money the federal government borrowed to fund the stimulus package will ultimately result in inflation. Inflation will cause the prices of everything to increase; including rent and the purchase price of the properties themselves.

Granted, after the binge and purge of the market the past few years, it’s easy to experience a loss of appetite for real estate investing. What if property values continue to decline?

However, many of today’s foreclosed duplex properties are the result of speculative buyers who failed to do adequate cash flow analysis at the peak of the market.

Remember, a property with a negative cash flow is a liability, not an asset. As long as a duplex, triplex or fourplex generates enough income to cover its debt and expenses, you can hang on to it indefinitely; regardless of what the market is doing.

If you’d like to learn how to do the numbers, drop me a line.

Spoken by Kari Lundin | Discussion: No Comments »

Minneapolis Duplex Owners Should Head For The Basement

July 23rd, 2009 categories: Tenants

The Minnesota Multi-Housing Association should hire Belinda Jensen.

I don’t think she knows a thing about renting or owning duplexes. But I think a storm’s a comin’, and somebody needs to forecast it.

So I will.

There’s a tornado on the horizon for Minneapolis/St Paul duplex owners and landlords.

It’s a great big, dark, ominous-looking vacancy rate resulting from the $8000 first time home buyer tax credit.

I can’t even tell you how many people I’ve spoken with in open houses and general conversations who a) are planning on taking advantage of the tax credit and b) are on month-to-month leases.

As the tax credit expires November 30, 2009, how many move-out notices do you think landlords will receive on October 30?

I’m guessing about 17 inches worth.

While it’s always wise to keep your tenant’s leases current, it is especially important to make sure you have them under contract now.

If you don’t, I’m predicting a long, cold winter.

Spoken by Kari Lundin | Discussion: No Comments »

FHA Wins Minneapolis Duplex Financing Wars Again

July 16th, 2009 categories: Financing

It sounds presposterous, but a client actually had a computer glitch significantly delay his purchase of a duplex the other day.

As he was using FHA financing, the glitch involved a software problem in the computer system of the federal government. Basically, he had written an offer earlier in the year on a different property, which we were unable to successfully close on.  And somehow, the “case number” assigned to the loan he never got remained in the system.

When he went to get a loan for a different property, the government’s software prevented it. After all, you can only have one FHA loan at a time. And the computer said he was applying for a second one. The computer is always right (sarcasm intended).

So I went about looking for alternatives. After all, there are no limits to the number of conventional loans a buyer can have at one time. And I hoped there was a loan product out there with perhaps a down payment of just a little more than FHA’s mandatory 3.5 percent. Perhaps we could find him a conventional loan that required just 5 percent down.

And then I learned something.

While conventional loans on single family homes presently require the buyer to have a minimum of 10 percent down, duplexes are another matter entirely.

We all know investors are required to put 20 – 25 percent down in today’s market. So it should be something less if you’re buying the duplex to live in, right?

Nope. Owner occupants who use conventional financing for their multi-family properties are required to have a 20 percent down payment.

Sadly for my client, it looks like FHA is still the best game in town.

Spoken by Kari Lundin | Discussion: No Comments »

The Worst Duplex Investment Advice – Ever

July 10th, 2009 categories: Buying A Duplex

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.

Spoken by Kari Lundin | Discussion: No Comments »

The Ups And Downs Of Minneapolis Duplex Vacancy Rates

July 9th, 2009 categories: Multi-Family Property Investing

If you worked your way through all the Michael Jackson media this week, you might have heard about the report released by Reis, Inc., announcing the national apartment vacancy rate hit a 22-year high in the second quarter.

Reis, a New York based real estate research firm, also found vacancy rates rose nationally to 7.5 percent; an increase of 1.4 percent from the year before. Of the 79 markets they track, 45 showed increased vacancies.

Of course, Reis charges a small fortune for their reports. None of the information leaked to the media  so far included the Twin Cities in either the list of ten worst or best markets. We’ll have to wait for Saturday’s version of their report in the Star Tribune to know where we stand.

How does this impact a Minneapolis duplex owner?

Vacancy rates and rental income are like a teeter totter. When one goes up, the other goes down.  So it comes as no surprise that Reis says the amount of rental revenue dropped as well.

Why the increase in vacancies at a time when so many people are losing their homes?

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Do You Pay More In Interest When You Buy A Duplex?

July 6th, 2009 categories: Financing

One of the most common questions I get is, “What’s the interest rate on a duplex?”

And as I do with so many of my answers, I always begin with, “It depends”.

If you plan to live in the duplex, your interest rate will be exactly the same as it would be if you were buying a single family home to live in.

However, if you’re purchasing the property strictly as an investment, your interest rate will be anywhere from one to three percent higher.

If, for example, the going rate is five percent on single family homes, expect to pay anywhere from six to nine percent interest on an investment property.

Of course, the interest rate each person qualifies for is determined by a number of factors, not the least of which is credit scores.

Spoken by Kari Lundin | Discussion: No Comments »

What’s The Heat Cost On That Minneapolis Duplex?

July 3rd, 2009 categories: Buying A Duplex

Someone asked the other day what the average heat bill on a duplex was.  I couldn’t answer.

See, utility bills like heat, electric, water and sewer are as unique to a property as they are to a single family home. The cost of each is dependent upon the number of people who live there, the square footage of the unit, the type of heat, which utilities are tenant paid and which the landlord takes care of.

If you’re buying a duplex, however, there are a couple of  ways to find out what the utility bills are.

As a contingency in your purchase agreement, you can always ask the seller to share copies of utility bills with you prior to closing.

Or, in the Twin Cities, you can simply call the utility companies and ask to tell you. Many of the power companies will give you a number that represents a monthly average. The water department, on the other hand, may offer precise figures.

In either case, it’s always wise to be fully informed of the costs involved in owning any income property before the seller gives you the keys.

Have a happy and safe holiday weekend!

Spoken by Kari Lundin | Discussion: No Comments »

How Much Should You Put Down On A Minneapolis Duplex Contract for Deed?

June 25th, 2009 categories: Financing

With today’s tightened lending standards, many investors are having a difficult time finding financing. As a result, the contract for deed has once again emerged as a viable option.

I have had two buyers ask me this week alone to find them property where the seller is willing to do the financing.

Believe it or not,  there are properties on the MLS right now where this is an option. Many sellers, for whatever reason, simply need to no longer have the managerial responsibilities of a property.

Of course, the seller also wants to make money on his duplex.

While most forms of seller financing carry a higher than market interest rate, they often also require less of a down payment. At the moment, most banks are requiring a down payment of 25 percent on a non owner-occupied investment property. Private sellers willing to carry financing will often ask for less.

How much less?

Let’s look at it from the seller’s perspective.

If his duplex is actively on the MLS, he has signed a contract with a real estate broker. In the event the property sells as a result of his Realtor’s efforts, he is legally bound to pay a commission based on a percentage of the sales price.

So, if he’s bound to pay six or seven percent in commission on say a $200,000 property, that’s $12,000-$14,000.

In that case, is he going to be ok with a buyer putting $5000 down?

Probably not. If he did, he would have to go into his own pocket to pay not only the rest of the commission, but closing fees as well.

What’s the likelihood of finding a seller willing to do this?

You tell me.

Spoken by Kari Lundin | Discussion: No Comments »

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