Comment
I spent much of the weekend showing duplexes. Nothing unusual in that really. But what was noteworthy about these excursions is I was once again reminded of the importance of bedrooms.
Bedrooms?
Yes. I had two separate buyers. Both were looking to owner occupy a duplex, both planning on using FHA financing, interested in southwest Minneapolis, and concerned as much or more about their portion of the payment as the amount of the entire mortgage payment itself.
One buyer was looking in the $300,000 range. The other in the low to mid $200s. As luck would have it, I found properties for each just six blocks apart from one another; same vintage, and many of the same amenities.
The two duplexes were priced $75,000 apart; one at $325,000 and the other near the $250,000 point. As always, I did an investment analysis worksheet for each, then carried my calculations one step further to arrive at the share each owner would be responsible for after rental income from the other unit.
I was surprised when I realized the more expensive property would cost my client just $100 more per month than my other client would pay for the less expensive property. And that amount was due exclusively to the difference in property taxes. Meanwhile, the $300,000 plus property was almost 400 square feet bigger per unit, with bigger kitchens and fireplaces.
Why was it so inexpensive to buy so much more?
said on January 9th, 2009 categorized under: Financing
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There was a time not long ago that a property had to be nearly perfect upon purchase in order to pass the strict inspection involved in an FHA
First, let me explain: the inspection during the appraisal process should not be confused with a home inspection. The FHA simply has its appraisers make certain a property meets certain minimum criteria before it will agree to back the loan.
Like most things in today’s real estate market, the FHA has had to change with the times. According to Vikki Boedekker at Burnet Home Loans, “FHA appraisal guidelines have relaxed while conventional guidelines have tightened up so the net result is that there are few differences on a practical level.” The key issues are: safety, habitability, structural integrity and marketability. The definitions of those things, she adds, “have gotten broader or more open to ‘common sense’ interpretation.”
While the FHA standards are extensive, five common maintenance items to be on the lookout for are:
- Flaking paint on properties built prior to 1978, or evidence of rotting surfaces.
- Electrical Service – while 60 amp service may be acceptable in smaller properties, larger homes may require an electrical certification or upgrade. Of course, any electrical wiring done by anyone other than a licensed professional may also be a red flag.
- Roofing- at least 10 percent of the roof should be exposed for inspection. If the roof is flat, it may warrant special attention.
- Plumbing – minor leaks are no longer required to be repaired unless there is evidence of significant damage as a result of the leak.
- Crawl Space – unvented crawl spaces are often a red flag.
The good news is FHA lender-mandated repairs totaling less than $5000 are no longer required to be completed prior to closing. And, of course, it’s virtually impossible to paint the exterior of any duplex in a Minnesota winter.
Of course, these relaxed standards are especially beneficial with the plentiful supply of foreclosed properties on the market. Many would actually sail through FHA appraisals. For a complete list of the FHA’s valuation conditions, click here.
said on January 5th, 2009 categorized under: Tenants
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When
Oprah Winfrey retires, pundits will cite the countless ways in which she influenced American culture and expanded our lexicon. One of the words sure to be mentioned in reviews is sure to be “boundaries”.
So how does this apply to owning a Twin Cities duplex? Well, one of the questions new landlords most often ask is my opinion on renting to friends. And frankly, Oprah is as close as I can come to offering a scientific answer.
I’ve had positive experiences renting to friends, as well as disastrous ones. I’ve even had to take a friend to court when she skipped town without paying four months of rent or for the considerable damage her dog had done to the apartment’s woodwork.
Four months rent? How did I let her get that far behind? Hey, she was my friend. She would get caught up with me like she promised, right? And in the years we’d known one another, she had bailed me out of a jam or two. I kind of figured I owed her.
Of course, she didn’t make a single payment until I took legal action. To her credit, once in court, she did come up with a payment plan and honor it. Needless to say, however, I lost the friend.
I’ve rented to friends since. But I do it differently now. I’ve learned to separate business from friendship and, by watching and hearing about enough Oprah shows, set boundaries. I treat all tenants the same, regardless of their personal relationship to me. Many tenants have become my friends, and the same principles apply.
Even if a friend turns out to be a terrific tenant, it’s important to know your duties and obligations as a landlord. For example, you’re responsible for health and safety repairs to the unit. However, if your friend asks you to install a $300 light fixture because you’re “buds” and it “would look great”, you are under no obligation to do so. They’ll try. Believe me.
How do you protect yourself and maintain the friendship? By sticking to the mantra, “No is a complete sentence”.
Example? “You want a new light fixture? Uh, no. How’s work, by the way?”
You’d be amazed at how well it works.
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It’s been difficult to tell how the Twin Cities duplex and single family home markets have been performing the last couple of weeks due to the Thanksgiving holidays in 2007 and 2008 falling during different weeks. That changes with this week’s
MAR activity report.
Of course, we Minnesotans like hunker down inside during the cold, dark winter months and we are distracted in the weeks ramping up to the holidays. Historically, housing activity reflects that. Overall in the single family home market, all the numbers were down in new listings, sales and total inventory.
The good news is pending sales for the week ending December 6 were up 27.6 percent, with 54.7 percent of these transactions involving lender-mediated short sales or foreclosures. There was little change in the amount of new inventory on the market as well, with new listings up just 0.7 percent over their mark for the comparable week in 2007.
Meanwhile, in the multi-family market new listings were down 10.8 percent from the same time last year. Of these properties new to the market, 86 percent are either lender-owned or mediated. This is an increase of 12 percent of lender-involved properties over the same stretch in 2007.
Pending small multi-family purchase agreements, on the other hand, continued their mind-numbing pace; up a full 300 percent over last year. Of the properties receiving offers, 93 percent were lender owned. Last year’s total represented 74 percent lender-mediated properties.
One non data-driven observation: several of the desirably located, more expensive bank involved properties received offers the first week of December. Several had lingered on the market over the summer. A number of comparable short sales which were newer to the market suddenly listed as pending as well; far more quickly than it has taken most short sales to be negotiated in the past.
Comment
The duplex sales engine kept rolling at a healthy clip for the week ending September 27, as pending sales of property were again up 144 percent over the same time last year.
The trend toward most of these transactions involving a lender-negotiated sale jumped as well. A full 92.3 percent of those multi-family units which received accepted purchase agreements involved either a short sale or foreclosure. This is an increase of 300 percent over the amount of lender involvement during the same period last year.
MAAR released its figures for the single family market this morning. Like their multi-family counterparts, home sales also continued to transcend the gloom, with pending sales up 58.4 percent from 2007.
For the first time in weeks, the number of new listings also increased; up 9.9 percent over last years numbers. Nonetheless, the market overall still has about 3000 fewer homes on it than it did at the end of September last year.
Single family homes are averaging offers that are 92.2 percent of their list price, with the numbers of days it takes to receive that offer up slightly to 145.
It’s important to remember, no matter the headlines, that loans are still out there for buyers with good credit and a down payment. Inventory is plentiful and interest rates remain near a 40-year low, offering investors and home buyers alike opportunities we’re not likely to see again in our lifetimes.
said on September 29th, 2008 categorized under: Financing
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The United states Capitol building in Washington, DC.
While I planned to talk about the process of filing an eviction action today, more pressing matters came up over the weekend in Congress. Consequently, I’ll pick up that discussion later in the week.
One of provisions Congress insisted on being in the
Emergency Economic Stabilization Act of 2008, or the bailout bill, was a provision requiring Secretary of the Treasury Hank
Paulson, to implement a plan for the mortgages and mortgage-backed securities the government acquires that encourages mortgage
servicers to modify the terms of the loans through programs like
Hope for Homeowners.
Hope for Homeowners was a 300 billion dollar provision of the Housing and Economic Recovery Act signed by the president in July. It was hoped that up to 400,000 homeowners struggling to make their payments due to bad loans would, with permission of their lender, be able to refinance into FHA backed mortgages at a significant discount.
Sounds like a great opportunity, right?
But of course, there’s a catch. While the underwriting guidelines for the Hope for Homeowners program won’t be unveiled until the program goes live October 1, as of now it appears that investors and investor properties that are not owner-occupied will not qualify for renegotiation. This would make sense, as only owner-occupants of one to four unit properties qualify for FHA backed loans.
Steve Linnin, a loan officer with
Hopeforhomeownersprogram.org, told me he believes that if an owner originally purchased and owner-occupied a multi-family property using an FHA loan, then later purchased another property for their primary residence, they too would be ineligible to refinance the mortgage on the first property under this program, as they no longer owner-occupy it.
This is not a panacea for everyone. The FHA has
caps and limits as to the amount of the loans it will back for various geographic areas.
It promises to be an interesting week.
said on September 25th, 2008 categorized under: Legal Stuff
Comment
The single biggest concern I hear when someone is considering whether or not to purchase their first income property is, “Yeah but, what if I get a bad tenant?”
Granted, “bad tenant” means different things to different people. To most, however, it is someone who either doesn’t pay rent, or is damaging a property.
Now, we all fantasize about the easy ways of getting someone out. In Minnesota, there are rules against acting out those fantasies. In other words, a landlord may not change the locks, keep the tenant entry into the building, forcibly remove the tenant or cut off utilities.
So, what do you do? You begin an Eviction Action procedure. You may begin this process for several reasons.
1. Non-Payment of Rent – The first and most obvious reason to evict a tenant is non-payment of rent. It is important to note, however, that once you’ve begun the eviction process, the tenant may cure their default at any time prior to your regaining possession of the unit by paying all of the past due costs, including your court costs. After they have done so, they are legally entitled to continue living on the premises.
2. Lease Violations.
As a property owner, it is of paramount importance that your lease have a “right of re-entry clause”. This gives you the ability to evict a tenant for damaging the property, disturbing other residents, or having unauthorized roommates or pets.
3. Illegal Activities in Minnesota
Again, examples of this are obvious, but they include prostitution, criminal gang activity, the manufacturing or possession of controlled substances, the unlawful use/possession of a firearm and of course, having stolen property on the premises.
4. Holdover Tenant
This is a someone who has either given proper notice they were moving out, or their lease has expired and you gave them notice, but for whatever reason, the tenant stays.
Next time, I’ll talk about the process.
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Real Estate Market Forecaster
I don’t know about you, but after Wall Street’s news yesterday, I’m watching my economic mood ring, looking for any change in color. Is it turning red?
As it does every Tuesday, MAAR released its weekly market activity report today. And, just like last week, this week’s report shows a substantial leap in pending single family home sales over the same period from last year.
Should we be happy?
Home sales rose 49.8 percent over their 2007 same week mark. It’s important to keep in mind that the screeching halt of home sales in August and September of 2007 was unusual. What’s interesting to note, however, is that the Twin Cities metro area home sales are currently slightly ahead of the pace set in 2006; which was a time when most of us thought everything was right with the real estate world.
Duplex sales continued at an equally healthy clip, being 240 percent ahead of the same week last year. While only 20 percent of last year’s sales for the period were lender-owned, 79 percent of this year’s transactions involved a bank. While that seems high, 79 percent is down significantly from the figures we’ve seen all summer, which have been in the 89 to 95 percent range.
Why the flurry of activity? Speculation is that buyer’s have been scrambling to take advantage of the closing window on seller-assisted down-payment programs like Nehemiah, Ameridream and Genesis. Of course, reduced interest rates and the new $7,500 federal tax credit may also be at play.
Another noteworthy statistic is that the supply of the number of homes for sale is presently down 9.0 percent from the same time last year. Again, these figures are in keeping with those of 2006; when we all were in a much better mood.
Comment
It’s not news that there are a rash of foreclosures and short sales in the real estate market. Some of this is due to fraud. Some due to spikes in interest rates in adjustable mortgages forcing monthly payments into the stratosphere.
But what might be news is that many foreclosures and short sales are the result of normally responsible people either going to refinance or sell their homes and discovering due to the plethora of foreclosures on the market, their home can no longer appraise for what they bought it for.
If you’re a homeowner and have to move, what do you do? Odds are you opt for a short sale. Or, if things are really dire, a foreclosure.
But here’s what the national media isn’t saying. Once you have a short sale on your credit report, you can’t buy another home for anywhere from three to five years. Foreclosure? Try seven years minimum. Not pretty either way.
What does this have to do with the Minneapolis and St Paul duplex markets?
Well, where are those short sale and foreclosure folks going to live? They’re going to need to rent. As many of them as there are, demand for rentals should soar, which due to that old supply and demand law, will force metro rents to increase. Of course, that means more money in landlords’ pockets.
Makes it seem like a pretty good time to buy rental property; whether a duplex, house or apartment building, doesn’t it?
said on September 4th, 2008 categorized under: Home Repair
Comment
As we head into fall and winter, it’s easy to remember that heat is one of the biggest expenses any Twin Cities landlord faces. That is, of course, if a property has a single boiler or furnace. Another expense, however, which can inexplicably jump and cause diminished cash flow, however, is water.
I learned this the hard way. Which, unfortunately, seems to be how I learn best. In my 23 unit apartment building, my water bill inexplicably jumped from $800 per quarter to over $2000.
Of course, I immediately called my handyman, and we went through the building one unit at a time. We checked the usual for the source of the spike: dripping faucets, running toilets and more people living in a unit than were reflected on the lease. We found some small drips, but nothing that could account for such a radical jump.
So we asked some questions of the tenants. Guess what? One of the three washing machines on the premises repeatedly filled with water, drained, and then repeated the process: over and over again. Ad infinitum. We simply unplugged the machine until the appliance repair company could come out. The next month, the bill dropped below what it even had been in the past.
My lesson? It doesn’t hurt to do regular apartment inspections to find water issues.
I spent much of the weekend showing duplexes. Nothing unusual in that really. But what was noteworthy about these excursions is I was once again reminded of the importance of bedrooms.
