How The Fear Monster Ate Your Minneapolis Duplex

I’m a good Realtor. I make sure that I never sell a property that has monsters hiding in the closets or under the beds.

I’m very brave. I lead the way into dark musty basements and sometimes, guided by only the light of my cell phone, fumble around attics for lights.

Too often my clients aren’t very brave. Many of them are afraid of monsters. And even when I tell them that I checked and the property doesn’t have any, they stare at me with wide eyes and fail to jump on a deal.

A friend once told me that the word FEAR is an acronym for False Evidence Appearing Real. I think he was right. I see plenty of evidence of it in today’s real estate investment property market.

What monsters are people most afraid of?

While on rare occasion I do meet investors who, for tax purposes, actually want to purchase a property with a negative cash flow, they are the exception rather than the rule. Most investors want a property to at least pay its own bills, or even create a small profit every month. No problem. I’m a monster buster.

When I first sit down with a prospective client, I make sure I ask what their goals are in purchasing a property. For some it’s to build wealth for retirement. For others it’s a way to move into a desirable neighborhood affordably. I always ask what price and payments someone is comfortable with.

Here’s the trick. I don’t send properties to clients that don’t meet their goals. I send an e-mail of a listing, then generally follow it with a second note which includes an income property analysis worksheet. If I do the numbers before you even look at, let alone purchase the property, it’s almost like monster-proofing. We know what numbers work, which don’t, and the point at which, if you own it, you might want to put locks on all the closets.

Average sale prices of duplexes the past few weeks have fallen from close to $200,000 last year to around $100,000. More than 90 percent of this fall’s transactions involve negotiations with a lender. Do we really think prices will fall by half again by October of 2009?

Sure, this is always a possibility. However, if we do our due diligence prior to the purchase can safeguard against this.

Is the property in a desirable neighborhood? Reasonable condition? Do the numbers work?

Let me offer an example. If a buyer puts $20,000 down on a $100,000 duplex, and the rents cover all of the monthly expenses, the initial investment is protected. If a buyer chose to sell a property shortly after purchasing it, he/she would incur closing costs, which would diminish some of the original investment. To protect against this, it’s important to try to locate a property that’s undervalued, or with a small rehab job, would appreciate quickly in value.

Yes, that even happens in today’s market!

I’ve been a landlord for 12 years. In all that time, I can count on one hand the number of tenants I’ve had who have truly been a nightmare. A comprehensive screening process can eliminate most potential problems. And if you get a call about a clogged toilet in the middle of the night, remember, your tenants have been kind enough to buy you a property.

Whenever we first try something new, it’s awkward. We make mistakes. Norah Jones is a pretty good piano player. But I bet she slaughtered “Twinkle, Twinkle Little Star” the first few times she played it.

I know, it’s scary. But here’s the deal. Your monster buster doesn’t go away. I’m always happy to help clients work their way through the maze. And if I don’t know the answer, I’m always willing to help find it. You’re not alone in this.

This fear is the most frustrating of all. It keeps people from acting. And I know, years from now, because of this they’re going to be haunted by the shoulda-coulda-woulda ghost.

The only way to get a good deal and make money is to actually buy one.

Don’t worry. I’ve killed a lot of monsters.