Over the last few weeks, a number of readers from all over the country have about the $8000 first time home buyer tax credit, whether it applies to a duplex or multi-family property, and if so, how much of it does so.
I’m not bothered by the questions. In fact, I love to help. However, I am embarassed for my profession that many of these questions came from people already working with Realtors in states where I’m not licensed.
Your Realtor is not only your guide to seeing property, but he or she is also responsible for looking out for your best interests. And while there are many good agents working in the residential market, not all of them fare as well when it comes to duplexes and small multi-family properties.
And an agent who doesn’t know what they’re doing can result in you ending up in foreclosure.
Well, for example, many agents simply don’t know how to do income property analysis. They may say something cash flows; but use projected (not actual) rents in their calculations. Or, worse yet, have done the math without including the mortgage as an expense.
Many of the foreclosures we’re seeing in this sector of the market are the result of justexactly that.
How can you tell if an agent knows what she’s doing? Here are a couple of easy questions which will let you know in a hurry if they’re in over their heads.
Can you give me a pro forma on this property? (Simply a fancy term for an income property worksheet.)
How much of the rental income can I use to help me qualify for the loan? Answer: 75 percent.
Does a duplex, triplex or fourplex qualify for the first time home buyer tax credit? Answer: yes.
What are the vacancy rates in the area? Where can I find them?
When would you recommend I close on the property?
The last is a trick question. If you’re buying a single family home, most Realtors recommend closing toward the end of the month. As interest on your mortgage is charged daily, this helps save you the interest charges that accrue in the month before your first house payment is due. If the Minneapolis duplex is vacant, you should close at the end of the month.
However, if the property is occupied, you should close toward the beginning of the month. Won’t you pay more in interest?
However, your Realtor should have an addendum that requests the rents be pro-rated from the day of closing. In other words, if you close on the second day of a 30 day month, you will receive 28 days of rent when you take ownership of the property. You will also receive rent on the first of the following month before you have a payment due.
This extra cash gives you a bit of a financial head start in case of vacancies or needed repairs. It’s also a really good way to figure out whether your agent knows what she’s doing.
And of course, if you’re having trouble finding a Realtor in your area who’s competent in the multi-family market, let me know. I’d be happy to help you find the right agent for the job.