When I visit with Minneapolis duplex home sellers these days, one of the most common phrases I hear is, “We’re going to wait to sell until the duplex market comes back”.
When I ask how long they think that will be, they kind of shrug. It seems none of us knows the answer.
Here’s what we do know. Minneapolis lead the nation in the first quarter in year-over-year housing price declines. And while the duplex home market seems more stable (to me) than the single family home market, we aren’t yet at a point of any kind of value appreciation.
But what if we were?
How long would it take for a duplex or investment property owner who purchased a property for $400,000 in 2005, but now has a market value of $300,000, to recoup their losses?
Right now we have no or negative appreciation. At that rate, the answer might be “forever”. But I’m an optimist, so let’s go with the national, historical average of 3%.
If we experienced an average rate of appreciation of 3% starting right now, it would take 12 years for that duplex home owner to be back to where they started; and that’s before we factor in selling costs or any improvements made to the property.
If we applied a 5% rate of appreciation, which is closer to Minnesota’s pre-downturn historical average, it would take 7-8 years for that duplex seller to be even.
And if happy days were here again for 5 or more consecutive years and we experienced a 7% rate of appreciation, that same duplex home seller would have to wait for 5-6 years, just to realize the price they paid for the property.
But those assumptions require the use of the biggest word in the dictionary, “if”.
Reality is, however, many areas of the Twin Cities and the rest of the country are experiencing declining values, or, in some cases, neither a decline nor an increase in values.
If you’re a duplex home owner thinking of selling, or waiting out the market to minimize your loss, the question you have to ask yourself is “How long am I willing to wait?”