Minneapolis duplex prices are up. Way up. And that has lead to prices the likes of which we haven’t seen in years.
While this is great for duplex, triplex and fourplex sellers, it also creates a couple of problems.
One of the biggest is FHA lending limits.
When small multifamily property prices are high, it is usually a sign of buyers who are looking for an income property to live in, rather than as just an investment. Their goal is to reduce their own housing expenses and secure their finacial futures at the same time.
Most are using some form of loan available only to people who intend to live in their properties. These loans require a smaller down payment; usually somewhere between three and five percent. Many are insured by the FHA. FHA loans are simply loans with insurance that protect the bank in the event the borrower defaults.
The FHA has limits to the amounts they will insure. These limits vary by county. In the seven county metro area of the Twin Cities, the maximum amounts are:
- Single Family – $366,850
- Duplex – $469,600
- Triplex – $567,650
- Fourplex – $705,500
If a buyer chooses to purchase a property for substantially more than any of those limits, he or she must come to the table with any amount above that. For example, if a duplex is priced at $550,000, the borrower must bridge the gap between $550,000 and $469,900 and either put down $85,100 or 15.5 percent, at which point it makes more sense for them to use a conventional loan.
The problem is most of the buyers I work with either don’t have that much for a down payment, or have it and don’t want to entirely deplete their financial reserves.
This means there are fewer buyers looking for properties above the FHA lending limits than there are below. The trend I’m seeing in the Twin Cities duplex market is those priced substantially above tend to linger on the market a bit longer than those that are not.
If you’re thinking of selling your Minneapolis or St Paul duplex and are struggling with a price, it may be important to consider how many buyers can qualify to purchase your property. A large pool of buyers always results in a higher price.