Archive for October, 2008



I think it’s fair to say that as a nation, we are collectively in a bit of a bad mood.
Every day, the media tells us how bad things are. Wall Street is down. Wall Street is up. The $700 billion government bailout bill will solve the banking crisis. The buyout wasn’t enough. Foreclosures are on the rise. Interest rates too. And we still haven’t dragged Bin Laden out of his cave.
We’ve begun to believe things are bad and getting worse. We’ve pulled in the tentacles of our lives. We’ve stopped buying houses and cars, stopped buying things we didn’t need. We’ve heard and talked more about the Great Depression than we have since reading The Grapes of Wrath in high school.
No wonder this country seems to need an industrial strength anti-depressant. Thankfully, one is on the way.
With the election finally days, not weeks away, next Wednesday we can start thinking about a new beginning. No matter the outcome, someone new will be in charge come January. We’ll have a chance to start over.
And with that new beginning will come hope.
Hope drives markets. If we believe the housing market is bad, it is. If we’re optimistic and convinced things will improve, they generally do.
I’m looking forward to it.


In today’s real estate market, many buyers are alarmed when they see the words “as is” in an MLS listing, or are asked to sign a corresponding addendum as part of the purchase agreement. In their minds, “as is” translates to a Pandora’s Box of problems and surprises that they have no right to know about until they own the property.
But they’re wrong.
Generally, buyers see this phrase in three situations. First, the property is bank owned. As the banks employees have never lived in the property, and in all likelihood have never even been in it, they have no knowledge of a history of water in the basement, leaking roofs or ice dams.
The second usually occurs when the property is an estate. In that case, the seller has passed away, and the property is being sold by his heirs. Now, the kids might remember dad saying something about a roof leak in the duplex a while back…but was it in 1998 or last year? In other words, they may be able to remember some things, but probably not to a legal certainty.
The final situation may occur when a seller simply doesn’t want to make repairs or vouch for the condition of the building.
If a buyer decides to purchase an “As Is” property, he still has the rights to review a Truth-In-Housing Report (if required by city) and to hire an inspector for a thorough going over. In the event something troubling is found, he may then either ask for it to be repaired or attempt to renegotiate the price.
It is important to remember when contemplating the purchase of an REO property that banks are in the money business, not the home repair business. Most of the time, they will opt for a price reduction.

Half-Price Sale of Minneapolis Duplexes Continues

said on October 28th, 2008 categorized under: Twin Cities Real Est


Well, it’s Tuesday; meaning it’s time once again for the Minneapolis Area Association of Realtors weekly market update.
Just as in September, the upward movement continued, posting gains over last year’s numbers. In all, the single family home market posted 618 pending sales (signed purchase agreements), which represents an increase of 9.6 percent over the same time in 2007.  This was the fourth month to show those kinds of gains.
Meanwhile, new listings of single family homes were down 18.1 percent. To date, we’ve had approximately 3000 fewer homes on the market this year than there were last year. Remember, banks don’t “wait until spring” to sell, so there should continue to be a good selection of property to choose from over the winter.
The multi-family market continued to post triple digit gains over the same time frame last year. While down substantially from last week’s staggering mark, signed purchase agreements were nonetheless up 206.7%. New listings are down 17% from their equivalent October 2007 mark.
Here’s the truly staggering part. Last year’s average pending sales price was $264,033. The week ending October 18, 2008? Just $87,663.
As I said last week, I really can’t imagine them dropping to the mid forty thousands in 2009. Can you?


These days, it seems Wall Street might as well be the name of the latest Wes Craven horror movie. It’s been a financial bloodbath featuring screams in the night, followed each morning by another casualty and the utter inability of police or government to track down the villain.
More often than not, it’s the potential victims; the scream queens in these nightmares who save themselves. And around my office, I have witnessed more and more of them doing just that.
More and more people are turning to real estate to protect what’s left of their stock portfolio money. But doesn’t real estate have its own sequel to “Halloween” under way? Yes. And no.
Real estate investment properties have four benefits: appreciation, principal pay down, tax savings and cash flow. Many investors during the boom years mistakenly focused their purchases on appreciation. The thinking was, buy now and sell when the market goes up. No matter the market conditions, this is roughly the equivalent of a bunch of teenagers going to a cabin in the woods toting nothing but alcohol for self-defense.
What are today’s investors focusing on? CASH FLOW. It’s what investors should always focus on, regardless of market conditions.
Won’t the property go down in value? Maybe. Maybe not. But if you take the money in your stock portfolio and invest it in the right rental property, as long as it’s rented, you’re realizing a return on your investment.
Example? If you have $100,000 in the stock market, and the value of the stocks you hold plummets or the companies you’re invested in don’t realize profits, you not only lose your original investment, you don’t collect dividends either.
If you took the same $100,000 and purchased a rental house, duplex or fourplex, however, you would continue to benefit from the positive cash flow created by rental revenue, regardless of the decline or appreciation of the property itself.
As chronicled here before, those people who are experiencing short sales or foreclosures on their own homes will not be eligible to purchase a property via a conventional mortgage for anywhere from three to seven years. Those folks are going to need to live somewhere.
The happy ending? Right now, there are actually properties on the market, in decent condition, that cash flow at rates of return not seen in a decade.
I wonder what Jamie Lee Curtis is doing with her money…

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A relatively new landlord contacted me earlier in the week and asked some terrific questions.
In an effort to have the other side of her unit occupied before the first mortgage payment came due, she rented to someone with less than perfect credit. Just five months into the lease, the tenant was already late on one month’s rent. While the gas, phone and electric are in her tenants names, she’s certain they are also behind in some of these bills.
While the tenant has stable employment and worked with her to make amends on the late rent, he’s uncertain how he should approach the potential utility delinquencies. A friend suggested he contact the utility companies to check whether the bills have been paid on time.
What, if anything, can she do?
The answer is, not a lot. Maybe.
According to Xcel Energy, provided it’s delineated in the lease that the tenant is responsible for the utilities, the landlord is absolved from any obligation to pay these bills. Of all the utilities involved in living in a property, it is only the water bill that follows the property. The rest follow the person whose name they were in.
What’s more, sharing the current status of payments with an unrelated third party is a violation of most utility companies privacy policies.
There is, of course, an exception. If the lease contains a clause stating falling behind in utility payments is a violation, the tenant and property owner may mutually sign a third party notification letter. This letter is then sent to the respective utility companies. In the event the tenant falls behind, it is mailed to the landlord at his service address. If the letter is not pre-signed by both parties, it cannot be sent.
It is important to note that the standard lease available through the Minnesota Multi-Housing Association does not contain a third party notification clause. It may be worth a short appointment with an attorney to have it and a notification letter drafted.
So what if there’s no letter, it’s the middle of January, and the tenant is so far behind the heat is shut off? Won’t the pipes freeze and burst, causing thousands of dollars in damage?
Not to worry. In Minnesota, which is a cold weather state, if the tenant has filed for the cold weather rule, Xcel will not disconnect any electricity involved in a heating system between October 15 and April 15.
The same holds true for Centerpoint; again, provided the tenant has applied for the cold weather rule exception. If they have not, Centerpoint will disconnect the gas, but during the winter months will notify the landlord of such with or without a third party notification letter. In the summer months, however, it’s important to note that Centerpoint does require a third party notification letter.
Excellent question!



Minneapolis/St Paul Duplex Sales Blow Up

said on October 21st, 2008 categorized under: Twin Cities Real Est


Holy cow Batman! The banks are taking a beating!
This morning, MAAR released its weekly sales report for the week ending October 11. Get this: of all the pending home sales posted in the metro that week, 47.3 percent, or almost half of them, involved a lender-mediated foreclosure or short sale.
The good news? Pending sales blew up – logging a 21.1 percent increase over the same week last year.
But that’s nothing. Duplex and small multi-family housing sales for the same October period flat out exploded; rising a staggering 428.57 percent over the same week last year.
Aren’t we in a financial crisis? Wasn’t the stock market tumbling last week? Perhaps investors saw opportunities in real estate. They should have. The average sale price for a duplex during the first full week of October last year was $192,067. For the same time this year? It’s $95,649.
How many of those sales involved banks? In 2008 a full 93 percent of them. Last year’s equivalent week represented 85.7 percent lender-mediated transactions.
Isn’t there a lot of inventory on the market? Well, the number of single family properties that came on the market were down 11.5 percent over those that became available at the same time last year. New multi-family property listings, on the other hand, were down a full 20 percent year over year.
I can’t imagine prices at this time next year will drop by half again. Can they?

Bailout Bill Helps Minneapolis Duplex Owners Go Green

said on October 20th, 2008 categorized under: Home Repair

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While it hasn’t received a great deal of media coverage, The Emergency Economic Stabilization Act of 2008, also known as the $700 billion bailout bill included several incentives for investors to go green.
For the next eight years, anyone who builds or renovates a multi-family, commercial or retail property and includes alternative energy features, particularly solar panels will receive a 30 percent tax credit.
Property owners who add small wind power (capacity of 100 kw or less) will also be eligible for a 30 percent tax credit, up to $4,000. This is in addition to any tax credits offered locally or from the state of Minnesota
The bill also offers a 10 percent tax credit for specific combined heat and power systems, as well as for geothermal heat pumps.
Taxpayers faced with the Alternative Minimum Tax will see their income tax limits increased through the use of energy tax credits. Alternative energy tax credits may now be carried over to the property owner’s next tax year.
It looks like a good time to go green.

Shop Now to Save Money On A Minneapolis Duplex

said on October 16th, 2008 categorized under: Buying A Duplex

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Lost in the commotion last week was a comment by former Federal Reserve Chairman Alan Greenspan. Remember him? Once upon a time we waited on and measured his every word. 
According to an article he wrote for “Emerging Markets” magazine, Greenspan believes the U.S. housing market will start to recover in the first half of 2009.

I agree with him. Not because I understood anything he said beyond the basic statement. After all, NPR‘s show Marketplace no longer does its weekly interpretation of what the fed chair said.

I’m sure my reasoning isn’t anywhere near as complicated as Greenspan’s anyway. Why do I think we’ll see prices level off in the first half of next year? Easy. The $7500 first time home buyer tax credit goes away on July 1, 2009.

Oh, things will look as if they’re still slow over the winter. After all, “We want to wait until spring” just might be the single phrase Minnesota Realtors hear most often. Well, either that or “we’re just looking”.

Here’s what I think is going to happen if you wait for warmer weather to buy or invest. There are going to be all kinds of people out looking, trying to beat that deadline. They’ll be looking for that perfect house, or great cash on cash return; and just like they did in 2005, they’ll compete for the “good deals”, forcing prices up.

Smart shoppers will look over the winter. Why? Historically, the best buys of the year have always been found between October through January.  There are less people looking. And this year, as the banks aren’t going to wait for the spring market to move inventory, there will be more to chose from than ever before.

I can’t believe the deals I’ve seen in just the last two weeks; a cash flowing duplex near Lake Nokomis, one in Crocus Hill, and a charming 1920’s five unit building in southwest. The “worst” of them has an 8 percent cash on cash return.

Contrary to what the media has lead us all to believe, loans are available. Yes, lending standards have changed, but they’re not ridiculous. Good credit, a job and a little bit of savings still go a long way.



Well, after weeks at the top of the charts, seller-assisted down payments fell completely out of the top 40 last week. And it appears the Minneapolis/St Paul housing market isn’t humming along the way it had as a result.
While the impact of the disappearance of the FHA down payment program is only a theory, statistics released by MAAR yesterday do reflect a drop in pending sales. Yes, sales were still ahead of the same week last year; to the tune of 3.5 percent. However, this figure is 15 percent below the increases marked in the last four weeks.
Of course, one week isn’t enough to either prove or disprove any theory. And home sales continue to surpass those logged in 2006; which most of us considered a pretty good year. Listings are also down 12 percent as compared to the same week last year, and 9.1 percent lower for the year. However, if this decline was in fact due to the end of programs like Nehemiah, Genesis and Ameridream, any thoughts as to the level of activity we’ll see as we near the $7500 tax credit deadline?
The charts for the small multi-family market, on the other hand, continued to dance right along. Pending purchases were up a whopping 369.23 percent over last year’s figure. A full 92 percent of the transactions for the week ending October 6 involved lender-involved seller. Just 61.5 percent of last year’s activities included lender involvement.
It is worthy to note that the average price of the 48 multi-family units whose sellers accepted purchase agreements was $98,082. The average sales price for the properties sold last year, however, was $163,500. A 40 percent weekly drop certainly isn’t indicative of an annual total. However it is tough to imagine that next year’s figures for the first week of October will reflect anything like a similar decline.
It must be a great time to buy.





If you’re a real estate investor looking for a property, you might want to hustle a little in order to save some cash. Yes, there are some incredible deals available right now; interest rates are dropping, and there’s a lot of inventory.
But that’s not necessarily why you should hustle. It seems our friends Fannie Mae and Freddie Mac (who purchase most loans from lenders) are offering one more. Due to market conditions, they’re about to increase their lender financing fees. For Freddie, these fees take effect November 7. For Fannie, it’s December 1.
These fees will impact all levels of investors; from those with low down payments to those with a great amount of equity. Investors who purchase and finance a property with 10-15 percent down will encounter a 3.75 point adverse market fee. In other words, you can count on additional costs of $3750 per $100,000 you spend.
Buyers who have a 20-25% down payment will realize a small savings. Their adverse market fee will be 3 points. And, even those with more than a 40 percent down payment will receive a 1 3/4 percent add-on.
To add an even greater sense of urgency, some of the companies who insure low down payment mortgages plan to cease underwriting investment property loans altogether. This will serve to effectively cut off many low down payment, high leverage deals; no matter where the property is located. 



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