Archive for May, 2010

Minnesota Tenants Get More Rights

said on May 28th, 2010 categorized under: Legal Stuff


pawlentyEarlier this month, Minnesota Gov. Tim Pawlenty (R) signed a bill into law which has commonly been called the “Tenant Bill of Rights”.

Highlights of the bill include:

Cap On Late Fees– As of January 1, 2011, late fees can not exceed 8 percent of rent.

Receipt For Rent – As of August 1, 2010, if tenants pay their rent with cash, they must be given a receipt. Tenants who use money orders may use those receipts as proof of rent paid unless the landlord can provide proof it wasn’t.

Screening Fees: Starting August 1, 2020, landlords must use a consistent process to screen prospective tenants and inform those applicants of the process they use.

A duplex owner must now tell the applicant what criteria they consider. She must also process applications in the order they were received, and if she rejects someone for reasons other than those they provided, return the application fee.

Security Deposits  – After August 1, 2010, a landlord who doesn’t return the right amount of a security deposit in bad faith can be penalized up to $500. The previous cap was $200.

Tenants Living In Foreclosures – In August, both state and federal law will allow for tenants living in foreclosed property to stay through the term of their lease, or 90 days after the redemption period ends, whichever is longer.

For a complete text of the bill and its changes, click here: HF2668.

Offer Tenants A Rent Sale

said on May 27th, 2010 categorized under: Tenants


ChecksIn my years as a landlord, I’ve learned some tenants have no sense of time.

Rent would be due on the 1st. But that came and went, then it was the 5th, the 10th and, before I knew it, I was certain I was going to have to start eviction proceedings.

It’s always  just about then I finally get a rent check. The tenant had the money all along; he simply hadn’t gotten around to paying me.

Years ago, I thought I discovered a relatively easy fix to this problem; late fees for rent checks delivered after the 5th.

Minnesota law states when a tenant pays the rent late, the lease can require that the tenant to pay a late fee. Of course, the lease has to say how much the late fee is and when it’s due.

But here’s the catch. The late fee has to be for a “reasonable” amount that compensates the landlord for the actual damages resulting from the tenant’s late payment.

The late fee can’t be punitive.

For example, the landlord may incur late fees because the delayed rent caused her to be late on her mortgage payment. The landlord must also be able to substantiate this claim.

A landlord may also not assess punitive charges. An example might be a $10 a day late fee. This figure is in all probability illegal  because it doesn’t have any correlation with the extra expenses incurred as a result of the late payment.

In other words, the penalty resulting from actual expenses incurred probably isn’t going to be significant enough to inspire anyone to action.

But what if you offered a discount for early rent payments?

Some landlords include language in their leases that states the monthly rent is $950. However, if the tenant pays before the 1st of the month, he receives a $50 discount.

In effect, perhaps you wanted $900 for rent all along. Offering a discount entices the tenant to pay on time.

After all, we all rush to the store to take advantage of sales or coupons on the brink of expiration. The stores know discounts inspire us to action.

Wouldn’t the same be true of rent?

Duplex Sales No Day At The Park

said on May 25th, 2010 categorized under: Twin Cities Real Est


colorful playgroundIf home sales were a slide in the park, this would be fun.

With today’s release of the Standard & Poor’s/Case-Shiller Home Price Index, we climbed the ladder of hope on the news that Twin Cities home prices were up 6.5 percent in March over the same month one year ago.

Looking forward to a quick trip down the slide, however, today’s Weekly Market Activity Report released by the Minneapolis Area Association of Realtors (MAR), resulted in our skin sticking to the slide.

MAR reported that for the week ending May 15, there were 830 purchase agreements signed. While that sounds like a lot, it is disappointing when compared to the 1,469 that were signed during the final week of the tax credits.

Worse yet, this is a 32.8 percent decline in transactions from the same week a year ago.

On the duplex playground, however, there was a little more fun to be had.

Exactly the same number of duplexes received purchase agreements during the second full weeks of May in 2009 and 2010. While the 32 pended for the week isn’t exactly an inspirational number, it is just three transactions shy of the number pended the final week of the tax credit.

Of the small multi-family properties that received purchase agreements, 31.25 percent were offered by traditional sellers. This represents a 6.25 percent year over year increase in market share.

New listings for the week fell dramatically were down a dizzying 27.3 percent from last year. Of those, 43.75 percent were being offered by traditional sellers; a market share increase of 4.36 percent.

Recent weeks and months haven’t seen the dramatic swings in the duplex market we saw during winter. However, this very lack of drama may in fact suggest we’re bumping along the bottom of the multi-family market.

How Not To Flip Out Over That Cute Duplex

said on May 24th, 2010 categorized under: Financing


House building on white background. Isolated 3D imageLet’s face it. Some of the duplexes and single family homes on the market right now are a little, uh…skanky.

Some of you are thinking, so? With a FHA 203k construction loan , a little professional help and some sweat equity, you’re good to go.

But what if you’re not an HGTV addict who’s convinced you can fix it all yourself?

If you’re lucky, you’ll stumble into a property that an investor has purchased, rehabbed and made move-in ready.

Of course, the tradeoff is the investor wants to earn a profit. That’s perfectly fair. However, it may also stop you from getting an FHA insured loan.

See, even though FHA suspended it’s anti-flipping rule through February 1, 2011, many FHA insured investors aren’t willing to lend on properties a seller has owned for less than 90 days and, or, has been marked up more than 20 percent from its purchase price.

Until recently, there had been some exceptions. A handful of banks were willing to offer a mortgage on a rehabbed duplex, provided the seller could produce ample documentation of the costs of the repairs and improvements they’d made.

However, it seems there’s suddenly some resistance to this, according to loan officer Dean Schiffler of PHH Home Loans.

Don’t panic. There is a relatively easy remedy for this.

The rule was established to prevent fraudulent flippping.

Basically, someone would buy a house, do some minor cosmetic changes, then resell it to someone for an enormous profit. Usually the latter was in on the scheme, and would quickly default on the loan. This resulted in a foreclosure and a fraudulent loan.

For some reason, lenders seem to believe that after someone has owned a property 91 days, fraud is no longer a probability. I haven’t a clue why 90 days is the magic number, but it is.

So the simple solution to buying that cute, well-renovated duplex is this; make sure the date on the purchase agreement you give that rehabber is dated at least 91 days after the date they closed on the property.

Another Duh! Landlord Moment

said on May 21st, 2010 categorized under: Tenants


Duh! Road SignIt’s spring.

For a Realtor, that’s a synonym for busy.

As such, I am so focused on my career that sometimes I forget to do things in my own life.

Like renew leases.

When I realized I’d done this the other day, I panicked. I hate having a vacancy in winter, and live in fear of carrying one through the snow. So, to ease my sense of panic, I typically try to make sure my leases begin and end early in the spring.

Of course, this year, I forgot to issue the new lease. And when I realized this, I immediately had the thought, “Crap! Now their lease will begin and end in the middle of the summer!”

Summer isn’t bad. But if my tenants would move out, it would probably take me a month to get the unit turned over to a new renter, which means that lease would commence more toward fall.

That is, if it’s a one-year lease.

But the thing is, nowhere is it written that a lease has to be one year in length.

Thinking a lease has to be 6 months or one year in length is simply a mental habit I’ve gotten in to.

In fact, there’s nothing at all to keep the agreement from being any length of time I determine; like 9 months, 11 months, or, if I really want to make sure I’m covered, two years.

A lease is simply an agreement between two people. If my tenant agrees to a ten month lease, I’m right back on track for spring.

I wonder how he’d feel about a 10 year lease…

Duplex Sales Miss The Mark

said on May 18th, 2010 categorized under: Twin Cities Real Est


3d archeryDid the tax credit hit the mark and stimulate sales?

Looks like a bullseye.

For the week ending May 8, the first since the home buyer tax credits expired on April 30, Minneapolis and St Paul duplex pended sales were down 21.43 percent from the week before.

What’s interesting, however, is the number of transactions was roughly the same as they were for the same period of time last year;  dropping  just a single transaction year over year.

The average off market price for the week was $131,693. This was a significant leap from last year’s $93,809, in spite the fact that the percentage of traditional sellers increased their share of pended sales by just 3.56 percent year over year.

The number of duplexes new to the market for the week was down 3.3 percent from 2009. Of  these, a whopping 78 percent were brought to the market by traditional sellers. In the first week of May in 2009, traditional sellers represented a meager 6.6 percent of the new inventory.

Single family home sales saw a slight decline for the week, slipping 4.4 percent below their mark for last year. This was the first year-over-year decline since early March.

Why Rent Credits Are A Bad Idea

said on May 17th, 2010 categorized under: Tenants


green lawnWith last week’s rain and this week’s sun, lawns in the Twin Cities are growing like crazy.

In fact, if you own your own home and a duplex or two, lawn mowing could become your full time job. But odds are good you already have one of those and mowing is just something you do on top of everything else.

Wouldn’t it be easier to just give one of your tenants a rent discount in exchange for mowing for you?

Probably not.

In my early years of property ownership, I often traded reduced rent for help with snow, the lawn, painting or some other job I simply didn’t have the time to do.

This always seemed to work out…initially. As time went by, however, I discovered more often than not, my tenants didn’t keep their end of the bargain; at least to my standards.

Weekly mowing soon happened on every other Saturday. Snow was shoveled three days after it snowed.


Because it’s difficult to enforce the labor required for a rent credit.

You may tell the tenant she  has to make up the $50 in rent she was credited for lawn mowing. From experience, however, I know the odds are that she’ll never pay you; because she feels she did a good enough job as it is.

The next thing you know, you’re chasing her for money, she’s dodging you and the grass is long enough for braiding.

On the other hand, when you hire someone, they generally the work in order to get paid. If it hasn’t been completed to your standards, you can simply withhold payment until it is.

An easy solution, but one it took me too long to  learn.

Duplexes Celebrate Non Conforming Use Week

said on May 14th, 2010 categorized under: Financing


punk girlSometimes my days and weeks feel like it’s Spirit week in high school. You know those weeks; the ones where you dress up as something different every day to celebrate something which may or may not be significant.

Back then, I might have celebrated ’60’s day. Punk rock day. Or nerd day.

In real estate, however, sometimes I celebrate suburbs day. Or short sale day. Or multiple offer day. And just like in high school, I like some more than others.

This week, I had the chance to dress up for non-conforming unit day.

A non-conforming rental unit is usually found in a property not zoned for a multi family dwelling like a duplex or triplex. These are usually found in the basement or attic of an existing property, and may or may not conform to local building codes.

These units are often very nice, and it’s hard to imagine anyone not wanting to live there. Their best feature, however, is the additional revenue they generate for the property owner.

There are, however, a couple of problems with them, the most important of which is the bank will not allow you to use the income from them to qualify for a the loan to purchase the property.

The theory goes that a city inspector may discover the unit and force you to remove it, thereby causing you to lose the revenue it generates. And a tenant may well be the one who told the city about the “illegal” use.

The city may do so due to the duplex not being zoned for multi-family property, or for improper workmanship, lack of proper permits and so forth when it was constructed.

This doesn’t mean the building itself is ineligible for financing, however.

To qualify, the appraiser must provide at least two comparable sales with similar illegal use to demonstrate this use is typical to the area. In addition, in the even the property is damaged or destroyed, it must be able to be rebuilt to its present status.

A single family home may also face such a challenge if it has a mother-in-law apartment or guest house. It must also conform to zoning requirements and provide comparable sales of two similar properties.

Sure hope next week’s theme is let’s all buy a duplex!

Will An Insult Get You A Price Reduction?

said on May 13th, 2010 categorized under: Buying A Duplex


radiatorOne of my seller’s received an offer the other day.

We both got a laugh out of it.

The buyer’s agent had carefully spelled out  the reasons why the buyer didn’t think the property was worth list price.  It included things like: a one car garage, which didn’t suit the buyers needs,  one boiler (meaning the owner pays the heat) and a mention that the heating system was old and sure to die any moment now.

After reading this list of why’s to my seller, I asked if he’d seen the light. Wisely, he just chuckled.

He knew the property only had a single car garage. In fact, he’s been aware of it the entire 20 plus years he’s owned it.

 And, while the boiler is older, the seller is an engineer who specializes in heating systems that service everyone from the Marine Corps to NASA.

Need I state the obvious and say the boiler in his property has been impeccably maintained?

Telling sellers your thoughts about what’s wrong with their property won’t result in a price reduction. They are human, after all, and like most of us, they believe in their property and the efforts they’ve put in to it.

Insulting them won’t convince them otherwise.


hand with thumb upSo did the tax credits help?

Apparently so. For the week ending April 30, there was a 31.2 percent jump in pending sales over the same week last year.

Duplex sales were up by 20 percent, which may also have been influenced by the April 30 expiration of both the first time and repeat buyer tax credits.

While the average sale price for small multi family properties for the week last year was $97,330, the average pended price for the same time this year was a robust $155,043.

Of those properties that received offers during the week, 40.48 percent were offered by traditional sellers. Last year, just 11.43 percent did not involve a bank in the negotiation process.

Traditional sellers continued to increase their share of available inventory as well, bringing 49.2 percent of the new listings to the market. The number of newly listed duplexes remained relatively constant, however, with the week’s total being a single duplex more than the same stretch in 2009.

Single family homes actually notched the first week-over-week decrease in new listings, down 11.5 percent than a year ago.

This slowing in new inventory should help sustain the recent trend of fewer Days On Market before a sale, which now stands at 127 for single family homes; down 15.3 percent compared to last year.  Prices also benefited from reduced inventory, with the percent of original list price received up 4 percent over last year to 93.6 percent.

It will be interesting to see whether there’s a noticeable drop in next week’s statistics.

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