Minnesota Real Estate Blog

New Construction Investment Property

Some are calling our local Twin Cities real estate market the "perfect storm" for real estate investors. Prices are low, rents are increasing, and interest rates are low. In this blog entry, we wanted to share a great opportunity for real estate investors offered by agents Rob Reinke and John Tschida on The Minnesota Real Estate Team.

New Construction, Pre-Rented Before The Home is Built

We have a great opportunity for investors looking for that "turn-key" type of property. As we know, it's a buyer's market right now and one of the best we've seen.

Do you want to know that your property is rented before you buy?
Do you want very low or zero maintenance hassles with your property?
Do you want to have a pre-signed lease option agreement with a down payment before we sign any paperwork? We have the answer for you!

We are finalizing plans with several qualified tenant families for new investment properties located in the northwest metro area of the Twin Cities. We will build a new construction home that meets the needs of each tenant family and is a great deal for an investor. We try to create a win-win scenario for both sides by involving the tenant family in the design of the home. If a tenant feels more personally attached to the home, they will take better care of it and will more likely want to buy the home through a rent to own program.

Included in this home are the following features:

- All stainless steel appliances including microwave, and also a washer and dryer
- Central air conditioning
- Custom oak hardwood floors in the kitchen and dining room
- Custom cabinets and trim work
- Stone on front of house instead of brick
- Upgraded fixtures and lighting
- Concrete driveway
- Sprinkler system and sod laid for entire yard
- Upgraded carpet

These houses are also being designed for sale on the retail market. If your tenant does not follow through and purchase the property they lose their down payment AND there will be another seller's market where you can more easily sell it if you need to. Single family homes offer one of the best exit strategies in real estate investing. The best part is you will know what is in place before you take on any risk. The lease and rent to own agreement will be signed before you sign the purchase agreement and before construction begins.

You're buying the homes at wholesale prices. We've created a financing program that will allow you to use the equity in the home to serve as part of your down payment. This can only be done with new construction and we have the lowest cost mortgage programs around.

If you are interested in this opportunity, please feel free to contact us so we can meet for a cup of coffee and explain it in further detail. Once we have the plans finalized for the individual families they will be offered to investors on a first come, first serve basis. If you have any questions about this opportunity or how we structure our program, please don't hesitate to contact us.

By Rob Reinke

Rob Reinke is a top agent on The Minnesota Real Estate Team. He can be reached at 763-242-6303 or Rob@MnRealEstateTeam.com

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Move Up Buyers

How many times have you said to your spouse, "We should have done that years ago! But now it is too late." or "If I knew then what I know now, I would have..."

Well, does it occur to anyone that this correction in values is a huge opportunity for a DO OVER? Now is the single best time to move up to your dream home at 2003 prices or better! What are we waiting for!?

House values in many areas have regressed to levels not seen in five years. And mortgage rates are still very low when you take a long term perspective. Every type of investment has its cycles and we are clearly in a down part of the real estate cycle. But no one disputes the fact that home values will recover in the long run and continue to appreciate. So it stands to reason, isn't this the most amazing opportunity to move up ever?!

With the basic concept of buy low and sell high, now is the time to buy low. Really low! The homes you used to drive by and dream about ARE NOW IN YOUR PRICE RANGE.

Of course, many will ask, "What about the sell high part? If I own a home right now, what do I do with that?"

I have 2 answers for this. First, you don't make money when you sell real estate. You make money buying it at the right price. If you have to sell at a discount in order to move on with your life, but you are also buying at a discount, you should more than make up any losses by making a good buy.

Second, with as many as 1 in 25 homes in foreclosure in some areas of the country, all those folks are going to have to rent for a few years before buying their next home. Rents are going up, the renters are out there and more are coming. If you can't sell or don't want to sell in a down market, then get a good renter and hang on to it! There are numerous resources for locating, screening, placing and managing tenants. I have been a landlord for the last 4 years. It is a very part time job and it leads to some very nice tax deductions as well!

In down times like these, the smart ones will use the gray matter between their ears to get creative, take action and reposition themselves for the next part of the cycle. So do some soul searching. Ask yourself where you want to be five or ten years from now. Where do you want you and your family to be living while you get there?

This is the perfect time to move into the right neighborhood or better school district. Maybe you are worried about gas prices and want to move closer to work, friends or relatives. Maybe you are planning to have more kids or start a home based business and need more space. The reasons are numerous and the opportunities abound!

Ronny Loew is the Move-up Specialist with MN Home Loan Partners. He can also be heard on The Minnesota Real Estate Show, on 100.3 KTLK, FM. He can be reached at 952-808-2815 or rloew@houseloan.com

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MN short sales

There are a lot of misconceptions surrounding how short sales work and the seller's role in the process. I would like to clear up some of these misconceptions.

When you sell a property, you are in control of the process. The property will be listed for sale and marketed like any other property. You will reap the benefits of working with one of the top 10 REMAX teams in the entire nation. Your property is marketed on the MLS and on our highly ranked websites. Your property is not marketed or treated any differently in terms of marketing.

In order to qualify for a short sale, you need to have experienced a hardship that has or will result in falling behind on mortgage payments. You do not necessarily need to be behind on your payments. Depending on the lender, you may be able to get short sale approval without missing a payment. Other lenders will require you to be thirty days behind on payments. Do not wait too long though! After six months of missed payments, most lenders will sell your property via a sheriff's sale or foreclosure sale (the terms are interchangeable). After the foreclosure sale has occurred, many lenders will refuse to negotiate a short sale.

I price our listings to generate offers in the first 30 days on the market. As the seller, you will review all offers. I will review the offer terms with you and suggest accepting, countering or rejecting the purchase agreement in order to make sure that the terms are in your best interests.

Because we strive to receive an offer in the first thirty days, my office does require that you have all of the documentation together that the lender will require in order to approve your short sale application before we market the property. Prior to submitting the application, we will review it with you and double check for any errors.

Once the offer and short sale application are submitted, my office works with your lender to negotiate the best short sale terms possible. We strive to eliminate the need for you to bring cash to closing or sign promissory notes. The lender will then send a short sale approval letter that we will review with you. If the terms are acceptable, we will move forward with closing the property.

As the seller, you will need to sign the legal documents necessary to transfer ownership of the property. Our title company will make arrangements for a closing agent to meet with at your convenience to pre-sign all of your documents if you do not wish to attend closing. We can also make arrangements for you to close on the property if you do not live in the area.

Generally, your closing costs and our commissions are paid out of the sale proceeds with lender approval. The goal is for you to be able to sell the property, settle the debt, and not bring any money to closing.

This article was written by Mary Alice Short, short sale and REO expert, and member of the Minnesota Real Estate Team.

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Selling Your Minnesota Home

A Recap of The Minnesota Real Estate Show - June 21th, 2008

Today's show consisted again of a number of great phone callers regarding all sorts of issues: short sales, bank owned properties, mortgage rates...the list goes on and on. We did cover two particular topics. The first topic we titled, "The Fact of the Matter." The second topic was in regards to the offer process. When discussing the "fact of the matter," we wanted to cover some of the important items that sellers should be keenly aware of in our local Minneapolis real estate market.

The first fact: your first six to seven weeks on the market are the most crucial. During this time period, buyers who have been actively out shopping with their agent, will see your home as is shows up as a new listing on the MLS. If the home is priced correctly, the buyer will recognize this and make an offer. If it is not priced correctly, "Minnesota Nice" often sets in and buyers do not make the low ball, insulting offer. They simply move on to the next property.

The second fact of the matter: cleanliness is essential. Currently we have over 33,000 active listings on the MLS here in the Twin Cities. Homes that are selling need to be clean and odor free. This simple fact may seem brutally obvious to some, but you would be surprised on some of the various homes that an agent can see out on the market for sale here in the Twin Cities.

The third fact of the matter that we discussed on air: the paint and carpet fact. Yes, again, it may seem obvious, but we encourage all sellers to spend a little extra money and repaint and put in new carpeting as needed. You will see a definite bang for your buck by doing these simple cosmetic improvements.

Lastly, we discussed the importance of a nicely groomed lawn. How many times as an agent have you driven up to a home with your client and the yard is about 9 inches tall? The client says to you, "We don't need to go in." You somehow are able to convince them to go in and they are pleasantly surprised. As a seller, don't put yourself at an immediate disadvantage. If you are not around, hire a lawn company to cut the grass. Something as simple as a nicely groomed lawn can make the difference between a showing taking place or a buyer simply deciding not to go in.

In the second half of the show, we discussed some of the specifics of the offer process. We discussed the intricacies of the inspection and financing contingencies in a purchase agreement. The upshot of our discussion: make sure you have a buyer's agent working with you helping you navigate the timetables and ins and outs of these two contingencies.

Lastly, we had Scott Ficek on air as the agent of the week. Scott is a top agent on The Minnesota Real Estate Team. He also has a great investment property blog I would encourage everyone to check out. Go to Minnesota Real Estate Investment to find out anything and everything you would like to know about Minnesota investment property. Scott also will be hosting the Real Estate Investing 201 Seminar this coming week. All info is on MN Investment Properties

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Minnesota MLS Market Update

The Weekly Minnesota Real Estate Market Update - June 18th, 2008

Sunny weather here in Minneapolis and the Twin Cities area is bring some more "sunny" news to our local real estate market. As we know, real estate in simplest terms, comes down to supply and demand. The past couple of years has seen an overwhelming increase in supply with flattening to decreasing demand. As a result, misery for many who are trying to sell their home. The key word is many...not all.

HOWEVER, as much as anyone in the media may be trying to convince us otherwise, the tide is definitely starting to turn here in the Minneapolis real estate market. This past week, we saw 2,256 new MLS listings come onto the market. This is down 13.9% compared to 2007. As far as newly signed purchase agreements (pending sales), we saw 919 properties go pending. This too was a decrease from 2007, but only by 5.3%. Lastly, there are currently 33,219 properties for sale on the MLS here in the Twin Cities. This is thankfully down 4.9% compared to this exact same time in 2008. When we look at overall housing supply, it would currently take 10.4 months for the current inventory to become pending or sell.

Interest rates continue to remain steady. This week, the average 30 year fixed interest rate is right around 6.5%.

Are we at the "bottom" of the market? Of course no one knows for sure, but based on the activity we are seeing by investors in our market, I really believe we are there or very close. Last night, we had our monthly investment property seminar in Burnsville. The number of attendees was very encouraging. Buyers really seem like they are slowly but surely coming off the fence and looking to get back in the market.

From a listing standpoint, our team is still finding MLS listings selling that are priced to move. The overpriced homes in the Twin Cities are sitting and sitting on the market. For some of these sellers, we have found a great alternative by encouraging them to look at renting out their property. This allows them to weather this slower listing market and sell when the market rebounds. With our weekly radio show, we work with two great partners, Nina Haugen of NTH Enterprises and Steve Rajavuori of REI Property Management.

As a team, we currently are carrying 168 listings, down a bit from the previous week.

One other item I wanted to briefly discuss in this week's market update blog entry: Auctions here in Minnesota.

Agents on our team have had a number of buyers attend these events. Prices seem to be unbelievable, and the opportunities vast. However, when the smoke clears, it usually is not as appealing as it seems. For example, one of the agents on our team had a client who thought he had bought a property at a recent auction that was here in Minneapolis. Yesterday, they found out that this home was just listed by a local REO listing agent in our market at about $25,000 higher in price they what they supposedly "got" the home for. Apparently the buyer had not hit the "reserve" that the bank was looking for.

Our team has found bank owned homes in Minneapolis, St Paul, really anywhere in the Twin Cities, get listed on the MLS. I personally am not a fan of these auctions at all, for exactly the reasons I described above

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Minneapolis Real Estate Update

A Recap of The Minnesota Real Estate Show - June 14th, 2008

The Minnesota Real Estate show, our weekly Saturday afternoon real estate radio show on 100.3 KTLK had no "set topic" on June 14th. However our conversation on air drifted to many important updates going on here in our local marketplace and with our real estate team. Joining me live on air was Rob Bonahoom from The Minnesota Home Loan Partners. Rob is a top loan officer, with a special focus on investment property financing.

We discussed our upcoming seminar on June 17th for beginning real estate investors. Affectionately known as our "Real Estate 101" seminar, Rob went over his role in the seminar as our team's "financing specialist." Rob also covered some information on our "Real Estate 201" seminar. This investment property seminar will be for more of the seasoned real estate investors, however all are welcome of course. We will be discussing issues with tenants, namely how to "get them in" and how to "get them out." For more information on these great informational events, go to Minnesota Real Estate Investment Properties.

Steve Stalock from Win Home Inspections also joined us on air. Steve has been the preferred Home Inspector for our team for quite some time. Steve commented on air how busy he has been as of late. In spite of so much "gloom and doom" portrayed on the television, Steve is finding buyers out in full force here in the Minneapolis real estate market!

Over the course of each two hour show, we always encourage listeners to call in at 1-800-396-0406. Yesterday, we had a number of great phone callers that I wanted to highlight.

A couple listeners who called in own some investment property here in Minnesota and are now wanting to sell. One caller, Luke, mentioned that he had bought a home off the Minnesota MLS on a contract for deed. He assumed everything was in order with his purchase, as he had been paying the current owner monthly. However, the Sheriff showed up on his doorstep this past week because the current owner had not been making mortgage payments.

We have found this happening more and more often, not only with Minneapolis real estate, but homes all across Minnesota. Buyers who buy MLS Listings in Minnesota on a "rent to own" or contract for deed, are finding the current owner of the property is not and has not been making their mortgage payment. Obviously this is not a good situation. If you are in this type of contract, please be sure to check that the owner is making payments on the mortgage.

The conversation on air also moved towards the number of foreclosures and REO properties for sale here in the Twin Cities on the MN MLS. Locally, we are seeing obviously huge numbers of MN MLS listings. Nationwide, the numbers are staggering. I found this article on CNNMoney.com and I thought it was very good information on what is happening across our great country.

Chris Isidore, CNNMoney.com senior writer wrote on June 5, 2008:

"More than one million homes are now in foreclosure, the highest rate ever recorded, according to a trade group which warned Thursday that number will continue to climb. The Mortgage Bankers Association's first quarter report showed that a record 2.5% of all loans being serviced by its members are now in foreclosure, which works out to about 1.1 million homes. That's up from the 2% of loans, or about 938,000 homes, that were in foreclosure at the end of 2007. The report also showed that 448,000 homes, or about 1% of loans being serviced, began the foreclosure process during the first quarter. That's up from about 382,000 homes, or 0.83%, that entered foreclosure in the last three months of 2007. The seasonally-adjusted rate of homeowners behind on their mortgage payments also hit a record high. Nearly 3 million home loans, or 6.4%, have missed at least one payment, while about 737,000 are at least three months past due, but not yet in foreclosure."

Lastly, I wanted to touch encourage readers of this blog and/or listeners to our show, to call or email us with any real estate related issues you would like us to cover on our show. More than anything, The Minnesota Real Estate Show is meant to be an informational source for any and all Minneapolis, St Paul, and Minnesota real estate items.

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Appraising MN MLS Listings

In our current market, there is a lot of talk about "appraised value" for various types of real estate. I thought it would be best to first go to an expert who could advise us on the basics of appraising mls listings in Minnesota. Kevin Curtis, The 2007 Agent of the Year for The Minnesota Real Estate Team, has his background in appraising. He has been a licensed appraiser since May of 2001. I asked him to share some thoughts on what it takes to become a real estate appraiser and real estate appraising in general.

He wrote:

"Appraisal 101 - An appraisal is defined as the act or process of estimating value. Sounds easy enough, right?! Well, given that the annual gross billings of the appraisal industry are estimated at $6.5 billion per year, who wouldn't want a piece of this pie? So what does it take to be an appraiser? Some may just say, "Call Prosource and take a class." To become a real property appraiser in Minnesota, a person must start by obtaining a trainee license from the Minnesota Department of Commerce. You will be required to complete 75 hours of appraisal education and pass an examination before applying to become a Trainee Real Property Appraiser. Once you are a "Trainee," you need to work for someone that is willing to train you in the real world versus classroom world. To obtain the next level of licensing, you will need an additional 75 hours of classroom hours and obtain 2000 hours of appraisal experience in no less than 12 months. This translates to 2 or 3 years of very fulltime solid appraisal work to get 2000 hours of experience. Check out this link to the Minnesota Commerce web site to find out more information "

Over the last number of years, appraisers have felt a real "pull" to appraise MN MLS listings for certain values. This most certainly has caused problems for our market. In a refinance situation, overinflating values can obviously hurt sellers (who want to try to sell in a year or two) as well as the banks that may be loaning more money than the home may be worth.

For example, a seller may say to his or her agent, "My home appraised last year for $230,000, so why are you saying that it now is worth only $210,000?"

Market value and appraised value have been two separate numbers over the last few years. And really, this should not be the case. If a homeowner wants to know the value of her home, she should be able to get an appraisal and know that that number, is the approximate number her home would sell at.

Thankfully, in our current market, appraised value and market value are coming closer together (as they should be!)

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MN Real Estate 060908

The Weekly Minnesota Real Estate Market Update - June 9th, 2008

More good news for our local Twin Cities real estate market! This past week, we saw our overall for sale inventory levels drop to 33,233 properties. This is down 4.1% compared to 2007 at this exact same time. For comparison sake, there were about 17,000 active listings for sale in June of 2004.

This past week, only 1,752 new listings came onto the market, a reduction of a whopping 23% compared to 2007. Pending sales rose by 4.9% to 798. (Pending sales are properties that have received a newly signed purchase agreement.)

More market statistics of interest:

There are 8.23 houses on the market for every one buyer. Last year at this time, there were 7.53 homes on the market for every one buyer. Average days on market for an MN MLS listing here in Minnesota is now at 159 days. This is up considerably from last year (27.9%.) The current supply rate here in the Twin Cities is 10.2 months. This means it would take 10.2 months for all of the active MLS listings to become pending and sell. In 2007 at this time, the supply rate was at 7.53. As you look at the various price ranges, the supply rate for homes $500,000 to $1,000,000 is 15.9 months. For homes over 1 million, this number jumps to 24.2. This means it would take over two years for the current supply of 1 million plus homes to sell if no new homes came onto the market?!?

Though all of this above news is not great news, it most assuredly is a move in the right direction for our local marketplace! Less homes on the MLS for sale, more properties being bought up by buyers and a shrinking overall supply level all are good news indeed! Slowly but steadily, with this type of activity in our local marketplace, we can begin to move out of current market state.

Interest rates continue to remain low, with buyer still being afforded outstanding rates at which to buy properties. The average 30 year fixed interest rate is at 6.5%.

Agents on our team are finding buyers, realizing it is a "buyer's market," are really taking their time and looking at numerous properties before making any decisions. Our buyers are also finding many of the bank owned listings in our market having multiple offers on them. Often times, these REO listings are really priced to sell, and buyers, after looking at numerous properties, realize a good price when they see one.

As a team, our listing load is currently at 175 properties. The showing activity on our listings across the board remains fairly strong. There is no doubt that buyers are out in full force, but again, they know they are under no pressure to make a quick decision on which home they like.

However, just because a home is newer on the market does not mean that all homes are taking a long time to sell. There are a number of newer listings that have received offers based on their overall solid pricing and condition of the home.

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Short Sales in Minnesota

A Recap of The Minnesota Real Estate Show - Saturday, June 07, 2008

A sunny June, Saturday afternoon here in Minnesota brought our weekly radio show topic to a number of outstanding issues:

1. Short sales that are listed for sale on the MLS - Are they really able to be sold?

In our local market, we are finding more and more homes being listed on the MLS as short sales. However, we are finding many of these short sales may possibly be unsellable. In other words, there is virtually no possibility that the bank would be willing to take such a discounted offer. On our team, we probably have 20 of our agents who have offers in on short sales right now. They are just waiting, hoping to hear something from the bank. Sadly, month after month after month passes with no response from the bank.

2. Short sales listed for sale on the MLS - Are the listing agents really "versed" in how to navigate the waters on these complicated transactions?

With all of these offers that are being put in, many buyer agents are finding the listing agents who do not truly understand how to work these sorts of transactions. It goes without saying: the short sale transaction is a completely different "animal" than a regular real estate transaction. Because of this specialization, unless the listing agent really understands the "ins and outs" of short sales, the likelihood of the short sale closing is next to nothing. And unfortunately, this is exactly what is happening with so many transactions here in the Twin Cities. Offers are being submitted by the buyer's agents, and again, no response whatsoever is coming from the bank.

These two items are creating a great deal of frustration not only for the buyer agents, but more importantly, for the clients! Think of the first time home buyer that has submitted an offer on their first home, just waiting...waiting...waiting to hear from someone. And they get no response. Eventually, after months and months of waiting, the buyer then decides to move onto another home.

What a frustrating buying process for so many buyers and agents right now!

In response to these two items, we discussed on today's show the requirements that should be in place before any short sale properties can be listed on the MLS. First of all, the listing agent must have all the financial documents in place from the seller and in with the bank. Again, many of the sellers on the short sales have not been given the proper information what documents are required to be in with the lender before the home goes on the market. By requiring agents to have all of this information, all fellow agents and buyers would know that the first most important steps have been done with the short sale process.

We also discussed some education and experience requirements that should be in place for listing agents to place these homes on the market. Because again of the specialized nature of these transactions, listing agents need to have the proper education and experience so they know how to handle these transactions.

By implementing these two steps alone, we would alleviate so much of the frustration that buyers and buyers agents are experiencing here in our local Twin Cities real estate market. These steps would also shrink the inventory levels here in the Twin Cities. Lastly, if a home was listed as a short sale, the buyers and buyers agents would know that it was actually a home that could be bought and sold! Imagine that!

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Essential Home Updates

What Updates Make Sense when Looking to Sell or Rent Your Home in Minnesota

We often get questions from homeowners who are looking to sell or rent out their property wondering what items they should fix and how much money they should invest in the home before putting it up for sale or onto the rental market.

Let's look at the first option: You want to sell your property and you are debating what work to do to your home. Maybe your home has older windows and an outdated kitchen and carpet. In other words, the property could use a little work. So should you sell the home as is or should you spend thousands of dollars on various updates?

In our local Twin Cities real estate market, with almost 33,000 homes on the market, properties that are "dialed in" most assuredly are the ones that are selling more quickly. With buyers having an abundance of homes to choose from, they are becoming more and more picky.

First and foremost, paint and carpet are essential. Putting some fresh paint on the walls and new carpet in the home will go a very long ways and give you a great "bang for your buck." In addition, kitchens sell home. Updating the kitchen is essential. When it comes to more expensive items such as siding and windows, buyers in our local market are expecting those items to be of good quality. In other words, if your windows are out of date right now and failing, don't expect to get the same dollar out of the sale of the home as you do for money you invest in purchasing new windows. Same goes for siding as well.

When in doubt, make sure the home is professionally cleaned. If you have the money to fix some of the major items (siding, windows, etc), I would also encourage you to fix those items as well. However, remember that various updates will provide various rates of return. In general, remember the current supply of homes is giving buyers such an abundance of choices. However, if your property is priced correctly and shows well, it will sell.

Now let's consider the second option: you are looking to rent your property. When in doubt, remember that renters too are "normal" people. We all have rented properties at some given point in our lives. Some of us still currently rent, and many for some very good reasons.

It goes without saying, the nicer, more up to date homes are going to be easier to rent. However, don't feel like you need to "break the bank" with updates in order to get it rented. With the tightening of the credit markets, more and more people are looking to rent. This is creating a great demand for rental homes in all price ranges.

I have found through personal experience, cleanliness is the most important item for a rental home. If the home is clean, it will rent. It does not need to have new carpet, new features, etc. A home will rent when it is clean and the rental amount you are asking is priced correctly.

As we know, renting your home allows you to weather a slower resale market and sell when the Twin Cities market rebounds. When you do look at selling, I encourage you at that point to really look at updating the home. For resale, it will allow you to sell the home for the highest dollar amount. However, if you are looking to rent the home, make sure it is clean and the rent is priced fairly. Don't break the bank and replace carpet, etc right now before the tenant moves in. Give it a couple years after the tenant has been in the home. You may need to replace the carpet sooner than you want anyway?!?! That too is unfortunately the voice of experience!

In both cases, selling and renting your home, there are pros and cons to various levels of updates. Remember, talk to your real estate agent and get the advice of a professional!

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Minnesota Real Estate Investment

Current Twin Cities Real Estate Market Update
Here in the Twin Cities, there are currently 32,915 homes on the market. This is a decrease of 3.4% compared to 2007 at the same time. In spite of this decrease, we are historically still at very high active listing inventory levels. Some people say "nothing is selling" right now in the Twin Cities. Actually, there were 867 properties that went pending this past week, which is only a decrease of 1.4% compared to 2007. We also had 2,002 new listings come onto the market last week, and this is down 6.4% compared to last year.

Don't let the so called "experts" fool you. There is a ton of buying and selling activity taking place in our local real estate market. For real estate investors, there has almost never been a better buying opportunity in history. Our team has seen a number of our investor clients realize this unique buying opportunity. It seems the die-hard investors who have owned properties for many, many years understand this unique time period we are in.

What is the Big Picture with Real Estate Investing?

Many beginning investors often ask: "What is the big picture with real estate investing? What is the end goal?" Well, depending upon your personal long term goals, most investors want to own a number of properties free and clear and be collecting monthly rent on each property. Many investors also strive for "cash flow" on each property. Because of the recent downturn in the local real estate market, prices have dropped, rents have risen, and properties are once again cash flowing for investors!

Our team has worked with a number of investors who buy single family homes as investment properties.

Why Single Family Homes?

There are a number of reasons why buying single family homes as rentals makes sense. First of all, you will attract in my experience, a better tenant. Not to generalize, but someone who is renting an apartment at $500 a month is in most cases, not going to take as much pride in their property as someone who is renting a nice single family home. My experience is also that the tenants seem to be much less vagrant. In other words, they are not moving every six months, or every year for that matter. Once they move in, they will stay longer than you would think!

Appreciation-wise, single family homes perform the best. If you look at long term appreciation numbers in any market, they do the best; much better than townhomes, condos, and multi-family.

One note of interest: with single family homes, you're not tied to rental market like multi-family housing. For valuation purposes, when you sell a multi-unit building (duplex, four-plex, 10-unit building), the value of your property is determined by the rents that each of the units is getting. In other words, when the time comes to sell that property, the prospective buyer will add up all the rents on the units, and he or she will figure out a price that the building cash flows at. This is the price that an investor is going to offer you. If the rental market is soft at that time, your sales price is going to be lower than you want. However, with single family homes, when you resell it, you are going to be reselling it probably to another owner occupied buyer. Not an investor. And that buyer, or their agent, is going to pull up comparable sales on similar homes in the same MLS area. There is no connection to the rental market. In this case, you can ride the waves of appreciation much better than with multi family. Multi-family is not a bad investment choice. I'm simply saying that single family will appreciate better over time.

With single family homes, the tenants maintain the property for you. They cut the grass, rake the leaves, shovel snow, you name it. You do not have to do any of that. There are no association fees like condos and town homes, and as a result, they tend to cash flow better.

The tenants pay all utilities, and as I have mentioned, single family homes are by far the easiest to resell. Much easier than a condo, townhome or a multi-family building.

The last item is that single family homes have less tenant issues. With duplexes and multi-family, you have a grouping of people that live very close to each other that do not know each other. One person is playing their loud music too loud for the other one person is being too noisy for the other one. I could go on and on. Ask anyone who owns multi-family. There are definitely more tenant issues that you will have to deal with. With a single family home, every person in the house knows each other. They work out their differences between each other. No late night phone calls to you the owner!

I should mention. We work with investors that purchase all sorts of multi-family, single family, townhomes and condos. There are pros and cons to each really.

What Kind of Single Family Homes make Good Rentals?

In my experience, the types of homes that are easiest to rent, and consequently, easiest to resell when the time comes, have the following characteristics:

• First of all, find a home that has at least 3 to 4 good sized bedrooms. My experience is that anything smaller than a three bedroom is a little tough to rent out. However, if you purchase one that has three bedrooms, it is much easier to rent, and much easier to resell when the time comes.
• The home needs to have two bathrooms, at least two showers. If you have four friends living there, they are going to need at least two showers. Also, with resale, that 2nd bathroom is really needed.
• The home should be located on a quiet street and have a backyard. Obviously, you will be able to rent out the home if it is on a busy street, or if it has no backyard, but again, think long term. When you resell the home 10, 20, or 30 years down the road, you want the type of home that is the easiest to sell. Busy roads and a lack of a backyard can really hinder the process of any home needing to be sold.
• Turn-key rentals - Would you want to move into the home? Is it clean, updated? Again, at one point in each person's life, each of us has rented. Put yourself in the prospective tenants' shoes. Is this home something that you like? That you and your family would move into?
• You definitely don't want to purchase a home that is too small square feet wise. For a 3 or 4 bedroom home, I would not go any smaller than 1500 square feet. If you get below that, it is extremely difficult to rent out. Families need space!

Again, the local Twin Cities real estate market is creating such an outstanding buying opportunity for all real estate investors. Take your time to make an informed decision. Work with experts who also own rental property themselves and who can guide you the real estate investing process!

posted by Ryan O'Neill at Permanent Link | 0 comments

Home Inspection

Most Common Issues Found in a Home Buyers Inspection

Roofs that Leak - Many leaking roofs can be caused by insufficient flashing. In a nutshell, flashing helps to prevent moisture penetration into the roof and home. You will also find roofs that leak because of aging shingles and roofing materials. And lastly, sometimes you will find home owners who tried to "fix it themselves," but end up creating larger problems then when they started?! Nothing like a homeowner trying to go it alone!

Drainage Issues - A top home inspector will determine if the water is flowing away from the home or flowing towards the home. You may need to look and see if the mls listing needs gutters and/or downspouts. Also, check to see if the ground level drainage systems have been property graded. Grading can become very expensive, so be sure to be aware of this.

Insufficient Ventilation - It's so damp in here!! As we know, sometimes moisture accumulates throughout various parts of the home. Generally, it is easiest to be found in the bathroom areas. Thankfully, this can be fixed fairly easily. Installing a fan, and keeping windows open can help this situation out tremendously. No one is crazy about too much moisture/mold that can be found in a home!

Electrical Wiring Problems - Many homes may not have electrical wiring that has been properly installed and grounded. If it has not been installed correctly, there is a risk that anyone in the home could be vulnerable to shock. Very scary and obviously, very dangerous as well. Any older properties often do need electrical upgrades, which includes circuit breaker panels as well as new wiring. This too can be costly.

Defective Heating Systems - With any sort of older heating systems, they generally require maintenance and may not be energy efficient. In addition, non-electrical systems also run the risk of emitting carbon monoxide fumes. Obviously, it does make sense for the home owner to have a carbon monoxide detector, especially in this type of situation.

Overall Poor Maintenance of the Home - There are so many "do it yourselfers" out there. They want to fix any and all home items on their own. Unfortunately, in nearly all of these situations, the owner does not fix the problem correctly. Even more so, the owner often can damage the home more so then when they started out.

Water Seepage through Doors and Windows - If an inspector does find any sort of water damage or intrusion in a home, then adding weather stripping and re-caulking those areas will become necessary. Having water enter the home in these areas can prove to be very costly. It is important to have your inspector check these areas very thoroughly.

Hazardous Items - Older homes, for example many homes in Minneapolis and St Paul, may contain lead based paint, asbestos, and other hazardous materials. It is also imperative to check for carbon monoxide, radon, and mold as well. If a home has oil heat, the underground stored tanks also need to be checked as well. Hazardous materials can really prove to be a major problem of course.

Plumbing Issues - A good home inspector is going to look for faulty pipes and fixtures. In addition, he or she will see if the plumbing parts are made of materials that are compatible. For example, any sort of more leak prone PB (polybutylene) piping that was popular in the 1970s through the 1990s, should be replaced. Times have changed, and this type of material needs to be updated.

Structural Damage - Often times a leaky roof or foundation that is settling means that doorways, walls, and even some support beams do not close properly and they are out of line. Naturally, these are items that should be fixed prior to closing. Any sort of structural damage must be taken very seriously.

Work with home inspector to do a thorough inspection. And don't feel badly about asking the current owner to fix a number of items prior to closing. Especially anything that is "major." If the homeowner refuses, you will always have the option of canceling the purchase agreement based on the home inspection.

posted by Ryan O'Neill at Permanent Link | 0 comments