Archive for August, 2007

Prepping to Sell your Investment Property

If you’re new here (and you like what you read), you may want to subscribe to my RSS feed. Thanks for visiting! ScottMost investors are planning to sell their investment properties eventually.  Those same investors will either sell their property without doing any work and accepting the fact the property will not show [...]

Most investors are planning to sell their investment properties eventually.  Those same investors will either sell their property without doing any work and accepting the fact the property will not show very well.  Others will spend considerable time and money just prior to selling to get the property back up to speed. 

Read the below list and attempt to tackle at least one item per year. 

• Repaint the outside of the house.
• Repaint the front door and common hallway.
• Plant shrubs (trim existing ones) and plant flowers.
• Immediately before you sell, fertilize the grass and water constantly.
• Repair/replace any decks or outside stairs.
• Repair/remove/replace any fences.
• Paint the basement floor and laundry area.
• Add additional lighting in the basement area and/or laundry area.

These items will give your investment property more curb appeal and should allow you to sell your property faster and for more money.

Amazing Minneapolis Investment Property Deals

Last week I toured several duplexes in NE Minneapolis with a client.  All of them were bank owned (foreclosures) and all needed some rehab.  I was amazed at how low the prices had gone for otherwise decent buildings in decent neighborhoods. 
Two of the three buildings needed around $20k to rehab the bathrooms and kitchens  One was [...]

Last week I toured several duplexes in NE Minneapolis with a client.  All of them were bank owned (foreclosures) and all needed some rehab.  I was amazed at how low the prices had gone for otherwise decent buildings in decent neighborhoods. 

Two of the three buildings needed around $20k to rehab the bathrooms and kitchens  One was priced at $165k and the other was priced at $115k.  They were located about 4 blocks from each other.  The lower priced building needed some additional work, but I would not say it was NOT $50k worth.  It was a typical investment property in NE Minneapolis that had been neglected and the repairs had been deferred for many years.  It was an otherwise solid building.

The third duplex that looked at was definitely a find.  It was 2 bedrooms up and 2 bedrooms down.  Both units needed cleaning and paint, and the upstairs needed carpet.  We estimate that if you wanted to get by with the least amount of money invested (in rehab), you could spend less than $5k to get the building rentable again.  Best of all, this property was listed for $137k.  It had sold 2 years previously for $225k and the owner went into foreclosure recently. 

There are amazing deals in all parts of the Twin Cities and even the greater Minnesota area.  Now is the time to be a buyer.

The Guidelines of Flipping Properties

Are you memorized by those shows in which people are buying run-down houses, fixing them up and reselling them for huge profits before the first mortgage payment is due? Wow!
What’s more, these people claim they made as much money on this one house as you did all of last year. They don’t look or sound [...]

Are you memorized by those shows in which people are buying run-down houses, fixing them up and reselling them for huge profits before the first mortgage payment is due? Wow!

What’s more, these people claim they made as much money on this one house as you did all of last year. They don’t look or sound any smarter than you, and they’re raking in the cash! You start crunching numbers and before you know it, you’re thinking about a career change.

Flipping houses can be exciting, lucrative, demanding, risky, and rewarding all at the same time.  The best line I ever heard applied to flipping houses (and also applies to investment property in general) is:  “You make your money when you buy, you get paid when you sell”.  

If you do your homework, watch your time and money, and following a few overarching guidelines, you can be successful:

• You must be 100% confident you understand what the house will sell for QUICKLY after you fix it up.  Be realistic.  Don’t shoot for the top price in the market; in fact I recommend to price it 5-10% below what it should sell for to move it quickly (especially in this market). 
• Itemize what your costs are going to be to not only fix it up, but to hold and market the property.  Make sure to include some contingency for unseen problems or items you decide to repair/replace once the work begins.  Then don’t stray from that budget.
• Just as important as the budget is a schedule.  Every day that you own the property means less money (profit) in your pocket when you sell.  Make sure you are not slowing down the project.  Keep the house busy with activity.
• If you are a armchair do-it yourselfer, pick your battles.  Make sure that the quality of your materials and workmanship meet the price point you are working in.  I have seen many do-it-yourselfers, do a poor job on an area they were trying to save money on, only to have the house not sell because everyone through the house saw the problem.  Hire talent and quality.
• The potential profit margin ultimately drives the amount of work you can do on a flip, but I recommend to newer flippers that they should buy a house that needs a few (potentially major) items to repair, such as needing a new kitchen and bathroom, instead of 100s of small ones, such as new doors here and outside facia work there and a reworked kitchen here and tons of TLC everywhere.
• Have an exit strategy.  What if the house doesn’t sell quickly?  What are you prepared to do?  I believe there are two easy answers:  move yourself in and sell your house or turn it into an investment property and rent it.  While moving in may be difficult or impossible, turning it into a rental should be one of your considerations.

Although this is not a comprehensive list, these are the guidelines that I give everyone that I meet that is interested in flipping.  They will make you more successful, more money, and less stress. 

Good luck! 

Investment Property Maintenance 101

It is interesting when I tour investment property in Minnesota and especially in Minneapolis.  You can often tell right from the curb which landlords maintain their properties and which do not.  As a real estate agent and an investor, I am more often concerned and discouraged by the lack of minor maintenance than I am about the major [...]

It is interesting when I tour investment property in Minnesota and especially in Minneapolis.  You can often tell right from the curb which landlords maintain their properties and which do not.  As a real estate agent and an investor, I am more often concerned and discouraged by the lack of minor maintenance than I am about the major items.  In my opinion, the minor maintenance items are death by a thousand pin-pricks over the high dollar, major repairs/replacements.  The neglect of minor items also makes me question what else is wrong with this property that we are not seeing.

Here are some minor items that are fast and inexpensive to fix and improve the ”first impression” of your property.  These tips will help you both when you sell your investment property and when you are showing the property to prospective tenants.

Clean up the yard, pick up any trash, trim the bushes and trees, if there are no shrubs then consider planting some.

• If the front door knob is falling off or if the front door has been kicked in or damaged, repair or replace it.  Look at the mailbox, if it is also dented or damaged replace it.
• Make sure the lighting in the front hallway in a multi-unit building is bright.  Paint the hallways and staircases.  Keep the halls and stairs swept and clean.
• In a multi-unit building, if the apartment doors are damaged or need paint, repair them or repaint them. 
• If the building has an odor of pet, smoke, or mildew, fix by removing the offender (no not the tenant!).
• Clean up the laundry room and/or the furnace room.  Paint them and put in bright lights.
• If the blinds on the front windows are damaged, replace them.  If they are missing or the tenants have put sheets up over the windows, remedy.
• Walk around the outside of the building and look at the steps, the screens, the facia.  Replace, repair or repaint anything that does not look perfect.
• Confirm that you have door bumpers on all the doors and repair any damage in the walls.
• Look under every sink for any dripping drains and repair both the plumbing and then paint or re-skin the inside of the cabinet. 
• Recaulk the tubs and showers if they have mold growing in them.
• In Minnesota in the winter, make sure when you are going to show the property (to buyers or new tenants) that the sidewalks are absolutely clear of snow and ice.  Clear a path around the building to make it easier for the buyers to inspect the outside.

Many of these above suggestions are easy and inexpensive, but the best way to tackle these items is to do a little every month.  Then when you are ready to sell your investment property or rent to a new tenant, it is closer to looking perfect.

Minneapolis & St. Paul Real Estate Market Update

The Minneapolis & St. Paul real estate market continues to be in a slump.  Here are the new numbers released for July 2007:

Closed sales are down 2.7% over July 2006.
For the year to date, closed sales are actually down 14.4%. 
Percent of original list price received at sale is down 1.9% over July 2006 and is down [...]

The Minneapolis & St. Paul real estate market continues to be in a slump.  Here are the new numbers released for July 2007:

• Closed sales are down 2.7% over July 2006.
• For the year to date, closed sales are actually down 14.4%. 
• Percent of original list price received at sale is down 1.9% over July 2006 and is down 2.1% year to date.

A few bright spots to be conservatively excited about are. 

• The average sale price was up 2.4% from July 2006 versus July 2007. 
• Year to date the average sale price is down 0.1%.  Although negative, it is considerable stronger than other areas of the country, which are seeing considerable deflation.
• The average days on market until sale is a staggering 127 days, but is actually down from 137 days year to date.
• New listings are down 2.5% year to date.

These numbers confirm what we have been saying:  the market continues to be a very strong buyers market.  A few positive notes for sellers are that average sale prices were up in July (hopefully they will continue that trend).  Lower listings year to date means that inventories of unsold properties are actually declining which will help sellers with both time on market and price.

This information was gleened from a report published by The Minneapolis Area Association of Realtors.  See the full report here.

Is the market/economy that bad?

Recently, we have seen the stock and bond markets react negatively to the announcements of all the problems in the sub-prime loan markets.  Ben Stein wrote a great article, recently, in the New York Times named:  “Chicken Little’s Brethen, on the Trading Floor.”  Mr. Stein, an economist, lawyer, and actor (very interesting combination), explains how the markets are reacting [...]

Recently, we have seen the stock and bond markets react negatively to the announcements of all the problems in the sub-prime loan markets.  Ben Stein wrote a great article, recently, in the New York Times named:  “Chicken Little’s Brethen, on the Trading Floor.”  Mr. Stein, an economist, lawyer, and actor (very interesting combination), explains how the markets are reacting to news irrationally.

His argument shows that despite all the new hype and the reactions of Wall Street over the sub-prime problems, only .37% (or $34 billion of $10.4 trillion) of the mortgage market are sub-prime loans that will not be recoverable in foreclosure.  This is certainly a large dollar figure, but keep in mind that the value of all stocks listed in the United States is between $15 and $20 trillion (or $15,000 billion). 

Even if you are not a Ben Stein fan, this article is a must read for anyone in or thinking about buying investment properties.