Jesse Grumdahl is a Minneapolis Real Estate Broker and Realtor with Re/Max Advantage Plus is our guest blogger.

If you own an investment property, and you need to do a short sale there is one topic I hear regularly – what do I do with my tenants? Keep collecting rent? Give them notice to vacate? Let them stay at reduced rent? or – gasp – for free?

Every situation I have encountered with an investment property, tenants, and a short sale is different. To really know what to do, there are a few basic questions that need answers.

• How much time do I have before the bank takes possession?

If you are not delinquent on payments you generally have nine to ten months from the first missed mortgage payment before the lender takes possession, from my experience. It is up to you when you will inform your tenant to vacate. With many of my clients, who have good tenants, I have witnessed that open communication helps keep those good tenants happy through the process. Keep in mind that if an investor buys the property, the tenants may not have to move.

• Are your tenants “good” tenants?

Are your tenants paying rent on time? Will they allow showings? Do they complain everyday about nothing? Sometimes it is best to give notice to vacate if you do not have decent tenants. Why? They will slow the whole process down by not allowing showings, scaring off potential buyers, and refusing to pay rent on top of it. Why keep them there? You want to market the property in the best possible light, because the sale price will have a direct influence on the consequences of short selling your property.

• Should you offer incentives to keep “good” tenants?

If you have good renters it may be worth it to entice them to stay during a short sale by offering incentives. It could vary from slighty reduced rent to no rent at all, and I have had investor clients choose points all across that spectrum. Let’s start with free rent. It’s not actually free. The tenant still pays the utilities (or starts if they were not before), keeps the property maintained, and always allows showings.

I had one client of mine stop charging rent, and give his tenants a sense of ownership by giving them more responsibility (he knew they could handle it). They were so empowered by this that they signed a three year lease with the new owner at closing, and that owner never has to do any work (and charges more than the previous lease). This helped sell the property incredibly quickly, and removed the headache from the previous owner asap.

The majority of my clients will charge reduced rent. From what I have seen, the discount is usually 10-15%. Most tenants are thrilled to save that much, and many will stop complaining about little things as they contemplate the value they are getting. Are your tenants going to throw a wrench in the short sale gears, or are they going to be willing participants? That is the main question you will need to ask yourself.

Jesse Grumdahl is a Minneapolis Real Estate Broker and Realtor who is a short sale listing expert in Minnesota (with the #1 Re/Max Team in Minnesota for the last three years) who sharply focuses his energy on short sale listings in the Twin Cities metro area. Mr. Grumdahl does so with the help of his full-time, in-house staff that will always put his clients’ best interests first and foremost. Jesse’s goal is to get you out of your distressed situation with minimal damage so that you can move on with your life as quickly as possible. Jesse can be reached directly at Jesse@MnShortSale.com or 612-968-2161.

Everyday I show bank-owned/foreclosed properties.  I never think too much about how much money the bank is losing on this deal.  I am just concerned with how to get the best deal for my customers.

If you watch the news, you might be wondering why the banks need the bailout money.  Why are pumping billions into them to take care of these “toxic assets”.  Here is my own personal realization of the money lost.  Read it over at my Saint Paul Real Estate site.

My previous posts have mostly been about one house that was particularly stupid.  I have not seen one house that takes the entire cake, lately.  Consequently, it has been a while since I posted any new pictures.  So here is a montage from Saint Paul Homes to Apple Valley Townhomes.

I love my job!

I remember the good ole days when you could buy a 4 unit building for 5% down.  Ahh…that was the day.  Recently you need 25% down.  Now Fannie Mae has changed their regulations as a way to stimulate the economy.  They have set up a program called Fannie Mae Home Path to allow investors to buy Fannie Mae properties with only 10% down. Read about this the Fannie Mae Home Path on Rob Bonahooms blog.

I get this question all the time when I tell people what I do.  They are surprised when I tell them that it is very good right now.  In fact, I am busier than I have ever been.  The volume of foreclosed properties has made this an amazing buyer’s market.

And I am not the only agent busy.  Just about every investment property we are looking at these days has multiples offers on it.  In fact, a customer of mine made a cash offer the 1st day a property was on the market for 40% above list (about $10k).  We quickly were told that they were in a multiple offer situation and they asked for highest and best.  We found out 2 days later that we were not the highest bidder.

It turns out there were 24 offers on this property and there were several more they turned away.  The listing agent did not tell me the winning bid, but described it as “ridiculously high”.  Low ball offers on Bank owned properties are no longer the norm.  Over asking price is now becoming the norm.  As the banks want to dump the REO properties, they put them on the market almost too low.  That coupled with the glut of investors is making for stiff competition.

Are you searching for investment properties on your own and running into similar situations?

This is a topic of some debate when looking at older homes.  What is the minimum size?  Does it need to have a closet?  What is the definition of an egress window?  I reviewed the Minneapolis Ordinance Code for the following definitions.  I will make an assumption that many other cities have similar definitions.

To be a bedroom it must have the following qualities/requirements (I am paraphrasing from the Minneapolis City code):

• Every sleeping room below the 4th floor shall have at least one (1) window or exterior door approved for emergency exit or rescue.
  • Any window used for egress must have at least 6 square feet of glass.
  • The window must open at least 20 inches in width and 24 inches in height to allow egress.
  • The window must not be more than 48″ from the floor.
• All habitable rooms must be provided with natural light by means of windows or skylights with not less than 1/2 of the required window/skylight area shall be openable to provide natural ventilation.
• There must be at least 2 separate floor or wall duplex electrical outlets available in the room.
• Habitable rooms shall have heating facilities that can safely and adequately maintain the room at least 68 degrees Fahrenheit between October 1 and April 13th.
• Every window opening to an outdoor space must have a screen and any door opening to an outdoor space must have a screen door with self-closing device.
• At least one-half of the floor area of every habitable room shall have a ceiling height of seven and one-half (7 1/2) feet.  However, in 1.5 story homes attic type bedrooms may be located above the first floor of each dwelling unit if such attic type bedrooms have a minimum ceiling height of not less than 7 feet over fifty 50% of its floor area and shall be provided with a stairway in full compliance with the building code.
• Rooms used exclusively for sleeping purposes shall have the following minimum superficial floor area: 70 square feet for one person, 90 square feet for 2 persons and the required superficial floor area shall be increased at the rate of 50 square feet for each occupant in excess of 2. However, occupancy of a sleeping room shall not exceed 4 persons.

So what about the closets???  I was unable to find anything in the Minneapolis, Minnesota, or Section 8 code even mention a bedroom needing a closet.  I do know that many people believe they do and I have even had some Section 8 inspectors tell me they needed a closet.

I do know that FHA and  VA require closets to consider it a bedroom, but I was unable to find anything in writing saying that when renting, you need a closet to consider it a bedroom.  If you can find anything in writing, add a comment to this post with the URL of where you found the rule.