Rob over at HomeRun Homes does a nice job of summarizing some of the top Real Estate investing markets on his recent blog post.  While Minnesota did not make his list, I would bet that it would be comparable to the Detroit example in some places in Minneapolis.  Otherwise, we are seeing Memphis numbers in the suburbs.  Maybe I should think about buying a home near Disney for $100k.  I could just rent it out to all my friends with kids when they go down there!

Run over and take a look at Rent to Own Homes.

I am sure with that headline and what I am about to say will get me some hate e-mail, but I just tell like I see it (even if it is not 100% politically correct or polite). So I stopped by one of my units in Northeast Minneapolis this weekend to find that the tenant moved out in the middle of the night, owing me May rent.  Nice!  On top of that they left a couple pieces of furniture in the house, 2 beds in the yard, and no cleaning (surprise).  How did this happen to me again?

As I was having a little pity party in my unit, I had an epiphany.  This tenant had some telltale signs that I should have picked up on when I showed her the unit the first time.  While none of these are 100% reliable and I am sure there are many exceptions, and while I am sure I will get hate mail for saying some of these things, just chalk this up to my gut feeling and experience over the years.  Here are some correlations that I have noticed with bad tenants:

• One of my big pet peeves is seeing window screens pushed out or damaged on rental properties.  I don’t think I have ever wrecked a screen at my house.  I see tenants push them out all the time.  In fact I had a tenant last summer simply push the window air conditioner through the screen instead of removing it!  Bad tenants seem to treat the screens on the house like the treat the rest of the house.  They abuse it.  By stopping by and checking out their current living situation, you should be able to notice this.
• When you are running the tenant’s application, if there are any credit issues, collection items, or evictions, that is going to continue to be a problem.  Now I understand if you got laid off, went through a divorce, got sick and had a period in your life well that is explainable, but most bad tenants just seem to have no regard for payment of bills.  Just like any bad habit, once they get used to doing it often, it gets easy.

While I could go on and on, these are some quick thoughts that come to mind (and help me vent my frustrations).

I love working with investors.  Maybe one of my favorite parts of my job is seeing people take properties that were previously run down, neglected, ugly (and sometimes almost destroyed), and bring them back to life and restore them to their beauty.  This Saint Paul home is no exception.

Downstairs this duplex had no kitchen left and someone had tried to combine two of the three bedrooms to make a larger master suite (removing the hardwood floors in the process).  The upstairs tenants had destroyed the bathroom and the property did not have a working heating system.  Once my investor purchased it, they found that the entire plumbing system was incorrect installed.

Needless to say, they spent considerable time and money to restore this 1928 Crocus Hill duplex back to its original glory.  I love it (I was tempted to tell my wife to start packing as we are moving in!).  Here is just a partial list of the work they did:

• New kitchens including cabinets, counter tops, appliances, and tile floors
• New bathrooms with all new plumbing and tile throughout
• Refinished hardwood floors and restored woodwork
• New Bryant furnaces in each unit
• Upgraded plumbing (both waste and supply) including 2 new water heaters

Each unit is 3 bedrooms and 1 bath.  This property will work for either an investor or an owner occupant.  The seller is very comfortable that you could rent either apartment for $1250 per month each.

Check out the website for 728 Dayton Avenue.

From the Minneapolis Realtor Association Newsletter-4/19/10

For the third consecutive month, home prices in the Twin Cities 13-county metropolitan area showed a year-over-year increase. We haven’t seen three consecutive months of progressively increasing year-over-year growth since June 2004.

The March median sales price of $165,000 was a healthy 7.1 percent increase from $154,125 last March. That’s the strongest year-over-year increase since May 2005. Part of the reason for the stronger upward movement is that a lower share of home sales are foreclosures as compared to last March. Short sales are another story.

“There are definitely some promising indicators and several positive trends at this time,” said Brad Fisher, President of the Minneapolis Area Association of REALTORS® (MAAR). “However, we need to keep a close eye on several submarkets, including short sales, new construction, and high-end properties.”

The median sales price of traditional homes (excluding foreclosures and short sales) in March was $199,900, down $11,600 or 5.5 percent from $211,500 last March.

Foreclosures posted a slight 0.3 percent increase to $118,000, while short sale properties posted a 2.0 percent decline to $147,000. Although short sales have become the new problem child on the block, the 10.0 percent decline in bank-owned new listings after a period of unprecedented growth is good news for everyone.

There were 5,051 signed purchase agreements in March, an increase of 14.6 percent from a year ago. The spring market continues to have a flurry of activity as we approach the April 30 deadline for the federal home buyer tax credit. Home sales are expected to continue to increase as buyers move to take advantage of this substantial market incentive.

This increased buyer activity has brought inventory down and restored some sense of equilibrium to the market. April’s supply-demand ratio of 4.39 means that there are 4.39 homes available per buyer for the month. In March 2008, that mark was 8.16. While the rate of inventory decline has been slowing in recent months, supply and demand is far more balanced than it was two years ago. This is a critical sign that the market is correcting oversupply.

“The oversupply issue has corrected in much of our market, and that has led to price stabilization,” said MAAR President-Elect, Pat Paulson. “This provides reason for cautious optimism.”

Fiserv, a global financial data research firm released an article on April 8, 2010 detailing the home pricing trend and forecasts for 375 US housing markets.  The data comes from both Moodys.com and the federal government.  The report states that markets such as California, Arizona, Florida, and Nevada that saw the largest price run-ups (and subsequently the largest bubble crash), may not see the prices of their properties return to peak levels (prices around 2006-7) until 2025 or later.

Many other markets, including Minnesota, may need to wait 10 years or more to see their prices return.  They specifically mentioned Minneapolis in a part of their analysis:

“A protracted recovery in home prices is also expected in many urban neighborhoods where predatory lending was most rampant. There, home prices rose rapidly from very low levels during the bubble years. These markets include neighborhoods in cities such as Minneapolis, Memphis and Chicago.” 

The full members only report summarizes that the Twin Cities market could be back to their peak prices between 2015 and 2025.

Despite other experts stating that prices will decline only slightly this year in the Twin Cities, the Fiserv report says that nationally, prices will decline by about 7% through the end of 2010 and then begin a slow, flat recovery in 2011.  They emphasize that this recovery will be prolonged, meaning that many markets will see multiple years of 0% price growth.

On a positive note, some areas are more fortunate such as Pittsburg, Columbia (South Carolina), parts of Texas, Washington, and upstate New York.  These areas never had the dramatic price increases and consequently will see their prices recovery relatively quickly; possibly within the next couple years.

While the foreclosures are the details of the housing market making the headlines in the news, much of the lack of momentum in the housing prices is driven by the overall state of the economy.  With consumer confidence about their jobs and economy at such a low point, many people are unwilling or unable to purchase a new home, despite the great opportunities out there now.  This has reduced demand especially in markets that lost jobs, where employment is not expected to return to peak levels for 5-10 years.

According to some estimates, about 5 million to 7 million properties are potentially eligible for foreclosure but have not yet been repossessed and put up for sale. Some experts argue it could take up to three years for all these homes to go through the foreclosure process, hit the market and be purchased by new owners.  This new bubble of foreclosed properties will increase the inventory of properties on the market (which is already too high), pushing down prices and lengthening time on market for homes to sell.  This will reverse the trend we have seen in the last 90 days, of falling REO inventory and increasing prices (at least in REO properties).

One example is that JP Morgan Chase hit its top month of foreclosures in the middle of 2008 and their numbers have been steadily falling.  Unfortunately, the bank is estimating that it could again beat that previous record by the fourth quarter of 2010.  Data released by RealtyTrac shows that banks are now slower to take properties back through foreclosure despite the fact that more and more homeowner are falling behind in their payments.  This new wave of foreclosures are less the result of ARM mortgages adjusting and over leveraged properties. They are the result of job losses or changes in income.

Maybe a wave 3?  I hope not, but there is an estimated 11 million US homeowners that now owe more on their mortgage than their home is worth.  Many of them will decide that keeping that home is not worth it and will become delinquent.  Hopefully some of these will opt to sell their home via a short sale instead of letting it go into foreclosure.  By the end of 2012, 39 percent to 50 percent of home purchases in Phoenix will still be foreclosed properties, J.P. Morgan Chase has estimated. Wow!

According to the National Association of Realtors, the inventory of bank owned or bank mediated (short sales) properties declined from 49 percent of the inventory of homes sold in March 2009 to 38 percent of the inventory in January 2010.  Additionally, the inventory is down to just a 7.8 month supply from a high of 11 months in July 2008.  A stable market is around 4 months; we still have some time to go.