Investment Mortgage Guy » Real Estate

Why Increasing Cap rates and Decreasing Interest rate Equal Opportunity for Apartment Owners in Minneapolis

admin — Sun, 30 Oct 2011 00:40:47 +0000

According to a recent report by Marcus and Milichap, the average cap rate on an apartment building in Minneapolis rose 80 basis points to the low 8 percent range during the last 12 months. The best class A apartment buildings in Minneapolis are in the 5 to 6 percent range and the some class C properties could be in the 10 percent plus range. The capitalization rate or “Cap Rate” as most of us call it is a simple calculation many investors will use to analyze a building very quickly. A cap rate is determined by taking a building’s net income and dividing by the building’s purchase price. The net income of a building is determined by taking the buildings net rents and subtracting operating expense. Please note, the debt expense of the building is not figured into this equation. Common operating expenses include taxes, insurance, utilities, repairs, marketing and management.

Below is the formula……

Cap Rate = Property’s net income divded by the current value

Okay, so that’s my explanation of cap rate, and as I said, it’s increasing. Let’s use this example, Building A has a cap rate of 7.5%

See below…

Purchase Price – 5,000,000 Net income – $375,000

If we add the 80 basis points and make the cap rate 8.3% let’s see what happens…

Purchase Price – $5,000,000

Net Income – $415,000 That’s another $40,000 to service debt with or put in your pocket!

Now let’s look at what is going on with apartment building mortgages in Minneapolis…. Vacancy rates are below 3% almost everywhere in the Twin Cities and lenders are motivated to write loans again. Agency financing which is FHA, Fannie Mae and Freddie Mac) accounted for 52% of the loans originated the Minneapolis and St Paul Area. The average interest rate this year for these loans was 4.5%. This is down about 50 basis points from a year ago when the rates average in the low 5% range. Banks and Insurance companies are also in the hunt again and ready to step up to the plate and make deals happen. So let’s say a buyer bought this $5,000,000 building with 25% down. His loan would be for 3,750,000. At 5% the annual debt service would be $241,560. If we lower that rate to 4.5%, the annual debt service becomes $228,000. That’s a savings of $13,560 per year! Combined, the increase in cap rate and decrease in rates give an investor a possible increase in investment of $53,560 per year! I don’t know what that sounds like to you, but to me, it sounds pretty good! Current apartment building owners in Minneapolis can benefit from this by refinancing and improving their net income through lower vacancies and being more efficient with expenses. If you’ve been a apartment building owner for a while, this business sure has been it’s ups and downs, for now, let’s enjoy the upside!

Robert J Bonahoom

NMLS#209013

651-485-3710

Apartment Loans Made Easy

admin — Fri, 16 Sep 2011 16:07:43 +0000

Stan is a local apartment building owner with a nice 10 unit building in St Paul. His mortgage was on a 5 year balloon and was approaching it’s term so he figured it was time to get with the banker to renew the loan for another 5 years. He figured this process would be fairly easy, after all, he’s always made his payments on time and has a solid equity position on the building. Stan approaches his banker who says “sure we can help you” . After 2 months of getting the banker a ton of paperwork than was more painful this his annual doctor visit, Stan patiently waited for the committee to approve his loan for another 5 years. Much to Stan’s dismay however, his banker calls after two months to tell him the bank would simply like to be paid off and doesn’t want to “entertain” another 5 year extension. Apparently Stan’s bank has lost it’s appeitie for these types of loans. Stan scratches his head and says what type of loans do you guys want? I’ve made every payment on time. Now in a panic, he wonders what do to… Does he risk losing the building? Are banks not lending anymore even to good customers?

If you have found yourself in a situation similar to Stan, please look no further. We can help. My partner, Angela Christianson and myself have devoted countless hours to building relationships with Fannie, FHA, insurance companies and large and small banks to step in where your lender has fallen short. We have solid lending solutions for apartment buildings large and small. Our normal process is to get you a quote within 24 hours of submitting the operating statements to us and a full underwriting commitment can be done on most loans in 7 days. Through our relationships, we know who is lending and who isn’t. Many times banks goals and lending desires change. Angela and I stay on top of this market to see who is doing what so you don’t have to. If you have an apartment building large or small in the Twin Cities were urge you to give us a call. Please call Robert J Bonahom at 651-485-3710 or email at rbonahoom@houseloan.com.

Robert J Bonahoom

Senior Loan Officer Cornerstone Mortgage NMLS#209013

American Dream Still Alive and Kicking

admin — Tue, 22 Feb 2011 18:53:57 +0000

With the plummet in housing values and incredibly high foreclosures rates, a person may start to wonder if home ownership is even a priority anymore. Is the American dream of home ownership a foregone conclusion? According to a recent study done by Fannie Mae, Americans are still hungry to buy housing. Their survey results indicated that 51% of people said the bust did not change their willingness to buy and an additional 27% said it made it actually more likely to do so. I guess Americans at their core are still optimistic that things will turn around.

Read full article below…

http://money.cnn.com/2010/12/16/real_estate/homeownership_desire_high/index.htm?iid=EAL

Robert J Bonahoom

Senior Loan Officer Cornerstone Mortgage

NMLS# 209013

651-485-3710 Cell

rbonahoom@houseloan.com

Existing Home Sales Flatten And Point To A Much Better Spring

admin — Wed, 24 Mar 2010 12:59:14 +0000

As expected, Existing Home Sales fell in February, slipping 30,000 units versus January’s numbers. It’s the 4th straight month in which Existing Home Sales were lower, month-over-month.

An “existing” home is one that is previously owned and lived-in (i.e. not new construction).

Existing Home Sales peaked in November 2009, just as the First-Time Home Buyer Tax Credit was set to expire. Immediately thereafter, according to the National Association of Realtors®, monthly sales plunged 17 percent in December, then another 7 percent in January.

Comparatively, February’s dip is a modest 0.6 percent and is more in line with the pre-tax-credit Existing Home Sales trend. The real estate market is rediscovering its normal.

But “normal” may not last for long.

When the federal home buyer’s tax program was extended last year, the new rules stated that home buyers must be under contract for their new, respective homes on, or before, April 30, 2010 in order to claim up to $8,000 in federal money. That deadline is approaching and many markets — Minneapolis included — are experiencing a surge in buyer traffic as April 30 nears.

The Existing Home Sales data doesn’t reflect this new demand, nor the number of new contracts written. It only accounts for home closings and, in February, closings were down.

For today’s buyers, the market looks favorable. The federal tax credit is in place, mortgage rates stubbornly stick near all-time lows, and home prices are staying in check.

Existing Home Sales should gain through March and April, pressuring home prices higher. And, by the time the press reports the gains, the best deals in the city may already be gone. Consider acting sooner rather than later.

Where is the Next Pot of Gold in the Twin Cities Market?

admin — Thu, 18 Mar 2010 04:25:16 +0000

I watched a lot of investors take advantage of some incredible deals in Minneapolis during early 2009. Homes were priced from $5000 to $40,000. The cash flow was insane. Slowly but surely however, these opportunities have been drying up. More and more investors have been brought into the mix and made the competition for the good deals fierce and scarce. The party seems to be over. Has the ship set sail on great opportunities in the Twin Cities?

I hope not but I think you will need to find other kinds of opportunities to focus on. The next wave of foreclosures is coming, but it won’t be in the same areas as before. The Minnesota Home Ownership Center posted an interesting blog article about the next wave of foreclosures.

Click Here to Read Article

According to this article, the suburban communities in the Twin Cities have a large number of homes the have the dreaded “Option Arm Mortgages” that are due to reset in 2010. Statistically, these mortgages have a default rate as high as 80%.

Realtor/Blogger/Investor Scott Ficek is taking aim at where he thinks the next pot of money will be made. (He was certainly right the first time around with Minneapolis) He is doing a seminar at our office in Burnsviile next week entitled “Renting Homes for more than $1500 plus per month.” His new strategy is to focus on higher priced homes with bigger rents and bigger upside potential.

Check out Seminar Here:

There is going to be some great deals on homes between $300,000 on up. The cash flow on these larger home purchases won’t be as good as the little guys, but if this market ever turns around, the appreciation could be really attractive.

Happy Investing!

The Median Home Prices in the Twin Cities Increase

admin — Tue, 16 Mar 2010 04:38:13 +0000

According to the Star and Tribune, median homes prices for the Twin Cities increased from $150,000 in February of 2009 to $159,000 in February of 2010. In general, I agree with the article. I think we will see the median home prices continue to rise as the foreclosures move from inner city properties to the suburban communities. This doesn’t mean that homes in your neighborhood are going to increase anytime soon. The median is the average of all homes. As larger homes start to get resold through the foreclosure process, the median home prices will also increase. It’s a healthy sign that housing is recovering. As we see signs of recovery, interest rates will rise and lending guidelines will loosen.

Read Full Article Below:
Star Tribune Article on Housing