MN Real Estate Blog

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It has become apparent to me that selling your home seems to be a thing of the past, at least for now!  With today’s unstable market and with many clients either upside down in there homes or just not having the ability to sell… RENTING seems to be the best solution for many!  In the past 2 months I have turned 4 of my clients listings into rental properties.   Obviously when making a decision of this magnitude it can not be taken lightly.  One must be willing to do the research, and consider the responsibilities associated with becoming a landlord/property manager.

Rental property however is not made for everyone and there are always going to be a number of things to consider when making a decision such as this one.  For this reason I think it is important to weight out the pro’s and the con’s of renting vs. selling your property if you have the option of doing so.

Here are a few of the pro’s for owning rental property:

Cash flow, creating long term wealth through appreciation, paying down of the mortgage, and receiving tax benefits/shelters to off set your income.  For further details on each of these Pro’s listed above please read my previous post on Why is buying rental property such a great investment?

With pro’s there must be some con’s as well, these include:

Unexpected phone calls in the middle of the night.  Setting aside extra time each month to deal with any and all issues that may arise with your rental property/tenants i.e. plumbing, heating, electrical, or even eviction if they have not paid their rent.  Also, with each rental property that you own there is going to be added stress involved if you need to try to re-rent the property.

On the other hand when an individual looks to sell there property they too have to consider the pro’s and con’s of each decision.

Here are a few of the pro’s involved when looking to sell your property:

Using any and all of the equity/proceeds acquired at closing to pay down debt or use as down payment on your next home.  Having the ability to wash your hands clean from the previous property (get on with your life).  Not having the stress of trying to qualify for a second property, and finally not having to deal with the stresses that can be involved with owning rental property.

Yes! there can be con’s to selling your property as well, those may include:

The stress of getting your home ready for the market i.e. painting, making any necessary repairs, etc…  Having to be flexible with your schedule in the event that you have a showing on the property.  Granted these are going to be different levels of stress fore each individual, but it is still important to touch upon.

Obviously there are a number of other pro’s and con’s that I didn’t touch upon, but the reality is that these may be different for each individual.  At the end of the day that decision is up to the home owner and while I may lean to one side over the other everyone is different and has their own opinions.

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Roughly a week ago a client of mine living in the Highland Park in St. Paul, approached me with a very interesting question?  She asked me how much value would they be adding to there home if they were to build a free standing deck in their backyard?  The answer to her question may surprise you, but I told her nothing!  However this question got me thinking… What home improvements actually add value to homes in Saint Paul Real Estate, and better yet how much value? 

Realistically there are a couple of variables to this question.  One of the largest variables happens to be the world of Television.  Why Television might you ask?   Because TV has brought Real Estate into our homes through a variety of different shows, some on renovation, some on home improvement, some on appraisals.  The problem with these shows is that many of the agents/hosts talk as though there is a clear and precise way of adding value to ones home.  “If you do X renovation then it will be worth Y.”  The problem with this over simplification is that many consumers take this to heart.  The simple truth is that many renovations do not add value they will only help the home to sell faster.  So how does one tell the difference?

Although nothing is completely black or white, as an real estate professional there are a number of specific items that I look for when adding value to ones home including: the number of bedrooms, number of bathrooms, Garage stalls, fire places, types of materials (brick siding vs. vinyl), sq footage, age of the home, and the size of the yard.  Beyond these items it becomes very gray!  However, all of these items are also only worth as much as the market will allow.  What this means to you “the consumer” is that a standard 3 bd home located in the center of Saint Paul Real Estate vs. rural Minnesota may be worth $350K in Saint Paul, while only 200K it rural Minnesota.    My point is that when you are looking to add value to your home talk with a professional, because the worst thing that a person can do is spend $50,000 dollars on there home in renovations when their market may not be able to support it.

In closing, I wanted to revisit my clients original question about the addition of a free standing deck in their back yard.  Renovations such as this one unfortunately do not add dollar for dollar value, it may help the home sell faster if a prospective buyer is looking specifically for a deck, but you will not be able to ask an additional $3500 dollars due to the fact that you have built a deck in your back yard.  This also goes for renovations like bathrooms or kitchens.  It may factor in slightly when an agent is preforming a market analysis on your home and pulling comparable homes, but 99 times out of 100 you are not going to turn a $15,000 dollar kitchen renovation into $30,000 dollars of value!

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For those of you who are visiting my blog for the very first time today; I wanted to take a moment to explain the reason for creating Restaurant of the week!  (Which is a category that can be found on the right-hand side on my homepage at MN Real Estate Blog.)  The main reason for creating this category came to me while spending favorable amounts of time in Saint Paul dealing with Saint Paul Real Estate, specifically Highland Park homes for sale.  The idea is to visit one new restaurant every week and to talk about the experience I had while eating at the restaurant.  One of the only rules to this category is that each and every restaurant needs to be located within the city limits of Saint Paul.  So for week 2 I thought I would introduce you to the world of Pad Thai.  (please note: that is post is roughly a week overdue due to the holiday week)

Week 2 - Pad Thai Grand Cafe (1681 Grand Ave, St. Paul, MN 55105)

The restaurant I chose to visit for week 2 is located in a very different area of Saint Paul Real Estate known as Macalester-Groveland neighborhood and is quite the contrast to my choice for week 1 - Punch Neapolitan Pizza.  Although these two restaurants may be very different in many aspects from one other they do have one thing in common.   They both have excellent, excellent food!  Pad Thai Grand Cafe offers a very casual atmosphere with very ornate and beautifully painted walls with plenty of seating for all.   One thing I especially like is there over sized booths which can seat up to 6 people very comfortably.  

As I mentioned above our visit to this restaurant was actually last Friday on December 19th, but this blog post was delayed due to my crazy schedule over this past holiday week!   We went to Pad Thai Grand Cafe with a few of our close friends which proved to be a lot of fun.  The wait staff here was extremely quick and helpful, and like I had mentioned before the food was excellent.  To be quite honest I can’t recall the name of my dish from last week, however they have a number system for people such as myself who can’t pronounce anything! (I believe mine dish number was 403).  It was a sweet and sour dish that included: cucumbers, red and green peppers, onions, pineapple, carrots, and chicken.  It was served with traditional white rice, and was very delicious.   Each dish can be as mild or as spicy (hot) as you would like.  Personally I’m more of a mild kind of guy, but my girlfriend and our friends that we were out with that evening prefer the HOT stuff!   A few other things to mention about this restaurant is that all of there portions are very generous and they have a wide variety of other dishes including: Pad Thai, Drunken Noodles, an assortment of Curry dishes, Pra Ram Rong Song, and a number of sea food entrees as well.   Overall I would rate this restaurant at an 8 and 1/2 out of 10, but for those of you who really like Thai food like my girlfriend it would be more conducive to say 10 out of 10.

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First things first, I think it’s only fair that I first mention that this question was inspired from a recent blog post that I read on Steve Howe’s website; another agent from The MN Real Estate team.  The post was titled, “First Time Home Buyers: Foreclosures’ Where It’s At.” This blog post spent time talking about some of the past and present changes to the market, and how many first time home buyers can take advantage of some of these changes.   I do not want to argue or disagree with what he has stated in his post, but rather add to it; specifically in the area of Cottage Grove MN homes for sale.

I think my above question really has two different answers to it.  It just depends on what side of the“Real Estate coin” you’re on!  From a buyers perspective it couldn’t be a more opportune time to be looking to purchase a new home.  Specifically when talking about Cottage Grove MN homes for sale.  Beyond the fact that there are over 35 active foreclosed listings in Cottage Grove alone, rates have continued to drop, and the majority of all of these properties with the exception of a few are under $200,000.   For the average first time home buyer this means a couple of different things; 1. Although these Cottage Grove listings are now at or below prices you might have seen in 2000 to 2003.  The majority of these properties are going to need a fair amount of cosmetic work, and buyers are going to need to be prepaired for that.  2. With savings comes patience!  Many of these properties are going to take an extended period of time to negociate and close on, we are not talking about your “ma and pa” real estate sale any longer.  3. Last and but not least, I would highly recommend having an inspection.  Due to the nature of these sales all properties are being sold AS-IS and an inspection contingency is just about the only safety net that buyers will have without loosing there earnest money.

On the flip side of the coin, if you are currently trying to sell your home in Cottage Grove MN, we may be talking about a totally different story.  Beyond the 35 foreclosed homes in Cottage Grove that are active on MLS right now.  Sellers are struggling with the realization that their homes are not being affected by foreclosed properties.  While the majority of foreclosed homes have been dropping in price over the past year many of the other homes remain over priced.  This causes a suplus of homes in the market, which increases market time, in turn causing this vicious circle to continue for now!

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Who really wants to cook on the weekends? I know I don’t!!!!!  So today, I thought why not create a new Catagory on MN Real Estate Blog called Restaurant of the week!  The reason for starting this new Category is for two purposes.  The first is that I hate cooking on the weekends and like many other people out there I like trying new types of foods.  I don’t always know a lot about some of the restaurants I visit for the first time but I will volunteer to be the test subject for the rest of you.  The other purpose for writing this catagory is to introduce you to some of the other restaurants that have become favorites of mine.  This comes from spending a fair amount of time in Saint Paul dealing with Saint Paul Real Estate, specifically Highland Park homes for sale.   So tonight I thought I would start off with a classic one!

Week 1 - Punch Neapolitan Pizza (704 Cleveland Ave S, St. Paul, MN 55116)

This restaurant is located in the heart of Highland Park in the center of Saint Paul Real Estate.  If you are looking for a place to eat a fantastic gourmet pizza for a reasonable price, than this is the place to go.  You will need to make sure to plan ahead when eating at this restaurant.  It does not have a huge seating area, and the wait can get long during warm summer evenings.  Tonight however was unusually quiet, most likely due to the cold winter weather.  From the time we walked through the front door until our food was brought to us it was no more than 10 to 15 minutes.  Bright colored murals cover the walls of the intimate space.  Each table has a clear view into their small kitchen area which houses their custom wood burning oven which cooks the pizza’s to a sweldering 800 degrees!  Waitstaff wear Italian Soccer jerseys and local familys and couples share pizza, pasta dishes, and salads that fill the restaurant with its delicious smell.  Tonight I ate one of my favorite pizza’s on the menu, the “Bruni.”  It is topped with Sausage, spiced salami, onion, and oregano and is absolutely delicious.  My girlfriend enjoyed a vegetarian option featuring feta cheese, capers, and olives.  What makes these pizza’s so delicious is the top-secret crust which has a very unique taste after being cooked in their custom oven.  Overall I would rate this restaurant at a 9 on a scale from 1 to 10 even if the small space can sometimes produce a wait, I would overwhelmingly recommend it.

Restaurant of the Week!, Saint Paul Real Estate Saint Paul Real Estate

So yesterday was an interesting day for me!  As my hectic schedule had me running from one end of town to the other.  I received two separate phone calls inquiring about the same topic (both phone calls came within an hour of each other… how crazy is that!).  Both clients including a listing in St. Paul of mine and a buyer from Cottage Grove were curious about what is expected to happen with the interest rates over the next few weeks?

While I’m no expert in this field and don’t pretend to be…  as I’m not a lender.  I do realize that this will have a big impact on MN real estate.  Therefore I did explain to both of my clients that from what I have heard thus far both on the mortgage side of things as well as the talk coming from CNN.  That if rates do in fact drop to 4.5% which could be as early as next Monday, that they are not expected to stay that low for an infinite amount of time.  The real truth is that whatever the outcome is rates are at an all time low right now and at some point if consumers continue to hold out they will eventually miss the “bus”.  So after my discussion with both of these clients and sending them to get further information from the real experts in this field like Alec Grebis with Cornerstone Mortgage.  I thought to myself today might be a good day to call a few of my past and current clients to see if they are willing to jump onto the “bus” before it leaves.

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Let me start out by saying that I grew up and have lived in Cottage Grove MN for roughly 20+ years of my life. Needless to say I know the area quite well! I have seen this town transform from virtually nothing to what it is today. We have started to get new restaurants, some new shopping, and don’t forget about your Caribou and Starbucks! However, as I make the transition to a new house in St. Paul’s Highland Park. I have begun to realize the value of my home town and all of the affordable homes for sale. I will not try to bore you will a great deal of statistics or try to argue that one area is better than another (because I am partial to both areas). However I will say this… If location isn’t as big of an influential component to you as it is for me (i.e. the need to be in the center of the twin cities for real estate purposes). Then I would definitely recommend Cottage Grove as a place to live. It is only a 15 minute drive to downtown St. Paul and a 25 minute drive to downtown Minneapolis. It also provides everything a family would need including two grocery stores, a half a dozen restaurants; including every type of fast food restaurant you could think of, tons of parks, and even a clothing store or two! Also and here is the BIG ONE! If you are a first time home buyer or even a move up buyer and you are looking for a lot of home for not a lot of money then Cottage Grove MN homes for sale is the place to look.  Just this morning I did a search on the MLS for listings in Cottage Grove and there were over 50 homes for sale under $200,000 dollars with an average of 3.5 bedrooms, 2 bathrooms, and over 1600 sq ft. Using that same search criteria for Highland Park real estate there were only 16 homes for sale under $200,000 dollars with an average of 2.5 bedrooms, 1.5 bathrooms, and just under 1300 sq ft. You do the math!

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There are four primary reasons that make real estate, namely, buying rental property, a great investment.

1. The first of these is cash flow. What is cash flow exactly? Well, to put it in simplest terms, cash flow is the money that you have left over after the mortgages, the taxes, and the insurance have been paid for each month. Again, the tenants pay you rent, and that money pays off these items. So, whatever is left over at the end of each month goes into your pocket……that is cash flow! Though many people buy rental property for ‘cash flow,’ the real benefits that will build your net worth lie elsewhere.

2. The second main benefit from buying rental property is the tax shelter that it creates for you. What does this mean exactly? Well, each time you buy a rental property, the IRS allows you to depreciate that property over 27.5 years. So in other words, you can take that depreciation expense against your active income from your job. Let’s use a quick example: Say you buy a $200,000 rental property. Again, the IRS lets you depreciate the building, not the land. Normally, 85% of the purchase price is used to determine the building, the physical house’s value. In this example, the IRS lets you depreciate $170,000 (the house) over 27.5 years. This is equal to $6,181 per year you can take a depreciation expense against your active income. In other words, say you make $80,000 in income from your job. Now, take $80,000 minus $6,181, which gives you $73,819. Now this is the income that you pay tax on, $73,819, not $80,000 (which you actually made.) Not too shabby huh!?!You can see how by buying this one rental property, you have reduced your taxable income significantly. As you can imagine, if you buy two houses, this number doubles, three, triples, etc.I know some real estate investors that own enough rental properties that they do not pay in federal or state income taxes, due to such a large depreciation expense from their rental properties.

3. The third main benefit from owning rental property is appreciation. As we know, not all debt is bad debt. In fact, any type of real estate debt you have is the best type of debt to have, for it is appreciating debt. Again, your home may not appreciate at 10%, or even 5% every year, but at the very least, it will go up over time. This is the area that most real estate investors build their long-term wealth. By buying the properties, and then holding onto them. Time for another quick example:Say you buy two rental properties totaling $400,000. Now let’s say those two properties appreciate 5% over 10 years. You now have two properties that have a total worth of $651,557.85. You have made $251,557 in equity by simply buying the houses and holding onto them. Not too bad, huh? Most say that sure beats what they make at their day job! Minnesota real estate, from 1940 to 2000, has appreciated 6.15% on average per year. (See Link) We encourage you to go out and read the book Equity Happens. Go to http://www.equityhappens.com/ to find out more about this awesome book. The basic premise of this book is yes, over time equity does happen. People have been talking about the bubble bursting with real estate since the 1950s. Yet in spite of this, real estate investors have continued to see slow and steady appreciation. Appreciation is real. Equity does happen!

4. The last benefit from owning rental property is achieved through the paying down of the principal balance on your mortgages. Again, the rent you receive from your tenants will go towards paying those mortgages. Most of that money goes towards interest the bank charges you, however, some will go towards paying down the debt you owe. Over time you will build equity through paying down the loans as well. However, you can see with the previous example at #3, if you merely pay interest only, on your loans, you will still gain considerable equity. In fact, the majority of your equity you build will be through appreciation, not through paying down the loan. For this reason, I am a firm believer in doing interest only types of loans. It allows you to cash flow more, to put more money in your pocket right now. What’s more, the home appreciates at the same rate no matter if you are paying $1,000 a month, interest only, or $1,800 a month, principal and interest. Cash flow is a wonderful thing that will allow you to continue buying properties. Cash flow allows you to leverage yourself, and control more appreciating assets, more real estate.

Misc. MN Real Estate Cash Flow, Highland Park, MN Real Estate, Rental Property