Twin Cities, Minnesota (PRWEB) April 01, 2014
Minnesota Housing Link’s quarterly analysis of Twin Cities rental homes, charts how the median rent listings for homes in Frogtown — duplexes, condos, single-family homes for rent, and townhouses — have risen sharply recently. Lack of sufficient inventory is pushing rental prices up and creating opportunities for Twin Cities move-up buyers to gain a second mortgage with rental income helping to meet the first one.
"If you have outgrown your current home and want to sell and become a move-up home buyer, you may not need to sell your existing home first. Retaining your current home and converting it to renting income may be the solution," according to advice from Jenna Thuening, owner of Home Destination. "With rents in the Twin Cities climbing remarkably for three consecutive years due to the lack of sufficient inventory, many are seizing the moment to step into managing a rental home.
Twin Cities new Listings decreased 0.9% to 1,462, according to the March 24 report from the Minneapolis Area Association of REALTORS®. Fewer distressed home sales and fewer out of state residential investors have changed the landscape of real estate purchases, adding to the demand and price of existing listings. Some prospective buyers are setting plans aside if they cannot find what they are looking for and choosing to rent renters for the coming season.
Another factor that may further impact rising rents is the expanding light rail transportation system that makes commuting quick and easy. Some predict that housing will become more competitive in surrounding neighborhoods. With the Central Corridor on track to connect downtown Minneapolis and downtown St. Paul sometime in 2014, area renters are pondering if that will mean a higher rental check will be demanded. The Dukakis Center for Urban and Regional Policy at Northeastern University pulled housing data that suggests: "in nearly three quarters of transit-rich neighborhoods studied nationally, rents increased faster than in other parts of the same metro area."
In 2011, the median rent for was $807
In 2012 it rose to $850
In 2013, the median rent continued upward and reached $995
As the cost of rental housing continues upward, more homeowners in the Twin Cities are becoming landlords. Second homebuyers may have unique qualifying criteria. Having tenants who pay enough rent to cover the first mortgage, will increase homeowner's equity and provide extra monthly income; it can be a fantastic investment for funds to draw on later. Keeping an existing home as an rental income unit is quite attractive. Obtaining financial approval to buy a second home depends on that applicant's income earnings, financial stability, available home down-payment, credit score, and debt-to-income ratios.
CoreLogic monitors single-family rental cap rates for key housing markets and reported significant investment activity in rental units in both 2012 and 2013. The cap rate is the ratio of the rental home’s revenue-producing potential and the cost of achieving it. In a December 5, 2013 article titled Slow Money Is Replacing Fast Money: The Single-Family Residential Rental Asset Class Is Maturing Quickly, CoreLogic studied market-level single-family residential rental rates and came up with some astounding conclusions. Taking into account "one month of vacancy, leasing costs equal to one month’s rent, an 8-percent management fee and a 2-percent maintenance fee to determine the average single-family rental property income in each market", profit is not a guarantee. Basing the buyers purchase costs on the average home sale price with a 30-percent discount (assuming the investor is buying a distressed asset) and 5-percent rehabilitation costs, it requires a good business mind to pull it off.
"Unless you are a full cash buyer, the lender you approach will be asking you to prove that you can afford more than one mortgage. Many who understand the variables are securing a future of properties accruing home equity, and buying the next home they want to live in," adds Thuening.
Home Destination offers Twin Cities real estate buyers and residential investors housing resources and current industry news to help individuals make the best of buyer opportunities. Call 612-396-7832 and ask for Jenna Thuening.