CNN just reported that the national unemployment rate keeps improving, with 7.7% reported as the latest number. Oregon is doing a little worse, with 8.3% reported as the most recent figure. Data for Lane County is lagging a bit, but as of December, we’re a little under 8%, which is a vast improvement from 13+% at the depths of the recent Great Recession. An improving employment picture is good for a number of reasons. However, when unemployment gets to about 6.5%, mortgage interest rates will probably rise because the Fed’s monetary policies will change.
Nationwide, house prices grew at an annualized rate of 7.3% according to fourth quarter 2012 numbers, recently released by Case Shiller. Real estate prices are local, however, and nationwide trends are sometimes different than those in Oregon. Portland is the closest city tracked by Case Shiller, and they’ve been trending up as shown below. Real Estate prices have been generally trending up in Eugene Springfield Oregon since last summer, 2012, which is a welcomed trend.
The Register Guard recently ran an interesting article on rental houses. I thought the information was good, if at a pretty general level. Still you’ve gotta start somewhere. One quote from the article was particularly on point:
“In this market, at this point, it’s a sweet spot,” says Chris Princis, a senior executive at financial advisory firm Brook-Hollow Financial and owner of two rental properties in Chicago. “You’re getting the market where it’s just starting to rebound, but still at the bottom, with what’s looking to be a great recovery.”
I’ve been a real estate broker and property manager for rentals in Eugene Springfield for decades, and like to think I know what I’m doing. Broadly, we find owners in two categories:
- Investors who make a business out of buying, renting and selling rentals, and
- Accidental landlords who got into the house rental business in Eugene Springfield because of a change in circumstances, for instance a career mandated move.
The professional investors usually understand rental properties in Eugene Springfield pretty well. When buying or selling rentals, their chief concern is often the numbers. The learning curve for rentals is pretty steep, in my opinion, and most professional investors have paid to learn. Having said that, real estate transactions do change over time, and if you haven’t done one in awhile, you’ll be surprised at that. It can be difficult to evaluate income property when you’re considering a purchase, and a Realtor familiar with rentals in Eugene Springfield will be invaluable.
Accidental landlords and newbies usually have much to learn. One thing the RG article says that I particularly agree with, is the importance of figuring out rentals. However this takes both time and experience, so doesn’t come easily or quickly. It usually costs nothing to work with a realtor us when you’re the buyer, which is an added plus. Selling rentals also has its unique set of requirements, and a Realtor familiar with rentals will help you out.
Property management isn’t exactly easy, especially when you’re starting out. Probably the most difficult aspect is learning all the rules and regulations, then keeping current with them; they change over time, and new rules with which you must comply also get added. If you have a limited number of rentals, it probably makes the most sense to have a good property management company run them for you. If you have many rentals, economics may justify you running them yourself.
Residential income property in Eugene Springfield is just like anything else–the more you know, the better. A realtor that thinks every day about rentals in Lane County, Oregon can be a great aide in purchasing, managing, or selling. If you have an interest in Eugene Springfield rentals, please contact me if I may help.
I frequently run across clients and friends in Eugene Springfield that want to lower their mortgage payments, but are not sure what to do about it. As a Realtor, one option I usually discuss is selling, which may or may not make sense depending on the situation. 2013 Lane County real estate prices are currently somewhere around where they were in 2004, so if folks have purchased or refinanced in the last 8 or 9 years, there’s often not enough equity to sell without being short. There are plenty of short sales in Eugene Springfield these days, and it’s certainly an option for some, but not all.
Without sufficient equity, it also may be difficult to refinance. One notable exception is FHA Streamline Refinance. I’m not a lender and refer my clients, but as the lenders have explained the program it has some really good features, and some guidelines. Guidelines for FHA Streamline Refinancing are:
1) For homeowners with existing FHA mortgages.
2) Monthly mortgage payment needs to be reduced by 5+% by the refinance.
3) 3 month perfect payment history on your loan, and 1 or less late mortgage payments in the last year.
4) No appraisal required.
5) No income verification.
6) No minimum credit score.
7) For existing loans close before June, 2009, minimal upfront MIP cost (.01%) and low monthly MIP (.55%/yr).
For some homeowners with FHA loans in Lane County, FHA Streamlined Refinance may make a lot of sense. For others, selling may be a good option. And for others, sitting tight and waiting for the real estate market in Eugene Springfield to fully recover may be the best option. If you have real estate questions, please contact me. If you’d like a referral to good lenders, I’d be happy to do that too.
Duplexes remain a popular choice with real estate investors in Eugene Springfield, Lane County, Oregon. Most duplexes in Lane County, but certainly not all, are located in the greater Eugene Springfield area. I’ve found there’s a little more demand for city area duplexes than those in the country. At the time of this posting, there is a lot of buying pressure on Eugene Springfield duplexes and not an abundance of inventory. Of course, all markets equilibrate over time, and the duplex market will too. High demand and low supply tends to push up prices.
There is no shortage of sages and money gurus who have something to say about real estate. In fact, you could probably spend a lot of money on seminars that tell you how things supposedly work; unfortunately, in the real world of real estate and real estate investing most of the seminar ideas I’ve heard don’t work very well. What does work well in the real world is to buy quality properties, manage them adequately, and hold the investment for a number of years. When real estate investing is done correctly, the passage of time will make you look like a genius.
What are advantages to a duplex, and why do folks like them for real estate investments in Lane County? The following are some of the reasons.
Price: They are relatively cheap as a real estate investment, so more people can afford them, so the market and demand is larger for a less expensive investment; high demand and a large market are what you want.
Owner occupied: Some owners will want to live in one side of the duplex and rent out the other side. The tenant in effect helps pay your mortgage, which is a nice benefit. Duplexes are also popular in extended family situations, where someone wants to be close, but not too close. Duplexes are one of the few real estate investments that allow for both an owner occupant as well as tenants.
Financing: One to four unit complexes are usually easier and cheaper to finance than multi unit complexes, greater than 4 units. And, owner occupied financing is especially cheap. A portion of the rent, say 75% to 90%, can be counted on the loan application, which also helps. Talking to a good loan officer is always a good idea.
Cash Flow: A duplex provides a little better cash flow than single family houses. For instance, the rents on 2 120K houses might be $750 each, or $1,500 total, whereas, a 240K duplex might go for $800 per side.
How do you analyze Eugene Springfield duplexes as rental investments? There is not one correct way to do it, but this is how I do it. First, I look at the property itself, and factors I consider are:
Property Location: This is the most important factor, because it’s the one thing you can’t change. Chances are if you find an area icky and wouldn’t want to live in it, others may feel that way too, meaning it’s less desirable and rents will need to be lower to compensate for that.
In analyzing location, some of the things to consider are:
- Is it on a busy street? A quiet street is better.
- Is it near a large source of traffic such as a store or school? It’s better if there is low traffic.
- Is it near industry that might give off odors or noise? I like to avoid houses located close to industrial or commercial sites.
- How do the other homes on the street look? Similar in age and condition is best. Property values do best in homogenous neighborhoods.
- Is it in an area of owner occupied houses, or many rentals? I prefer owner occupied.
- Is the street improved or will it need costly repairs in the future? I like streets with curbs and gutters; streets without them, at least in Eugene Springfield, will probably get them in the future and adjoining property owners often foot the bill.
- Is it on sewer or septic tank? I prefer sewer because maintenance costs are less.
- Are there flood plain issues? Outside of the flood plain is best.
Condition of the Property: Generally, you’re better off paying a little more for a higher quality property. Better quality is easier to rent and tends to take less maintenance over the long haul. As a practical matter, duplex rents around Eugene Springfield tend to cap out around $1,300 or so per month, so there’s a price limit above which duplexes start to make less sense. Ultimately, if you are buying, getting a home inspection is a great idea, and I’m a Realtor, not a home inspector, so I don’t inspect homes. However, I do pay close attention to the condition and quality of the duplex. Things I pay specific attention to are:
- Foundation: Is it slab or stem wall. Both are ok. With a slab (sometimes called slab-on-grade, to distinguish it from a post-tensioned-slab, popular in California, but not in Lane County), there is no under floor wood to rot, but if there’s a problem with plumbing, or sometimes even electrical, they’re more expensive to fix because utilities are commonly in or beneath the slab, which needs to be cut and repoured. The bottom of the wall (wall plate) is more vulnerable to dry rot with a slab, but still can be a problem with a stem-wall; wall plates are typically difficult to evaluate. Exterior water control is especially important in pre 1980 slabs. Slabs are hard to evaluate unless there are obvious failures, like cracks and displacement that have pushed up part of the floor.
For stem walls, I look for cracks that are large enough to put a pencil in or that have moved, which is also called faulting. Given the amount of rain we get in Eugene Springfield, I look out for wet crawlspace areas, which aren’t desirable, but are fixable.
- Subfloor: Moisture, pests and dryrot are the major things to watch out for. Generally, you can only tell about the subfloor with a home inspection. It is easy miss underfloor problems unless you’re well trained. However, sometimes when a house is really bad, the floor will be especially lively (bouncy) or may be noticeably out of level. Common, but easy to fix, subfloor problems are missing or incomplete plastic ground cover and the presence of excess cellulose debris. Installing or fixing 6 mil, opaque, visqueen, a type of plastic, and removal of saw dust left over from construction are the fixes for the aforementioned. I have seen houses with over 20K worth of sub-floor problems due to insects. These types of problems are difficult, and therefore expensive, to fix because there’s a very heavy and big house in the way.
- Siding: HardiePlank type siding, real cedar, and plywood-T-111 are my favorites, in that order. Manufactured siding made of wood fiber and resin is not as good, in my opinion, but can perform well if you keep it painted and caulked, which not everyone does. Transite type siding is my least favorite because it contains asbestos, and remediation isn’t cheap. I usually take note of how good the exterior paint is and if it will be needing paint soon. Houses older than 1978 may contain lead and paint jobs for them are more expensive. Exterior paint jobs in general, have gotten more expensive than you might think, so good paint is a plus, but bad paint is an easy problem to fix. Bare wood and/or chipping paint can be problems that appraisers don’t like, especially if a loan is VA or FHA. Good flashing above penetrations (windows and doors) is a plus, but if it’s not there, good caulking is an ok substitute. It’s important to caulk sunken nail holes in newer, manufactured, siding; they are a path of moisture migration which is the enemy of structures in general, and siding in specific.
- Roof: Without a good roof, a duplex won’t last long in Lane County, where rain is plentiful. Leaks are problematic, especially with the modern specter of mold. A roof has to have some life left in it, perhaps 5 years, for a property to finance. Roofs with a pitch above 2′ to 3′ in 12′ can be shingled, and those lower than that need either a membrane, metal, or hot-mopped roof. Shingles are cheaper. There are two types of common asphalt shingles seen in Eugene Springfield, namely, composite and 3 tab. I prefer composite, which is also called laminate The number of layers in the roof should be noted. Sometimes for a reroof, the new shingles are laid over the old for cost savings. While this works, it’s not as good as removing the old shingles. Sings of an ageing roof are degranulation on the shingles, and rounded or curling shingle corners.
Cedar shakes were very popular in Eugene Springfield in the 1960s and 1970s, but is rare to see them used any more. Generally, when I see a shake roof it’s at the end of its life and will need replaced sooner or later. Metal roofs are long lasting, but not especially common. They’re expensive and the one complaint I hear about them is that they’re noisy when it rains. Concrete shingles are common on higher-end homes, but I don’t see them often on Eugene Springfield duplexes. Copper and slate are very high-end, and are almost never seen on duplexes or other multifamily housing in Eugene Springfield. Roofs leaks tend to occur around penetrations, such as vent pipes for HVAC , chimneys, and sky-lights. The condition of penetrations and flashing is hard to see from the ground, so will most often be determined by the home inspection.
- Windows and doors: Many older duplexes around Eugene Springfield have had their widows replaced, and finding a duplex with newer, vinyl ,thermo-pane windows is a plus. Fiberglass-clad, thermo-pane windows are good, but not as common. The next best, in my opinion, is aluminum thermo-pane, which were common in the 1970s and 1980s. Least desirable are single-pane because they’re not as energy efficient, and they sweat, which is icky. Wooden sash windows can be visually appealing, but require more maintenance, and are best avoided, if possible, for a duplex. Similarly, exterior wooden doors are esthetically appealing, but unappealing from a maintenance standpoint. Insulated fiberglass or metal doors are preferable, in my opinion. Fiberglass doesn’t dint when struck by an angry fist, a bizarrely common occurrence with rentals, but is more expensive, and therefore less common. Many, but not all, duplexes in Eugene Springfield have garages, and therefore garage doors. Modern, insulated, metal, overhead, garage doors provide the most bang for the buck. Their one drawback is their susceptibility to dents. Older wooden or composite doors can still provide acceptable service and are ok. My least favorite is non-insulated, single layer, metal doors because they are very prone to dents. Tenants around Eugene Springfield tend to expect automatic garage door openers. If doors and windows need replaced, they can be done fairly cheaply.
- Floor Plan: Most duplexes in Lane County are not architecturally designed, meaning the builder likely picked a stock set of plans from a plan book. Some floorplans are better than others. Floorplans have changed over time in Eugene Springfield. Before the 1980s many smaller rooms were common. From the ’80s and beyond open, great-room concepts are more popular. There is no definitively good or bad floor plan, so you’ll have to use common sense when evaluating the livability of the floor plan. My personal preference is towards great rooms with vaulted ceilings because the duplex will feel bigger, and it’s well liked by the Lane County marketplace. Three bedroom, 2 bath, 1,200 s.f. per side is my personal favorite, but 2/1’s are more common around Eugene Springfield, and are fine, but rent for less. Single floor is more accessible than multi-floor, so the tenant pool is larger.
- Walls & Ceilings: Textured drywall is the most common ceiling and wall system used for duplexes in Eugene Springfield. Duplexes from the 1960s and 1970s may have popcorn ceilings, which is less desirable, but probably adequate, especially if painted. Thin coat plaster is desirable because it’s more durable, but is not common. Older duplexes may have true plaster applied over lath boards. While adequate, it’s harder to repair. Most walls and ceilings have cracks, which usually aren’t anything to worry about. Sometimes, they can indicate a settling problem, which may need to be investigated.
- Interior Paint: Newer, nicer, interior paint is a plus, but if not present is easy to fix. Paint and floor coverings probably do more than anything else to make a rental seem clean and nice.
Duplexes built before 1978 may contain lead paint. Watch out for discoloration due to mold or water leaks. If either are present, they should be investigated and repaired.
- Floor coverings: Floor coverings, like tenants, come and go. Nicer newer floor coverings are a plus, but shouldn’t sway a deal one way or the other because floor coverings are relatively cheap, and you will probably buy them one or more times. Common floor coverings for duplexes and rentals in Eugene Springfield are: Carpet, Vinyl (Linoleum), and Laminate (Pergo-type flooring). Carpet looks good, is inexpensive, and quiet. It is fairly easy to stain or damage, which is a downside. Carpet is very common in Eugene Springfield duplexes. Vinyl makes a great water resistant flooring, and is desirable in wet areas, such as kitchens, laundry rooms, and bathrooms. Laminate looks good and is durable. Some laminates are not very water resistant and edge-swell when exposed to moisture, which isn’t good. Ceramic tile is sometimes seen in duplexes, usually in entry-ways, kitchens and baths. It’s durable and looks good. It can, however, be difficult to match tiles for replacement, but sometimes extra tiles are left behind, obviating this problem. Occasionally, you’ll see slate tiles, usually for entry ways. They look nice. When sealed, slate can be slippery, though. VCT, vinyl composition tile was once very popular but has fallen out of favor. Hardwood is liked by most everyone I deal with. Periodic refinishing is required, and can be a little expensive. New finished-in-place hardwood is around $10/s.f. in Eugene Springfield, costing about four times more than carpet or vinyl, so wouldn’t be my floor covering of first choice for a Eugene Springfield duplex.
- Plumbing: Landlords and plumbers probably spend the most time thinking about plumbing. Why? Because it’s expensive. Copper or plastic are the two most common types of materials for water supply. (Common plastic pipe choices for supply side are CPVC and PEX) I personally prefer copper because more people understand it, at least at this point in time, so it tends to be easier to fix. Galvanized supply pipes are sometimes seen. These are adequate, but some don’t like them because they can corrode from the inside. Galvanized was popular in Eugene Springfield duplexes up to the 1970s. ABS and cast iron are the two most common waste and vent pipes seen in duplexes in Eugene Springfield. Both are fine. I remember plumbers packing cast iron pipe joints with hemp and pouring in molten lead, which would briefly catch the hemp on fire. Quite a show, but very rare these days. ABS is safe, quick and cheap. Most have their favorite brand of faucets, and I’m no exception, and happen to like Moen, but Delta and Price Pfister also have their adherents. For sinks, I prefer stainless in the kitchen and enameled steel elsewhere. Both are low maintenance. Glass door shower and tub enclosures are a good investment. Tenants do not shut vinyl shower curtains, for reasons unbeknownst to me, and you will get dry rot eventually. Caulking is your friend in wet areas.
Electrical: Seeing updated wiring that includes 200 amp separate breaker panels, separate meters, GFCI and arc-fault interrupts is great, but it is rare to find them all unless it’s new construction. Electrical systems are probably best analyzed by the home inspector. There are certain brands of breaker panels that inspectors don’t like and usually suggest being replaced. Other common problems are double taps in the panel, reverse polarity in some of the circuits, and improper grounding. All are reparable. Homes and duplexes need smoke and carbon monoxide detectors that are to code before the sale closes.
HVAC: Heating, ventilation and air conditioning are important and expensive, so it’s good if they work. Since the 1980s, heat pumps have been a common choice for heating in Lane County. They utilize heat from the environment and usage costs are lower. They do take a bit more maintenance, don’t last forever, and aren’t cheap to replace, so they’re not perfect. For not a lot of money, they can also double as a central air conditioner, if there’s a reversing valve on the compressor, and condenser unit in the air handler. With our moderate climate in Lane County, air conditioning is a luxury, not a necessity, in my opinion. Tenants, of course, like air conditioning, but I’m not sure you get more monthly rent by having it.
Another popular choice in Eugene Springfield, for the last couple of decades, has been a gas furnace, either with our without an accessory air conditioner unit. Natural gas is cheap and reliable, and the furnaces generally don’t require a lot of expensive maintenance. Ceiling and baseboard heat are simple, reliable, but not as cheap to operate as a heat pump or gas furnace. Still, they do work, and there’s some logic in the adage: “if it ain’t broke, don’t fix it.” Forced air wall heaters (sometimes referred to by a leading brand, Cadet) are fine. They’re cheap and reliable. There was previously a problem with certain makes and models in which they spat out hot metal and were a fire hazard, but most of those have been replaced or incinerated themselves.
Fireplaces are fairly popular because firewood used to be plentiful and cheap in Eugene Springfield. They tend to be inefficient and there probably needs to be another heat source as well. Inserts and wood stoves now need to be of the type with an EPA certification or be removed before a sale closes in Oregon. One rare heating source is a sawdust or coal furnace, sometimes called an octopus. I hadn’t seen one in years, but ran across one last month. They were popular around the turn of the last century. Any that remain probably could stand to be replaced.
The main thing about ventilation is that it’s present and vents to the outside. Ventilation fans in wet areas (bathroom and laundry rooms) as well as above the stove are good. Automatic ventilation, such as timer controlled suction fans are sometimes seen in newer, more air-tight, construction, and are fine. When I was building, our motto was you could never have too much attic ventilation. Most attic ventilation is passive, but sometimes electric fans are seen. I rarely see inadequate attic ventilation fixed, meaning it’s not perceived as a huge problem.
Appliances: Generally, if the appliances work, that’s about all you can hope for. Appliances in duplexes in Eugene Springfield tend to be low-end. Personally, I prefer step or two up from the bottom end. Home inspectors usually do some simple tests to appliances to verify that they generally work.
Landscape, hardscape, & flatwork: Simple, middle of the road landscaping and flatwork are best for duplexes in Eugene Springfield, at least in my opinion. Tenants don’t tend to take the greatest care of either, and landlords often end up cleaning up and fixing both. So, the thinking is that a 10 dollar arborvitae is more pleasant to replace than a $300 vine maple. Likewise, replacing a $3 cement paver is less painful than a $25 sandstone rock from Montana.
The above are some of the factors that I use to look at the underlying asset, namely the structure, and its condition. Analyzing the financial performance, or “the numbers” is also important. There’s more than one way to go about this, and I tend to combine several ways to get an overall gestalt. Some of the different ways to analyze Duplexes in Eugene Springfield follow:
- Comps: By looking at other comparable properties on the market, you can get a feel for prevailing rents and prices. And if you look at 50 listings every day, as I do, you can pretty quickly size up any property. Looking at price per square foot can be a useful tool. I find comps probably the most useful tool in my evaluation.
- GRM: Some like the Gross Rent Multiplier, which I find somewhat useful. Simply put, its a ratio of gross rents to asking or sales price. I looked MLS for the average GRM for duplexes around Eugene Springfield, for the last 2 years, and saw quite a range, namely, from 8.5 to over 30. Average was 11.3
- Cap Rates: Capitalization rates can be a very useful factor by which to evaluate income property, but aren’t my favorite for duplexes in Eugene Springfield. They’re not always reported, and when they are, they’re often not right. High cap rates can be alluring, but often they are high because the quality of the underlying asset is poor, and the risk is greater. Not only do you need to know what the range of cap rates are for a type of property in the local market, but also the “mistakes” that people sometimes make to show cap rates as too attractive. If you don’t know those things, it’s a good idea to find someone who does to help you.
- Cash Flow: Ideally, I like to see my owners in properties that are at least cash neutral, which is to say that at a minimum, they pay for themselves. For duplexes that means they can carry a loan to value ratio somewhere around 75%, if not owner occupied. Of course, this varies from property to property. The rationale is that if a property is carrying itself, there’s less risk. Times can get tough, and if you need to feed a mortgage every month, it can be a strain, or worse, impossible.
So, all of the previously mentioned things are what I think about when evaluating duplexes or multifamily income property in Eugene Springfield. I was on my first multi-family job site when I was 4 years old and have picked up a thing or two since then. An experienced and honest Realtor can be invaluable if you’re interested in listing or buying a duplex or income property in Eugene Springfield Oregon. Please contact me if you’re interested in buying or listing a duplex in Eugene Springfield or elsewhere in Lane County.
Eugene’s monthly First Friday Art Walk was last Friday, March 1. The weather was clear and warm and the turnout was good. Every month, galleries, restaurants, and bars show off some of our area’s best art and it’s one of the things that makes Eugene such a fun place. We’re not Portland or San Francisco, but there are still plenty of talented artists around, and seeing cool art makes you look at the world a little bit differently.
The VA announced its location choice for the new Eugene Springfield area clinic, which is a major step. The 100,000 square foot clinic is expected to some 90,000 annual patient visits and employ 235 full time workers. This seems like a major benefit to Lane County and veterans. Many vets I know have to go to Roseburg for some treatments, and it can be a hardship. In a year or so, they can stay in Eugene.
Spending perhaps 75 Million dollars for construction will help our local economy. I think the bigger projects are less locally based than smaller ones, though. Still, any construction will help because construction was particularly hard hit during the Great Recession, and has yet to fully recover in Eugene Springfield.
Some vets choose a spot to retire based on the adequacy of VA facilities. My hunch is that more retirees will now choose Eugene Springfield because of our excellent hospitals and clinics. And, many of those 175 new workers will be house buyers which will help our real estate market.