I've run these numbers a few times and they don't vary much, but the exercise
is worth repeating. What does the market for triplexes in Minneapolis ACTUALLY
look like?
First, the sample size is pretty small, usually ten or fewer triplexes are sold
per year in the city limits. From what I can tell there are four or five
triplexes listed as either for sale or pending (meaning listed with an accepted
offer that hasn't closed yet). Those range from $300,000 to $750,000. Most
listings disclose what rent in each unit is, but not all. Those rents range
anywhere from $590 to $1800 per month. Property taxes are as low as $2,600 and
as high as $7,500.
Because the sample size is so small, it's hard to say that the average or
median price, or average or median tax amount or rental income is accurate.
It's perhaps more telling if we build a "typical" triplex scenario from what is
currently and has recently been available.
So that would look like a price of about $375,000. Taxes would be about 1.25%
or 1.5% of the value, so about $390 per month. We'll assume the low rent of
$590 was for a basement or attic or ADU unit with one bedroom and bath and few
amenities, and that the $1,800 price isn't typical either. $1,200 is on the
low end of the typical range citywide but more in line with the northside.
Conventional financing for a triplex would most likely mean 25% down or more,
so we'll assume that if a moderate-income family is buying one they don't have
access to that kind of money. FHA financing it is, since that's 3.5% down.
Even so, we're looking at a down payment of $13,000 plus whatever closing costs
and pre-paid taxes and insurance the seller isn't paying. In this market,
seller concessions are rare or usually result in raising the purchase price so
that the seller nets the same. If the seller doesn't pay, we're now at $20,000
or more just to get in.
FHA rates are at 4.75% for a 30-year fixed.
$1920.75 principal/interest
$256.33 mortgage insurance
$390.63 taxes
$150 insurance
$2,717.71 total monthly payment
If someone lives in one unit and rents out the other two, they'll get $2,400 in
rental income. What unprepared people do is pretend they have only a $300
housing payment. Lenders will use 75% of the actual rental income as
qualifying income, meaning this person could effectively have a $900 housing
payment. Which is phenomenal in this market.
But if we want true affordability, then the house payment should be 30% or less
of someone's monthly income. If we consider $1,800 as the rental income, a
household would need to make $87,000 in additional annual income to get to that
affordability threshold. (That income goes down to a more manageable $60,000
if the housing ratio goes up to 40%. But how many people or families at that
income level have twenty grand to get into a home?)
And that, my friends, is for just the existing triplex properties in the
somewhat affordable areas of town such as north, northeast, southeast, and
parts of south. New construction is going to be pricier and so will the most
desirable existing housing stock.
I know I've said this before, but I'll keep saying it until it's no longer true
or until Minneapolis has policies in place to address this. The notion that
triplex ownership is accessible to the average household is a myth. The 2040
plan as it is currently written does not change this.