Duplex Chick

When I lived in California, moving into a rental unit required almost as much in a down payment as buying a house. Landlords often asked for not only the first month’s rent, but the last and an additional security deposit.

 

In Minnesota, however, it seems to be the rule rather than the exception for landlords to ask for a security deposit equal in amount to one month of rent. To a tenant, this figure represents their last month of rent; creating the misperception that he or she doesn’t owe anything for his last month of tenancy.

 

As a result, landlords are often faced with the task of explaining to a vacating tenant that their deposit was meant to cover damages and any required repairs, as well as unpaid rent, upon move-out.

 

Is there a legal limit as to the amount a landlord may require as a security deposit? Not according to Minnesota law. Of course, any duplex owner needs to also be mindful that an excessive amount may cause prospective tenants to choose another property as their home.

 

It is interesting to not, however, that if a lease is a periodic tenancy, meaning it has no final date mentioned, the security deposit may be increased at any time. Of course, the tenant must be given advanced written notice. On the other hand, if a lease has a definite end date, the security deposit may not be increased.

 

At the end of the tenancy, the landlord must return the deposit, along with interest, to the tenants. Of course, unpaid rent and any amount necessary to repair damage or pay other debts related to the tenant’s residency may be retained.

 

Tenants who moved in after August 1, 2003 should be paid one percent interest per year of residency. Tenants who moved in earlier receive much greater interest payments. If residency began between August 1, 1973 and September 30, 1984, tenants receive 5 percent interest. If move0n was between October 1, 1984 and April 30, 1992, it’s 5.5 percent. Between May 1, 1992 and March 21, 1996, residents receive 4 percent interest on their deposits. And those moving in between March 22, 1996 and July 31, 2003 receive 3 percent interest.

According to a survey recently done by the Opinion Research Corporation for the AARP, one in four baby boomers (ages 45-64) plans to move from their home in the future, with most looking for a a single level home. What the survey didn’t indicate was just how many of those boomers have been coming through duplex open houses.

 

I have sat in a lot of open houses over the years. And this year, I’ve started to see a change in the types of people who come through. Namely, I’m seeing a lot of baby boomers, who are thinking of buying a duplex as both a home and a supplement to their retirement.

 

As Minnesota is the summer home to many migrating snow birds, owner-occupying a Twin Cities duplex over the summer months makes sense on another front. When the owner is in Arizona or Florida over the winter, the tenant remains in the property; not only providing additional security and supplemental income, but also serving as a means of checking on the home in the owner’s absence.

 

It all sounds like a great idea except for one thing: the baby boomers all have houses to sell. Almost all of them are waiting for the market to recover before putting their home on the market.

 

Trouble is, none of us know when that will be. And the great deals in the duplex market are here now; properties are cash flowing in abundance. That wasn’t the case over the last five years.

 

Remember, when it comes to qualifying for a loan for a multi-family property, the buyer can count 75 percent of the rents toward his or her own income. The smart move might well be to buy now and move in a few years down the line; when things look better for everybody.

 

I’m beginning to think the economists charged with leading out of this economic abyss are like a bunch of little kids. Every day, they have a new idea; almost as if they’re making it up as they go along.

 

This morning, nearly every media outlet carried the news of a rumoured Treasury Department plan that would decrease mortgage rates on 30 year fixed loans for home buyers to as low as 4.5 percent.

 

In the plan, the Treasury would allegedly offer to buy securities that finance the newly issued home loans. These securities would be purchased primarily from Fannie Mae and Freddie Mac, which are the Government Sponsored Entities (GSEs) that buy most mortgages from U.S. lenders.

 

Of course, the plan would have to be paid for somehow. It is believed one possibility would be to issue bonds to the public at 3 percent interest, which would allow the government to turn a profit by buying securities that pay 4.5 percent.

 

There is no word as to whether this approach would be extended to refinances or investment properties.

 

Would this work? Well, last week, when interest rates on 30 year fixed conventional loans briefly dropped to 5.25 percent, the Mortgage Banker’s Association reported the applications for loans (both new and refinances) were up 112.1 percent; the largest jump on record.

 

Some economists are concerned just the rumour of low, long-term fixed interest rates may cause some prospective home buyers to postpone a purchase. That “wait and see” attitude would further slow an already sluggish economy.

 

While I believe this is a possibility, I am also well aware of the laws of supply and demand. Anyone think an abundant supply of mortgage money at 4.5 percent would stimulate the housing market? I do. And when demand increases, so too do prices.

 

While Tuesday’s are generally the day MAAR likes to look at the market in the rear view mirror, the statistics available this week and next will look more like a reflection in a smudged fun house mirror. Why? Thanksgiving was a week earlier last year, meaning people were celebrating, travelling or spending time with family; not shopping for houses.

 

Needless to say, any sort of numerical comparison from one year to the next won’t reflect anything accurately. So let’s look at the week ending November 22 on its own.

 

While 52 new small multi-family listings came on the market, it is interesting to note that 80 percent of them are either lender owned or mediated.  Of the 33 properties that received purchase agreements in the same time frame, 91 percent involved a lender mediation.

 

While the average sales price of these transactions wasn’t as robust as in recent weeks, it did manage to stay in the six figure range at $101,845.

 

After next week, we should have a more accurate picture of what’s happening in the market.

 

Sellers often worry tenants will leave if they become aware a property is on the market. However, not only does the existing lease protect the tenant, it is also a means of ensuring he stays.

 

A lease follows a property when it is sold. What does that mean?

 

Well, when a buyer purchases a duplex occupied by tenants with current leases, she assumes the terms and conditions of the existing leases. As a result, the tenant also retains all the rights and privileges afforded him under the previous owner’s lease.

 

Of course, once that lease expires, the new owner can replace it with a lease of her own, or ask the tenants to vacate (in accordance with state law, of course).

 

What if the new owner wants to move in? This can be accomplished if the buyer specified some portion or the entire property be delivered vacant, and the seller agreed to the terms.

 

How is this achieved? Most often, sellers offer a tenant a financial incentive to vacate. How much? To date, there are no guidelines for this in the state of Minnesota.

 

It is interesting to note, however, in other parts of the country, this is a rather common occurrence.

 

In fact, in some rent-controlled cities like West Hollywood, Calif., tenants may not be relocated unless either the new owner or a relative of the owner’s is planning to move in. What’s more, there are set guidelines as to how much that will cost. In a one bedroom unit, a tenant must be paid $7200; an amount that increases to $12,800 for a three bedroom.

 

While that may be in our future, to date, relocation fees here are still negotiable.