Archive for October, 2014

Whose Duplex Lease Is It Anyway?

said on October 16th, 2014 categorized under: Tenants

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residential tenancy agreementIf you buy a Minneapolis duplex that has tenants, do you have to give them all new leases?

Believe it or not, this was actually the topic of a heated discussion between to agents in my office the other day. One believed the buyer of an investment property needed to issue new leases in their own name, the terms of which would be identical to those contained in the lease the previous owner had signed.

The second agent argued leases were assigned to the new owner at closing. This, she contended, would be identical to a bank assigning or selling the rights to a loan to another lender. In that instance, as in this, the only things that change are who the checks are made payable to and what address appears on the envelope.

So who was right?

The second agent.

The lease is the only document that in a way, trumps the rights of the new duplex owner. It follows the property, regardless of who the owner is.

As a result, the new owner can’t kick tenants out, raise their rent or change any of the terms for the length of the lease until it has expired.

Sharing with tenants that they are protected by their lease usually helps put them at ease if the duplex is on the market. Conversely, buyers can rest assured their investment property will be occupied for months to come.

 

 

 

 

Is Your Minneapolis Duplex At 50 Percent?

said on October 6th, 2014 categorized under: Multi-Family Property Investing

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Have you ever heard of the 50 percent rule about duplexes?

Do you know what it is?

The 50 percent rule is a general rule of thumb which states that all of your expenses on a rental property should run about 50 percent of what the property’s gross income is. This does not include your mortgage payment or interest.

It does, however, include your taxes and insurance.

In other words, if your rental duplex generates $28,800 in income, you can expect your expenses on the property to run approximately one half of that amount, or $14,400.

These expenses would include repairs, utilities, insurance, vacancy rates, and so forth.

Once these are deducted from the property’s income, you should have approximately 50 percent of the $28,800 left. Out of that $14,400 you will pay your mortgage and interest. Anything left over is your cash flow.

Of course, there are some neighborhoods where the vast majority of duplexes are owner occupied (and therefore are valued on a slightly different basis than just income) where this rule may not be true.

While you should perform more due diligence on any property than just an eyeball analysis, the 50 percent rule is a good way to determine whether a seller is off on their numbers, or you’re outspending on your own.