Comments Off on Should You Lease Your Duplex Before Selling?
One of the questions I get most frequently from Minneapolis duplex sellers is whether or not they should have their property fully leased before making it available for sale. After all, wouldn’t it make sense for a buyer to not have the stress and worry of finding a tenant the moment they buy the property?
The answer is both yes and no.
On the one hand, if your property lends itself to an owner occupant, having it fully leased will prevent a buyer from moving in. How do you know if it’s that kind of duplex, triplex or fourplex? If you’ve lived there in the last decade, it’s most likely suited for an owner occupant.
Owner occupants typically are willing to pay more for a property than an investor, who is looking to maximize his or her return.
Most of those buyers use FHA, VA and American Dream financing. Those loans require the buyer to move in no later than 60 days after closing.
As these are the only loan programs available to buyers that do not require a 20 percent down payment. Leases follow the property. Therefore, if your duplex is fully occupied by tenants who have a valid lease for more than two months from closing, the buyer can’t move in, as they will be unable to obtain financing.
On the other hand, if your property has always been occupied by tenants, current and valid leases can help you net more for your duplex. However, it’s important to remember the amount of revenue your investment property generates is such a large part of its value, it is critical the amount of rent you’re charging is at or near market rates.
While none of us wants to see tenants leave as a result of rent increases, low rent locked into long term leases will result in your property selling for less. If you don’t want to contend with changing tenants, then it is best to leave them on a month to month basis.
This allows the new owner to raise rent after closing.
Comments Off on National Duplex Sales Lose Market Share
The National Association of Realtors (NAR) recently issued my favorite of all their reports; the Investment and Vacation Home Buyers Survey 2015.
I love this report because it’s the only one I know of that offers a national data on current trends in the smaller sized investment property market. For NAR’s purposes, it’s important to note the term investment property may mean a duplex, small apartment building, condominium, townhouse or single family home.
In 2014, 19 percent of all homes sales in the United states were investment properties. While this represents a market share of nearly one out of every five sales, it does mark a downward trend. One year ago, 20 percent of all real estate purchases were for investment purposes. In 2011, investment property was 27 percent of the market , and even in the boom of 2005, 28 percent of all properties were purchased for investment.
This may be the result of declining bank inventory, low vacancy rates and higher rents nationwide. Forty-four percent of those investors purchased a distressed property (foreclosure or short sale).
Thirty-seven percent of investment property buyers bought with the intention of renting to others, while 17 percent purchased primarily because the property was a good deal. Fifteen percent of buyers purchased the property for it’s long term potential for price appreciation. One curious statistic for the year is the median price for investment properties dropped from $130,000 to $125,000.
The vast majority of these transactions– 58%, were in urban or suburban areas. Sixty-one percent of these sales were detached single family investment properties. Twelve percent were detached single family homes, 9 percent were townhomes or a row house, 13 percent were duplexes, triplexes or fourplexes, while 5 percent were condos or apartments in buildings with more than 5 units.
Eighty-six percent of investment property buyers in 2014 believe now is a good time to purchase real estate. In fact, 62 percent said there’s a reasonable chance they will buy another within the next two years.
Of course, that’s good news for investment property sellers, who will find a pool of strong buyers waiting for new inventory.