Duplex Chick

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According to a recent report from Zillow, median rents for duplexes and other rental properties increased 3 percent between January of 2011 and 2012, while during the same period, home values declined 4.6 percent.

In many large cities, rents rose almost exactly as much as home values fell. Take Chicago, for example; rents jumped 9.1 percent for the year, while home values fell 10.4 percent.

Here in Minneapolis, rents rose 11 percent, while housing values dropped 8.1 percent.

Perhaps that jump is why Minneapolis duplexes and other investment properties seem to be selling faster than new inventory is coming on the market.

As rents rise, duplex ownership will become more attractive and affordable for many duplex tenants than renting.

The challenge is figuring out when that will happen.

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If you plan on buying a duplex in Minneapolis — or any other location, there is one word you must have in your vocabulary.

And that is the word, “No”.

Most duplex investors I work with seem to be comfortable with that word when it comes to buying a property that doesn’t work for them due to return on investment, location, or any other reason it might not fit with their present portfolio or lifestyle.

However, I am always surprised by the number of duplex sellers I meet who seem to have forgotten that word when it comes to tenants.

Let me give you some examples:

- One duplex owner installed an expensive water softener for the entire property because one of her tenants allegedly had a skin issue. Mind you, this wasn’t mentioned when the tenant moved in.

- Another duplex owner got behind on his mortgage payments to the point he had received a foreclosure notice, because his tenant had lost her job and wanted to know if she could have another month, and then another and another and another to get him the money.

- One tenant asked her landlord if she could have her boyfriend move in. Two weeks later, it was discovered he was wanted in another state on felony charges.

- A triplex owner changed out an entire sink because a tenant complained about a microscopic chip in the porcelain.

In every single instance, the duplex investor could have saved either money or heartache by simply saying, “No” when the tenant request was made.

Many duplex investors are afraid if they say “no”, the tenant will leave and they will be faced with having a vacant unit to clean, repair and re-rent.

The irony is, in all of my years of being a landlord and a Realtor who specializes in duplexes, I have never had, nor heard of this happening.

Granted, savvy duplex owners make every effort to attract and keep good tenants. This can be easily achieved by keeping your property well maintained and clean with a fair market rent.

And if it’s in your annual budget to make repairs and honor requests made by tenants that don’t have to do with health and safety, by all means, go ahead.

Just remember, a real estate investment property is a business.

And the word “no” is part of every successful business person’s vocabulary.

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A new duplex investor and owner occupant recently asked if she could refuse to rent to a prospective tenant because her intuition told her something wasn’t right.

Unfortunately, state and federal law require duplex owners to a factual reason to disqualify an applicant for a rental unit.

Federally, this logical reason cannot be due to: race, color, national origin, disability, religion, age sex or familial status.

Many states take this even further. In Minnesota, for example, duplex owners may not refuse to rent to someone based on all of the already mentioned reasons, as well as: creed, marital status, public assistance or sexual orientation.

So what legal reasons are there to refuse renting a vacant unit to someone?

Poor credit or an apparent inability to pay rent. It’s a good idea to have a written policy as to what minimum credit score you’re willing to consider for tenancy.

Smoking.

Pets.

A criminal background.

In my new duplex owner’s case, it was the last item that validated her intuition.

It seems the prospective tenant’s fiance was wanted in another state; for the disappearance of a child– which came as a surprise even to the woman applying to rent the duplex!

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I recently received an irate phone call from a Minneapolis duplex owner’s tenant, informing me he no longer had to pay rent, as the property was in foreclosure.

Like him, many tenants living in pre-foreclousre duplexes mistakenly believe they are no longer obligated to pay rent.

But this is not the case!

Minnesota law states the duplex owner, regardless of his or her status with her lender, retains all legal rights and priveledges with the duplex until title changes hands.

In a Minnesota duplex foreclosure, this happens at the end of the redemption period, which is six months after the date of the sheriff’s sale.

Typically, duplex owners who are at least three months behind on their mortgage payments receive a “Notice of Default” from the bank. At that time, a sheriff’s sale is scheduled; usually six weeks from that initial notification.

However, in today’s market, many lenders are reluctant to carry more foreclosed duplexes on their books, so they may push the sheriff’s sale date back one or more times.

During this time, duplex landlords, retain the right to collect rent, evict delinquent tenants and rent out vacant units.

It is important to note, however, that after the sheriff’s sale has occurred, duplex owners must disclose to prospective tenants the property’s foreclosure status.

If you’re behind on your duplex mortgage payments, things are bad enough. Don’t let your tenants make them worse.

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I spent a good part of my weekend cleaning a rental unit.

It reminded me just how important it is to be crystal clear with duplex tenants before they move in as to what you will accept as being clean when they move out.

I hadn’t been with this one.

As a result, I got to do things like scrub four years of dog nose prints off of windows, use every known bathroom cleaning chemical removing years of bathtub grime, inhale the fumes from two full cans of Easy Off oven cleaner, and scrub the exterior and interior of a refrigerator.

 Well, that and there was one working light bulb left in every fixture that required at least four.

Not to mention, I haven’t even started on the basement yet.

These were great tenants, and I know how much they need their security deposit back.

However, my time is valuable too. And I now find myself wishing I had written a dollar amount in the lease specifically for cleaning the duplex upon move out.

It will definitely be in the next tenant’s lease.

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A number of duplex sellers have recently asked whether or not they should renew their leases with tenants if they are considering selling.

After all, what if a buyer wants to live in one of the units?

My answer?

Of course!

Many duplex owners who are on the fence about selling now or at some point in the near future are consulting with an attorney to have move out clauses added to their leases.

In essence, these landlords are asking that tenants agree to move out given proper notice (whatever the state law recommends) in the event they sell the duplex to someone who wants to owner occupy their unit.

This allows the duplex seller to present his or her property as a valid option for a buyer who is not only looking to acquire an investment property, but for a place to live as well. And those kinds of buyers, by the way, make up a big part of the market.

Yes, a few tenants are resistant to the idea, as they fear having to move during the winter, over the holidays, or in the middle of the school year.

Most of my prospective sellers are able to overcome this by explaining IF they decided to sell, it’s likely to be a process that won’t happen overnight.

For example, it might take time to select a Realtor, have a truth-in-housing report done (if required), make repairs to prepare the duplex for sale, have photographs taken and possibly, create a virtual tour.

Once it’s actively for sale, even an immediate offer would result in an additional 30-45 days for the buyer’s mortgage to be funded.

More likely, however, it might take a bit longer to find the right buyer.

And if it’s a short sale, where the property is no longer worth what is owed, negotiations with the lenders involved could take even more time.

Once duplex tenants realize the clause in the lease doesn’t mean they’ll have to move out tomorrow, most, while not necessarily happy with the idea, seem to view the clause as a reasonable request.

Which allows future duplex sellers to keep their options open- which is almost always a good thing.

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My Duplex Chick duplex “for sale” signs occaisionally do interesting things.

Like attract buyers.

And tenants.

It seems the 2.7 percent vacancy rates in the cities of Minneapolis and St Paul have people looking for help finding a place to live. So they’re calling any residential income property related sign they see.

Well, mine anyway.

While vacant rental units are often listed on other Multiple Listing Services (MLS), around the country, it is a relatively new feature in the Twin Cities.

Property owners can work with a Realtor to get vacant units featured not only on the MLS, but web sites like Zillow as well.

Tenants who are relocating to Minnesota and who are familiar with this service because of having lived in markets like Chicago and Las Vegas, where it’s common, often contact agents for help finding a place to live as they transition.

And of course, there’s all the people who already live here looking for places too.

Read the rest of this entry »

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If it’s a great idea to keep your Minneapolis or St Paul duplex rented for as close to market rents as possible, how do you determine what that amount is anyway?

I wish there was a scientific formula. However, I happen to think non-scientific web sites like Craigslist, Oodle and Hotpads, are a great place to start.

Take a look on those web sites, local newspaper web sites, or take a look at the local newspaper. Try to find rental units like yours in your area and nearby neighborhoods and see what they’re renting for.

If you’re driving through your area and see an orange and black “For Rent” sign in a front yard, pull over and see if there’s a unit description on the sign. If not, you can always call to find out what’s offered with the property and how much it’s renting for.

Be sure to compare amenities. Locations. And if there are photos included in an online or print ad, do your best to compare condition. Try to determine whether or not the landlord in the ad pays for heat, if so, that unit will rent for more than one where the tenant is responsbile for his or her own utility bill.

If there are only 2 bedroom duplex vacancies in the area and your property has an empty 3 bedroom unit, take the amount of the rent advertised and divide it by the number of bedrooms. For example, a 2 bedroom unit that rents for $1000/month is renting, essentially, for $500/bedroom a month.

Then take the $500 and multiply it times your 3 bedrooms. This will put your rent at $1500/month. However, please note that more bedrooms sometimes results in an economies of scale; with less demand for big units, and a greater lack of privacy for those who occupy them.

Of course, the best way of all to maximize the rent you collect is to try to fill a vacancy. If you advertise one amount, and don’t get any response, odds are you’re charging too much.

On the other hand, if your phone never stops ringing, you may be under valuing your property!

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The recent tornado in north Minneapolis reminded me of how important it is that duplex owners encourage their tenants to get renter’s insurance.

While the damage to a duplex or apartment building itself is covered under the owner’s insurance policy, coverage for the tenants belongings is their responsibility.

Many tenants not only don’t know this, but if they do, fail to understand that a building fire or destruction from a tornado can wipe out everything they own, without a means of reimbursement.

Most of the major insurance companies like State Farm and Allstate offer some form of renter’s insurance. Just like property or automobile insurance, rates vary according to location of the property, desired deductible and credit score. Most of the time, however, it runs about $25-35 a month.

This extra cost might seem impossible for some tenants, but opting whether or not to purchase it is ultimately their decision.

As Minneapolis and St Paul duplex owners, however, perhaps doing a better job of explaining what renter’s insurance covers to our tenants will mean less of them are wiped out financially in the event of another big storm.

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One of the biggest mistakes I see new Minneapolis duplex investors make over and over again is that of over-improving a property.

What do I mean?

The new duplex owner thinks the only way anyone on the planet will ever rent their property is if they completely gut the kitchen, install granite counter tops and hardwood floors and even, in one instance, move the tub from one side of the bathroom to another.

While many of these improvements are nice amenities, most of the time they aren’t necessary and won’t ever generate enough additional rent to justify the expense.

What’s the most important investment to make?

Cleanliness.

And I don’t mean just running a vacuum over the carpet.

All trash and personal belongings should be removed from the property prior to making it available. Clean the carpets. Scrub beneath appliances and inside of them, in cupboards and on their doors and sweep out the garage. Freshen the caulk around the tub in the bathroom In short, clean everywhere.

Try to de-personalize the unit by using fresh, neutral colors for paint and flooring.

And here’s an often overlooked detail…change the switch plate covers!

Nothing screams “has been filthy” like freshly painted walls with black marks all over the light switches. It sounds picky, I know, but I notice it immediately. It will cost just pennies to swap them out, yet immeasurably help your vacant unit rent quickly.

What if your vacant duplex is hospital-clean and you still don’t have anyone calling from your Craigslist ads? Lower the rent. Fifty or one hundred dollars a month can price you out of the market, leaving you scrambling to make up for months of vacancy. It’s always better to get $850 a month for rent immediately than hold out for three months to get $900.

Duplex vacancy rates both in Minneapolis and across the nation are at lows not seen in more than a decade. It shouldn’t take being featured on HGTV to fill an empty unit.