Comment
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.
Comment
Over the years I’ve met countless first time home buyers. More often than not, they in a popular area (near a lake, river, shopping or great architecture) and understandably have decided they would like to put down roots there.
The trouble is, these popular neighborhoods aren’t exactly a real estate secret. Almost everybody wants to live there — which is where that stuff from that high school economics class kicks in — the law of supply and demand. There are only so many single family homes in these areas (supply), the demand for which is high, thereby forcing the price upwards.
In the Twin Cities market, most first time home buyers are uncomfortable spending more than $250,000. More often than not, the homes in the neighborhoods and with the features they like start at that price.
OK, yeah. What about a fixer? Well, fixer’s require cash. Lots of it. And most first time home buyers don’t have the thousands of dollars required for immediate repair.
It’s usually at this point that I ask whether the buyer has thought about a duplex. And I usually get a dumbfounded look as a reply.
Instead of looking at the whole price for a duplex, why not take the number and cut it in half? So if a duplex is listed at $400,000, the buyer would only pay for half, or $200,000. The tenants would pay for the other half (providing, of course, the rent was substantial enough). And, typically, properties can be found at or near those prices in these neighborhoods — in part because not as many people have thought of it!
“Yeah, but…,” buyers say. “I can’t afford that much”. Well, if the property has been a rental for more than two years, 75 percent of the rent can be counted toward the buyers income to qualify.
There’s more. The buyer can depreciate and write off the half he or she doesn’t live in on his taxes. Not to mention the ability to get a higher deduction for the amount of interest paid on the home loan (because the property cost more than a $300,000 single family home).
Finally, in coming years, if the buyer chooses to sell the property, the income he earned from tenants can be counted as income to help qualify for the loan for a new property.
Then again, it’s always nice to own a piece of property in a neighborhood everybody loves. Better still when it pays for itself!
