Should Your Duplex Be Fully Leased Before You Put It On The Market?

one hundred dollarsOne of the challenges many prospective duplex owners face when making the decision to sell is timing the end of tenants lease periods to coincide with the property being on the market.

Some sellers believe it’s best to have a property fully leased before putting it on the market. While this is absolutely the best way to sell most income-generating properties, it isn’t always the case for duplexes.

Why? The answer is simple.  Duplexes have a pool of buyers most large apartment buildings and retail shopping centers don’t: owner occupants.

These buyers are the very reason many duplexes sell for more than what might be worth strictly as an investment property. By en large, these folks hope to live in a desirable neighborhood, in a unit with amenities similar to what they might find in a home, but do so less expensively than if they purchased a single family residence.

And, even if these buyers don’t expect to move in right away, their lender may require them to. All FHA insured financing for duplexes mandate that an owner occupant must take up residency in the property within 60 days of closing.

So what happens if an owner occupant wants to purchase your duplex, but both units are leased beyond 60 days?

I have found that many times when a tenant realizes change is imminent, he or she is receptive to the idea of accepting a  financial incentive to move.

When faced with this situation, most sellers have preliminary conversations with their tenants. If one is receptive, terms are negotiated, with the understanding that payment and notice will be given the day the property closes escrow. In most cases, the tenant receives half  of the compensation at that time, with the balance placed in escrow and released upon successfully vacating the property on time.

Of course, if neither tenant is interested, the terms of the lease survives and the buyer who hopes to owner occupy must honor its terms and conditions until the lease ends.