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.