Why Your Minneapolis Duplex Doesn’t Sell

A Minneapolis duplex that at first glance was perfect for one of my owner occupant clients came on the market the other day. That was, it was perfect until I looked at the price.

Then it was just flat wrong. Not only for my client, but any other agent’s buyer too. That’s because it was priced at about $100,000 above its true value.

Oh, it is beautifully renovated and in a fabulous location. But even with 10% down it would cost my buyer nearly $2600 per month to live in the 1 bedroom, not the 2 bedroom unit. That’s more than twice what it would cost her to simply live there as a tenant.

Of course, that made me think I’d missed something. So I looked up the listing agent. Perhaps I could learn something about the market from the properties they’d listed and sold.

Turns out they hadn’t sold a single duplex, triplex or fourplex in the last 2 years. In fact, this person had also sold no more than a handful of houses.

That made me think somewhere down the line I’m either going to learn how wrong I was, or there will be a very unhappy seller doing price reductions.

Owner occupants are willing to pay a premium for a duplex, triplex or fourplex in a great location. Inexperienced agents often fail to realize in addition to mortgage, taxes and insurance, duplex buyers need to consider additional expenses like vacancies, trash, water and sewer for tenants, and of course,  repairs, turnovers and capital improvements.

As a result, it costs more to live in or determine whether a duplex cash flows than just whether the monthly rental income is greater than the mortgage payment.

I recently offered exactly that feedback to an agent whose listing I showed. She asked what I meant.

Then this afternoon I opened a piece of mail addressed to an LLC I own rental property in. It had an agent’s return address on it.

Of course I suspected it was a letter saying he had a buyer for my duplex. But it wasn’t. It was a multifamily property newsletter. So of course, I had to look him up too. Turns out he’s sold one duplex in the last two years.

Combined, the three agents reminded me of that time in 2005 and 2006 when I couldn’t make sense of the prices duplexes sold at. I couldn’t figure out how the numbers worked for the buyer back then until I learned many purchased the properties with interest-only loans that ballooned after 5 years into a loan with a much shorter amortization schedule, which made the payments impossible to cover.

Many of the people who bought those duplexes back then ended up losing them to foreclosure.

This time, I’m not worried for the buyers. Not my buyers anyway. They receive a spreadsheet for every duplex we look at.

I’m worried about the sellers who won’t be able to get out of their property because an inexperienced agent gave them an inflated sense of value. Long periods of time on the market always result in sellers getting less for their property than had they simply priced it correctly from the start.

Nobody thinks to write a full priced offer on a property that’s been sitting on the market for a while. Think of bread. You expect bigger discounts the longer it goes without selling.

If you’re thinking of buying or selling a Twin Cities duplex, triplex or fourplex, give me a call. I’ll give you an experienced opinion of value and show you how we can cross check it to make sure we’re right before your listing starts accruing time on the market.

It will be worth your time.