5 Reasons Your Tenants Probably Won’t Buy Your Minneapolis Duplex

Sometimes it seems like all of my clients have the same idea in the same year. Sometimes that’s buyers all wanting space to add another unit. This year it’s long-term duplex owners who are thinking about selling their property to one of their tenants.

I get it. It sounds like the perfect solution. The seller doesn’t have to go through the hassle of getting the property ready to go on the market, and the tenant gets a shot at a property long before it hits the market.

Here’s the truth. After years of working with duplex, triplex and fourplex owners in the Twin Cities market, I can tell you most of the time it doesn’t work out.

Here are five reasons why.

1. The Tenants Don’t Know How. The owner comes to them with an off-market deal. Perhaps the buyers haven’t even thought about buying a property, let alone explored the process. Off-market often means Realtors won’t be involved, so they don’t know where or how to begin, and what to do once they have.
2. They Don’t Have the Down Payment. Many buyers and sellers don’t understand they don’t need a 20-25% down payment to buy a small multifamily property. The truth is, owner-occupants can buy a duplex with as little as 0% down if they’re a veteran, or 3.5% down with an FHA loan. While this seems reasonable enough, the fact is, many people simply don’t have it.
3. Their Credit Doesn’t Qualify. The tenants were screened when they moved in. That may have been years ago. A lot can change. Medical debt, a divorce, a job loss, a co-signed car loan that went sideways. Even a score that looks passable at 660 can disqualify a buyer from financing terms.
4. They Don’t Actually Want to Be Landlords. Being a tenant in a duplex is very different from owning one. When you ask your tenants if they’d be interested in buying, many will say yes: because the polite answer is yes, because they don’t want to move, because they haven’t thought through what ownership actually means. But interested isn’t the same as committed. When the reality of landlord responsibilities, property taxes, insurance, and maintenance reserves sets in, the enthusiasm frequently fades fast.
5. They Can’t Close on Your Timeline. Last year a long-term duplex owner called me in a crisis. Their tenant had agreed to purchase the property. The owner was confident the sale would go forward and did a reverse 1031 exchange. Three weeks before closing date, which was also the exchange deadline, the tenant backed out. The fact is, tenant purchases almost always take longer than arms-length sales. And if they fall apart, the relationship between them and their landlord may be awkward or worse yet, adversarial.

If a duplex goes on the open market, the tenant can still buy it. Listing it, however, helps a seller stay on track with their goals and not waste time on a would-be buyer who may not perform.