In a Soft Minneapolis Duplex Market, Your Rent Roll Helps Your Price Tag

Over the last few years, duplexes sold in markets where buyers waived inspections to win a bidding war.

With more inventory, there’s more competition. In my experience, when buyers have more duplexes, triplexes and fourplexes to choose from, not only does condition matter, so does the rent.

Doesn’t rent always matter?

Yes. But in a hot market, buyers are willing to suffer the loss of cash flow on a duplex with below-market rents, knowing they will raise them to what they could or should be the first chance they get.

In a market where buyers have more to choose from, however, if a duplex has a tenant on an extended lease at well below market rent, they may simply move on.

In a hot market, buyers pay for what rents could be. In a soft market, they only pay for what rents are. If your units are renting for $150 or $200 under market when you list, that gap barely matters when there are five offers on the table. It matters enormously when there’s one offer, and that buyer has all the time in the world to pick your p & l apart.

What many small multifamily sellers and the Realtors who don’t specialize in multifamily don’t realize is that below-market rents of $200 per month are $ 2,400 per year. Many seasoned duplex buyers and their Realtors use the Gross Rent Multipler (GRM) to determine value.

In plain terms, the gross rent multiplier = Purchase Price/Gross Annual Rent = Gross Rent Multiplier.

Flip it around and it becomes a pricing tool: Price = Gross Annual Rent × Market GRM. That second version is the one that should worry you as a seller in a slow market, because of one word: actual. Buyers plug in the rent that’s actually being collected today, not the rent a listing description says the unit should rent for.

That $200 per month and $2400 per year below market rent in an environment where properties are selling at a GRM of 10 is the equivalent of $24,000 in market value.

When inventory is tight and buyers are competing, multiple offers create urgency. That causes buyers to tell themselves the story they can “bring rents to market within a year”. That seems like a safe bet when the alternative is losing the property to the next buyer in line.

Low rent didn’t cost Minneapolis duplex owners anything the last time they sold, they aren’t planning to sell soon, or they like their tenant so the gap feels academic. Then the market shifts, and suddenly the rent roll matters.

If you’re planning to list a Minneapolis duplex or triplex in a market that isn’t moving at 2021 speed, your tenants’ rent deserves the same pre-listing attention you’d give the exterior paint or the kitchen countertops. A few practical moves:

1. Check your rents against current market comps regularly. My favorite resource is rentometer.com. Increase your rent to just below market rent so the tenants don’t leave. As always, make sure one unit is on a month-to-month lease because if a buyer wants to owner-occupy, they have to be able to move in within 60 days of closing.
2. Send rent increase notices with proper timing if you have room to close the gap before your listing goes live. Minnesota’s notice requirements and lease terms will dictate your timeline, so build in enough runway.
3. Document what you can’t fix in time. If a long-term tenant is under market and you don’t want to push them out before selling, be ready to show comparable market rents so a buyer can see the upside is real and near-term, not speculative.
4. Price to the actual GRM, not the hopeful one. Pricing your listing as if a buyer will pay for potential rent, in a market where they don’t have to, just adds days on market. And data shows the longer a duplex sits on the market, the less it ultimately sells for.

Raising rents to close to or at market value is consistently one of the highest returns on investment an owner can make.  Best of all, you don’t even have to get your hands dirty to come out ahead.