Duplex Simplex

Dear Pat,
We're moving to another state and need to sell our duplex. I've kept it in great shape, so I don't expect any trouble getting a buyer, but a fellow at work said that the value of our building will be determined by the rents we get. Now that's a big concern, since we think of our long-time tenants as friends, and we've kept the rents really low. Do we need to raise the rents in order to get a good selling price? Of course I want a good price, but I want to be a…
---Fair Landlord

Dear Landlord,
Where were you during my renting years? Hey, keep the building, have it managed. The city needs more landlords like you! All right, if that's not a practical option, let's move on to the heart of your question: will the value of your duplex be determined by the rents you currently get?

The short answer is no. There is a small caveat, which we'll get to in a minute. But there is no need to base your sale price on a rent "multiplier" in today's market. There is an "income approach" to pricing and appraising which was frequently used before the mid 1980's, when many of the tax incentives to owning income property disappeared. It is still used in selling larger multiple unit buildings but not duplexes, since number-crunching investors buy relatively few of them. In my experience, most duplexes sold in Seward/Longfellow today are being bought by homeowners, often by two family members or friends who want to live closely in the same building. I've even heard of a married couple who say they're getting along much better since they've each taken their own space in a duplex!

But there may be one small price to pay for your generous ways, Landlord. If you have signed low-rent leases with one or both of your tenants, then the buyer-whether homeowner or investor-will have to honor that rental price for the duration of the lease. Thus, a buyer who can easily see what today's rents should be would likely offer slightly less to cover the temporary "loss" of full market rental value. Remember, if you're on a month-to-month basis with your tenants, this doesn't apply.

So don't worry about the low rents, Landlord. Spend your time making your building a great place to live. Your highest price will come from someone who wants to call it "home."