Over the last few years people thinking of renting out their homes have asked me about the details of how to legally rent property in Minneapolis. I’m a (very) small-time landloard and had to figure most of it out for myself. This post summarizes what I’ve learned. The laws continue to change so don’t take all this as the last word on the topic – ask the city.

In brief:

  1. Apply for provisional rental license
  2. Move in tenants
  3. Do the rental inspection
  4. follow through on any required repairs
  5. Receive permanent license,
  6. Follow rules on occupancy.

In particular on #6 you aren’t allowed to rent to more than three unrelated people in the same unit. There are also maximum numbers even when the people are related which are higher. Not that this is usually an issue, but good to know about.

Here is a detailed write-up I did based on my notes from my experience. I kept track of the process for myself in case I needed to refresh my memory.

You need to deal with two inspection regimes when buying and renting property in Minneapolis.

  1. Truth in Sale of Housing
  2. The rental licensing process overseen by Regulatory Services

Truth in Sale of Housing

Truth in Sale of Housing (TISH) requires that owners have a licensed (private) housing inspector perform a basic inspection. The results of the inspection get posted on-line on the Minneapolis website in the property information section. On-line MLS listings may have these inspections as downloadable files and you should receive a copy when you make an offer on a house.

Minneapolis requires TISH reports for all home sales, including condos, regardless of their rental status. St. Paul and surrounding suburbs have similar programs, though each are slightly different.

Certain problems (broken smoke detectors, plumbing or electrical problems, to name just three) get marked as “Required Repairs” (RRe.) The seller isn’t responsible for fixing these issues but if they aren’t resolved before the purchase the new owner is responsible for correcting them. If all required repairs from the Truth in Sale of Housing inspection aren’t complete when you close you normally have ninety days to complete them and get them inspected. If you run into difficulties completing work on time just call the housing inspections department and ask for an extension (311 will connect you.) I did this and it all worked outfine. You need a good reason for an extension though. I found the inspections department easy to work with for the most part. Not everyone has reported such good experiences.

If the city requires no repairs, the rental licensing process will go more smoothly.

Rental License

You need a rental license to legally rent a unit even if you occupy the other part of the building, like in a duplex or triplex. If you buy rental property where tenants currently live you have 60 days to apply for a license. As I understand it, you don’t have to apply right away for an unoccupied unit. However you should consider applying as soon as possible as the city charges a higher conversion fee if the unit has been empty for over a year. Call 311 to request an application for a rental license, or you can download an application from the city website: Rental License Application .

It’s not clear to me even after careful reading of the ordinances (they are all online) whether the city expects you to apply for a rental license before offering a unit for rent, or just what they expect the timeline to look like. That said, the people at the city are (mostly) reasonable and you can usually get clear explainations. You can call 311 and if you have a question the operator can’t answer (they normally just access the city website) they can schedule a callback from an employee in the department related to your query. I have gotten callbacks from zoning, inspections and several others, all within one or two days. All were helpful except zoning.

To get a license you have to pay the annual fee ($75 for a duplex last I checked.) The city has three prices according to which “tier” you as a landlord fall into: Tier One is where you should be – no serious violations and you have taken care of any housing inspection orders. Tier Two makes your license cost more, because you have violations and have not (in the city’s view) been cooperative. Tier Three costs the most and means you’re in danger of losing your license altogether.

When you first buy a rental property or begin renting out a housing unit, you also pay a “conversion” or “transfer” fee. If the unit(s) were rented within the last year you pay a “transfer” fee. If the building wasn’t rented for more than a year then you pay the “conversion” fee. Transfer fees are $450 and conversion fees are $1000.

Here are the steps to getting licensed:

1. You apply for a provisional rental license

you can call 311 to start the process. The city issues a provisional license quickly. The provisional license allows you to legally rent the unit, but the city grants one only after you have met certain conditions. These are:

A. Payment of the license and conversion / transfer fee B. completion of all required repairs in the TISH inspection.

Step (B) could catch you by surprise as you normally have 90 days to complete the TISH repairs, but (for an occupied unit) you must apply for the rental license in 60 days of closing – but they won’t grant even a provisional license without completion of the TISH repairs. As long as you know about this wrinkle you can get a jump on those repairs, if any, and the schedule should work out fine. I got caught by surprise as the rule had changed only the month before I closed.

2. Rental Inspection

At some point after your tenants have moved in, the city schedules a rental inspection. For me, the inspection on one property took place about a month after the tenants moved in; the other property got inspectedabout six months after tenants moved in.

3. Complete Repairs

You complete any necessary repairs turned up in the rental inspection and you have the work inspected. The inspector will give you information on who to contact for the inspections for the repairs ordered.

Examples of repairs would be

  • Replace missing handrails on stairs
  • Install proper sized egress windows
  • Working smoke detectors and CO detectors

In my case I had to install an egress window in an upstairs bedroom and repair a crumbling chimney. Each cost around $1100. As the house had never been rented before it wasn’t too surprising that the window turned up as an issue; only the rental licensing rules require the egress window even though it’s a good idea in general.

On my other unit I only needed to install hand-rails which was easy.

If the inspector does order repairs, you will receive a letter listing the repairs and the city ordinances involved. The letter uses rather stern language and could be alarming if you haven’t read one before. They do it that way to get attention. Don’t get too worried, just talk to the inspector and let them knowyou will get the work done. They were willing to offer clarifications and suggestions to me on how to best pass the re-inspection. (Not advice gaming the system, just clarification on exactly what they would and would not accept.) One of my properties needed a fair amount of repairs; you’re place may go much more smoothly. For any repairs ordered by the rental inspector, you need to use licensed contractors when the repairs require plumbing, electrical or mechanical permits. For building repairs (like replacing a window or rebuilding a chimney) they usually require that you employ a contractor as well but it depends on the type of work. In the case where I needed to install an egress / escape window in a second floor bedroom the inspector looked over the contract I had signed with the contractor.

This is a good page on the permitting process. You won’t need most of this but it’s a good resource: http://www.minneapolismn.gov/mdr/permits/mdr_permits_whattoknowaboutpermits

The best way to avoid being surprised by costly repairs is to study the rules on the city website and do your own initial inspection. Even then you might be unpleasantly surprised. If you’re going into this business you have to set aside some money for this part. Lack of money is no excuse. Don’t expect to rent out a place legally if it’s run-down.

People renting out their home out of financial necessity are another matter and all I can say is try to do the work yourself before the inspector ever sees it. If you do a good job then everyone’s goals have been met. I think the $1000 conversion fee is also unfortunate for those under financial pressure: Sometimes you just have to move but cannot sell your home due to the huge amount owed on your loan compared to your current home’s value. Renting is the logical move but the $1000 fee might be hard for some owners to come up with, especially before renting starts. Not that they don’t rent, but they are pushed to skip the license.

4. The city issues a permanent license

Once all outstanding repairs from the initial rental inspection have been completed the city issues a permanent license. Usually these require a brief re-inspection but in one case I was able to simply email photos showing the completed work.

5. You pay a small annual fee to keep your license active

The fees change occasionally.

Check the City Website

Check the website http://www.minneapolismn.gov/inspections/rental/index.htm before you apply; it is kept up-to-date.

Conclusion

Good luck.