How To Choose The Date/time To Close On A Property For Max Benefits
Dear experienced investors and lenders,
I would like your point of view on the subject of the time of the month when a property closes.
My reading of books, suggests that it is best to close on the 3rd or 5th of the month,. The reason? Because you get to collect almost 95% of rents for that month and it was collected by the seller/saving me the work of collection.. On top of that the first payment on the new mortgage would be on the following month giving the benefit of a partial instant cushion of funds.
I am in contact with a seller, and have already send a counteroffer, he let it expired but conveys to the real estate broker then thru me that he accepts my latest offer but needs more time to work out the 20% carry back I requested from him with his lawyer.
So I still must wait/delays etc. I was hoping to schedule a closing on the 3 of the month(May) but now at this date I will be lucky if i close on the 20th of next month. Nothing has been done on the duedilligence/inspection etcc
So is it a common strategy for seller wanting to close late in the month and for the buye to close early in the month?
Is there other key dates that are strategically of value escaping me. Am I losing advantages other than a smaller proprated porion of rents? And what about my new payment schedule for my new mortgage? If IO close near the end of month does it mean my payment for new mortgage will be end of month too, 30 days afdter closing?
Any advice /strategy opinions would be welcome.
Thank you all in advance
P.S. The deal has to do with an 11 units apartment
requiring a commercial loan.
Yeah, I agree with Kevin. There is some small advantage to closing in the early part of the month but its usually pretty illusory. The theory is that collecting that first months rent before there is a payment due gets you "free" money but if you acutally use that money then things are going to be pretty slim when month 2 rolls around and your mortgage payment is due on the first.
The advantage to closing earlier in the month is he prorated rent but also if you have to do any fixes or repairs or you have to get the place rented then this would be the way to go also. Since the interest that you pay on a mortgage is the interest that accrued in the previous month and the law prohibits the collection of a partial months interest then if you close on May 3rd then the first payment will not be due till July 1st. This buffer will give you almost two months worth of rent to make that first payment and still collect the rent fom July. This obviously is the most favorable way to apporach things
Thank you tlets1, Kevin, Commercial king. I got to favor tlets point of view . The deal I am looking at collects $4220 a month so closing on the third really gives me the most money almost two month of rent/! 8 grand before my first payment is due just for proper timing! The thing is the seller moves so slow that 3rd of May I would think is unlikely since he has not returned the counter offer yet. so I guess I could push for june 3rd.