Let The Buyers Move In Early?
I have negotiated a short sale on a property and will close on it late this week or early next week.
The sellers gave me the keys the day I talked to them and moved out that weekend. I've had possession of the property and have been marketing the property.
Long story short I found buyers for the property and I have a loan commitment letter from the bank but it is subject to final credit approval and such. There shouldn't be a problem closing but it's not over til it's over. Conservative close date is Nov 1.
The buyer's lease expires October 1 and they asked me if they could move in early and pay me 1 months worth of rent.
The buyer's PITI on the new loan will be $2000/mo. I could easily get that for rent and probably $2500. The only problem is that the buyers won't have money for the security deposit. They have two automobiles that they would be willing to put up as collateral and I would be 1st lien position.
Also the property is in rough cosmetic shape (lots of junk, very dirty). We're talking about a $1000-$1500 rehab job here if I hired out all the work. These buyers would take the property as-is.
Quite frankly the extra couple of grand is pure profit here and currently that money is certainly not pocket change for me. I like the idea of the extra money and I'm trying to find a downside.
Worst case I can think of:
Buyers could back out of their purchase agreement and I'm stuck with tenants in the property rather than buyers. From there I'd have to evict them and they'd trash the place. It is nearly impossible for them to leave the place in worse condition than it is now unless there is some intentional damage or such.
Would you give the buyers early posession? If yes, how would you structure the deal (written lease, no lease, contract for deed)?
I'm just looking for some brainstorming here. Everyone please chime in! (even newbies)
If the worst case is the risk of a tenant and later eviction then just set it up as a rental with no connection to the possible sale later.
Get as much security as you can (titles to two cars) and roll the dice.
Of, tell them to get a motel room, etc.
I have seen deals go south at very late stages of underwriting so pre-approval means nothing as far as I am concerned. Do you mind owning a rental and being a landlord?
John
[addsig]
Thanks John for the fast reply. I am a landlord but no I do not want to be one on this property. My financing is very short term and needs to be a flip.
I agree with you about the pre-approvals. They are worthless thus my hesitation here.
The maximum security deposit I can accept, by state law, is 2 times the rent. I would assume that I would make the buyers a "loan" equal to 2 months rent and secure that note with the autos.
What does everyone else think?[ Edited by myfrogger on Date 09/20/2004 ]