How do you feel about renting to the buyer before closing?

[Mindy Jensen]

So I was trolling the Forums and found this post where the original poster was asking about Title Seasoning. 

One response, from Bill G. said to rent it to the buyers prior to closing, then close on day 91. 

I remember my dad giving me some advice way back in the day, saying "Never give possession to the buyer before closing. They could start finding 'issues' with the property, and demand you repair perceived problems before they will close."

I love my dad, and he can be right about a lot of things. But Bill G. also gives good advice. Is my dad's thinking outdated?

[Account Closed]

Mistake, your house until closing...theres after

[Bill Gulley]

LOL, thanks, no, your dad is right as well!

Possession prior to closing can be dangerous, really depends on who that buyer is, skin in the game, their ability to close, their motivation as well. A walk through should be done prior to leasing and at that time, the buyer accepts the property in its "as is" condition. This should be done after their inspection due diligence too, so acceptance is made with knowledge.

The reason for doing this needs to be considered too, the time frame, usually it's less than a month and done so that a buyer can close on their home and move in. In those cases you want to look at that transaction and the strength of that deal to close, if it doesn't close they may not qualify for the loan on your deal.

Going over 30 days, which was more to the possible requirement for title seasoning, needs more due diligence as to their abilities to close. The FHA loan mentioned in that thread is rather scary if your property is not in very good condition as the appraisal is tougher. I mentioned having a loan commitment as well.

Turning a buyer into a tenant is perfectly fine with the right buyers, lower priced homes, with the run of the mill buyer can end up as a rental. You need to assess that and actions for evictions as well as damages, so does the buyer have the ability to pay damages and will they have the motivation to pay if you let them out of a purchase?

I'll let a doctor move in early who has great credit, ability to pay, has reserves, I know the can qualify for a loan, and they a much less likely to cause some fuss or run and hide from financial demands. Now, if it's a first time buyer, no reserves, qualification is thin, they have hoohum jobs, daddy and their uncle haven't seen the house yet, those may be indications that giving possession prior to closing may not be a good idea, unless you're willing to rent it.

Each is on a case by case basis. If you aren't experienced in judging the deal, those  you are working with and not sure of their ability to close, might be best if you don't go there if you really need to sell. So, you dad is right too! 

Thanks for the opportunity to better explain myself, my other post was rather short.  :) 

[Wayne Smith]

I did this last year, the lady was going through a divorce, was a nurse with good income, etc.  I leased for up to 4 months with a contract to buy before the lease ended.  It turned into a disaster.  She started asking me to repair things and replace the carpet, etc.   Started going over everything with a fine tooth comb and wanted everything repaired (as a tenant), contract to buy was as is, with me fixing 4 things which I did before she moved in to rent.   She wanted a new a/c system installed and when I refused, the a/c mysteriously went out that night.     She ended up not buying the house, claiming she could not get funded, and moved out of the house and sabotaging the a/c.  After she moved out I went to inspect house and fix to sell again, and when I turned the breaker to the a/c, I found out she had swapped wires and tripped the 200 amp main breaker coming into the house.  Luckily she had swapped wires and the power went to a dead wire (that unfortunately hadn't been disconnected but did not damage) and it was minimal cost to repair a/c.   I took her to court and she stiffed me for approximately 2200.   I am sure some people would be ok to rent to before buying but I can also see how they move in and start seeing "problems" that they want fixed or they will back out of the deal.  Also, I couldn't keep the earnest money because if I did she would dispute it with the title company and I couldn't sell or even list the house for sale until the dispute was settled.

[Mindy Jensen]

@Bill Gulley I'm pretty sure this is the scenario my dad was warning me about. I'm sorry you had to go through with that, and thanks for sharing your experience.

[Wayne Smith]

@Mindy Jensen

Yes I am sure it is, I can also see them finding things wrong after living there and having second thoughts about buying.   I would not rent to a buyer without  a large non refundable deposit.   It cost me money as well as time by having the house off the market for 4+ months, that were the prime time to sell.  Good luck Mindy