Transferring prorated rents from seller to buyer

4 Replies

I am about to close on a 24 unit 4 building purchase in Davenport Iowa. Closing should happen sometime between the 1st and the 8th. For those of you who have experienced a closing early in the month, do you have suggestions on how to handle the transfer of rent for the remainder of the month (after close) from the seller to me, the buyer? Specifically, I am concerned the seller will only transfer rents collected and put the collection in my lap. Would you recommend putting the amount into escrow incase there are deadbeat tenants? Thanks in advance.

Rents per se (future) are assigned to the buyer and their deposits are too.

Physical deposit into the escrow is optional and the amounts can just move to your side of the settlement.

If you insist upon prorating rents for a mid-month COE, then the seller can insist upon prorating the expenses - - tit-for-tat.  By the time of a mid-month COE, all rents should already have been collected.

When you specify a contingency for the rent roll, also add rent payment history for the last 6 months to give you a picture of any exposures for late payments,

I would put the pro-rated rents into the purchase agreement and that way you can be sure that the amount on all the leases is pro-rated at closing and will go straight onto the HUD-1 and offset your funds at closing. I would think even if it is not explicitly stated on the purchase agreement that you should still be able to have the attorney's add the proration into the HUD at closing. That would leave the seller with having to collect the rents that are due for that month. I do the same thing with security deposits although am finding out that a lot of people collect those amounts outside of the closing. As an accountant it's easier to ensure that pro-rated rents and deposits are accounted for if they are directly on the HUD statement. Hope that helps Paul!

I just made the mistake of not doing this right when closing on a 6-plex. My purchase agreement did not explicitly state how the rents would be handled. We closed on the 9th and AT THE CLOSING TABLE, the seller decided to inform us that he had not yet collected rent from 3 tenants, so he would not be giving us the rents for those tenants. The dollar amount for pro-rated rents was even listed on the closing statement that HIS realtor drafted, though he claims he never saw it before coming to closing. Myself, my banker, my realtor, and his realtor all seemed to be on the same page that he should have collected rents already by the 9th, so the loss of income should be on his side, not mine. He did not agree. We ended up meeting in the middle because it wan't worth it for me to walk away from the deal, but frustrating nonetheless.

All I can say on the subject is make sure the exact dollar amount you expect to get is explicitly stated on the closing statement and make sure the seller sees it BEFORE closing so that, if there are any discrepancies, you can iron them out before the closing table.

Paul, I noticed you made a 24 units purchase recently.How are things going? I am currently looking for something in that size but have struggled to find a suitable property. Any tips on how you found this or any other purchases. Thanks