I'm currently in a contract where the seller needs the cash fast to close on his new home, hence he sets the closing date to be on xx Nov which is before the closing date of his new home. However, his new home will only be ready for him to move in 10 days later, hence I will only gain possession of keys 10 days later. This means that there is a 10-day transition period where the seller is staying in my property. While the seller agrees in writing to cover all utilities and damages made during the transition period, I was thinking if there is any other more definitive way to protect myself during this period... I am planning to start my landlord insurance from the closing date to cover myself, even though there will be no tenant for the next ~2 months after the seller moves out as I need to rehab and lease the property (i.e. I could have started landlord insurance later only when rehab is done and the property is going to be tenanted, but now I have to start it ~2 months earlier just to cover the transition period).
Was wondering if anyone has any other suggestions on how to handle such a situation. Thank you!
Require a large deposit be held in escrow from the seller’s proceeds....$5-$10k along with an agreement for Stiff daily rates/charges if they stay over the agreed number of days. You need to start your insurance right away anyway so that’s no big deal.
I agree with Wayne. Effectively you are renting to him for 10 days until he moves out. You need money to protect you for any damages and something in writing (and cash held back) in case he doesn't leave.
@Trace P. There's SO much that can go wrong with a delayed occupancy and chief among them is that the seller doesn't move out when he should. What happens if his next home fails to close on time? Can you evict? During COVID?
Smart move starting your insurance at closing. Your lender will probably require it anyway. Also check with your insurance agent to be sure you have the right kind of coverage for the period before you occupy.
At the very least, you need a "use and occupancy" agreement that stipulates the conditions of his continued stay. There should be a cost for the period he's renting and a per diem for every day he stays beyond his move out date - and it should be expensive.
As @Wayne Brooks pointed out get a big deposit from the seller and put it in escrow. Make it large enough to cover the cost of a contested eviction and a clean out.
Be sure to do a final walk through an hour before closing. You need that final look to be sure that everything is as it should be.
A better solution is to do a back-to-back closing. He closes with you at 9 AM and then closes on his new house at 2 PM. That gives the lenders enough time to wire funds and eliminates all the extra hassle that can come with delayed occupancy. I've done this on my last two homes and with many clients as well.
You should have a lease (there some standard MLs form in OR) stating $x/day rent and term of lease (eg 10 days) that is enforceable.
I would add to what Steve just wrote. I would charge a fairly stiff daily rent for the 10 days which would increase by 25% for every day thereafter. Definitely hold enough of the proceeds to cover 30 days of daily rent.
We do rent-backs with some frequency as many of our sellers are older folks who need to find housing closer to family. We have even included cheap rent-backs with our offers when we learn/sense that the seller has another closing scheduled and can use for extra time to move. We have done 3-4 over the past couple of years with no problems. Make sure you have the seller execute a lease for the period of the rent-back and have the seller put a deposit into escrow. It's best to keep the rent-back period under 30 days to avoid potential issues with local rent-control laws if those are applicable.
If it’s “only” 10 days, tell the seller to get their stuff moved into storage pods and live in a motel. With covid evictions difficult, I wouldn’t even play games.
@Trace P. I remember when it was common to get occupancy 30 days after close and that was the norm. No security deposits....you just expected the sellers to act like adults.
Thanks everyone for your responses! I have a good idea of various ways to handle this situation now. Really appreciate all the kind people here!