I recently closed on a (2) multifamily apt buildings. We closed on the 11th & at that time not all rents were collected. It was agreed upon that after closing, any rents collected after the closing would be adjusted to each party. Considering we closed on the 11th, the previous owner is entitled to 32% and 68% to myself.
At closing, I got a credit of the COLLECTED rents. I wasn't credited the full scheduled rent roll as not all was collected (some tenants pay late etc..) So ultimately I collected roughly 80% of the scheduled rent roll.
Now here's the tricky part. As the month is closing and we are trying to settle all the post closing pro-rations, me & the previous owner are at a disagreement. This is more principle. (I will edit out all person information but the dollar amounts are all accurate)
Here is the previous owner's synopsis on pro-rations : (Sorry for all the information but it's important!)
These are the numbers I have as a result of the information below. These are the amounts COLLECTED & UNCOLLECTED
The percentages of rent are as follows:
Jerry-32% - 10 days for August
Nik-68% - 21 days for August
To Nik (CURRENT OWNER)-
$520- 1566 #5
$250- 1588 #8
$1275 x .68 = $867 + ($176 pre paid rent from 1767 #12) = Total of $1,043 due to Nik
To JOHN DOE THE PREVIOUS OWNER:
$200- R Smith
$200- W Jack
$490- J Hab
$90- Kyley D
$305- Lyn H
$415- Harm W
$250- Ra P
$100- Rin Mo
$2550 x .32 = $816 + ($120 for Vic Wi /July Rent) = $936
Uncollected Rents for August-
$65- Ro Smit
$285- Wi Jac
$10- Ai Pi
$5- Vic Wi
$300- Est Mo
$665 x .32 = $213 due to John Doe
Due to John Doe (previous owner) - $936 + $213 = $1,149
Due to Nik (current owner) - $1,043
Difference due to John Doe= $106
HERE IS MY ANALYSIS ON THE PRO-RATIONS: *(my response I had sent over to the previous owner)
Settlement : Nik is owed $227.00
Nik's owed total = $1043.00
$505 + John Doe Collected
$520 + John Doe Collected
$250 + John Doe Collected
= $867 (68%)
+ $88 + $88 = PrePaid Rent Payment ($176)
John Doe is owed $2550 (see above for figures) x .32 = $816
Vic Wi $120 - is ours on the assumption we could have applied that to Septembers rent. It was OUR choice / efforts to apply it to the BACK RENT owed. John Doe had his right to claim/collect it prior to closing. $120 was his responsibility to collect prior to closing. It was our choice to chase the back rent and apply it to the back rent owed. Why should our efforts be transferred over to the previous owner?
UNCOLLECTED RENTS : John Doe isn't entitled to collect any uncollected rents as there is no guarantees. In theory, if this were the case I would have been prorated the "uncollected rents" at closing. Considering I only got my share of COLLECTED rents, John Doe is only entitled to the portion of rents we have collected for the month of August. Any future collected rents in regards to back rent is ours IF we collect it. What happens if we never collect it?? How are you entitled to collect a portion of rent WE haven't even collected?
If anyone has any questions or confusion on the situation, please ask. We are debating over a few hundred dollars but in a situation like this, principle is more important. I want the right & fair thing to happen.
Does the seller own other property that you might buy in the future?? If so I wouldn't quibble over a few hundred bucks.
No legal advice.
Seller only owned these 47 units. He's out of the game! I am not worried about the few hundred bucks but I believe he will make it more of an issue.
Why give in if it's not right? It was kind of a slap in the face for him to collect back rent that WE collected. He had his chance! It's comical in my eyes!
You should always write your contracts to say rent as advertised not collected. We have always done this and the issue has even came up about it. This way when you go to the closing table all money is accounted for and paid to the person entitled.
At the time of closing you can go to the tenants and tell them that you are the new owner or Property management. Explain to the tenants that didn't pay there rent that the previous owner paid your rent for the month as per the written contract and explain to them that you will enforce the lease and that if you don't pay your rent the next month, the 5 day notice will come and you will follow through with court action.
We have found that most sellers are selling because they can't control there asset and let the tenants walk all over them and most tenants that don't pay or only pay half can pay if it is made a priority by the new owner.
As far as your diagram above it was a little hard to follow, maybe you can have your realtor look it over and discuss it with the listing agent for dispute. If you and your realtor are 100% sure you are right and everything is in contract form you can go to the listing broker for resolution. Hope this help, good luck and tell us about the deal, what is it and what about the financing.
Appreciate the response. Helpful!
I wrote a thread on my financing situation & took everyone through the whole process while asking questions as I went. It's very interesting!
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing