We are about 4 days away from closing and some major issues have started to arise, any advice would be great!
We bought a quad with the knowledge that 2 tenants were staying giving us just enough money to cover the mortgage, which was great because most of our cash was going to build out another property of ours.
Here we are 4 days from closing come to findout all the tenants are leaving! Bye bye money for the mortgage! I wouldn't worry much in another town but this town is a college town and now that the semester has started it can be 10 months until the renters start looking again!
And to rub salt in the wound the seller already gave back all their deposits. Now if they tear up the place or ruin anything while moving, we have no money to cover damages...
All this crazyness is making me want to move in and save $10k off on the down payment!
Any one experiance this before? Anything we can do about the deposits?
Why haven;t you been marketing the FIRST two vacant units prior to close? I'm confused.
I assume there is no language in the P&S regarding this?
What was your original plan? Can you get out of it, how much would you eat in EMD?
Do you own a home now? If not - go owner occ and do an FHA purchase.
How long can you carry the loan as it is currently structured?
Look for a partner who can carry you til you restablize the building.
If you are obtaining a conventional loan and closing on September 12th, your first Mortgage payment is not due until November 1st. Check with your mortgage broker, but this should be true. This gives you a month and a half to find renters to at least mitigate some of the damage of not having renters in the building. Regardless of whether or not it is a college town, there should still be folks out there looking for a place to rent. Place an ad on Craigslist to see what kind of interest you generate, you might be pleasantly surprised. I too live in a college town and have had little problem renting my units outside of the typical rental cycle. Hope this helps. Cheers!
Do you really have to have this place? Is it contingent that it has to have tenants?
I know colleges have waiting lists for renters. Maybe it will be easy to rent it out.
But I would walk if it's gonna be tough on you.
@Michaelina Stathakos Had you checked the lease agreements? Did you have language in the purchase about the existing tenants and their deposits? If the seller let the tenants out of a lease in the middle of a sale, then you might have recourse to invalidate the purchase contract and get your EMD back.
Can't give you specific details without seeing the purchase agreement. Your realtor should be stepping up and helping you through this.
Like others said, you might want to consider OO if you have to or want to go through with the purchase.
Upen Patel, Mortgage Banker
VA, FHA, Investor Loan Specialist
National Lender, Federal NMLS# 1374243
Is it a college rental only? If so I know you can take a big hit but you might be able to fill some units. How does what he is doing compare to the contract? did he represent that all the units were filled and did you make the agreement with a stipulation on this. If you did not my thought would be that they could be vacant. However I would say to him that they must be vacant if he returned deposits. He should deliver the units consistent with lease provisions so if someone is in a unit but their deposit is already returned he needs to remedy that by delivering the unit vacant. Talk to your lawyer about not closing until you come to agreement on this. That being said holding closing will cost you too so talk to your lawyer and maybe you can come up with an agreement.
A couple of ideas to cover yourself short-term if you go through with this. Try some short term leases. Try a semester lease (you could also try for payment by a semester). There are companies that will deliver rental furniture and you could do short term furnished rentals. If you accept shorter terms you could recoup some of the money and bridge that period. Early on we accepted some short term students after we initially bought a house out of season. we also had some transitioning student to professionals. Our unit was furnished (ala consignment store) so it was easier. Also I did make the mistake of asking someone to fill an empty unit, it worked out ok but they just put the first warm body in it. If you close on time advertise and find out if there are visiting programs that might fill the units. Alternately move in and change your tenant pool. Good luck.
All of this should have been addressed contractually. Why were the deposits not addressed in the contract? Did you review the leases during your due diligence period? Were the tenants month to month?
With no disrespect meant, it sounds like there were many oversights that could have eliminated the issues now arising.
Thank you for your quick responses, reading them I see now that sadly the ball has definitely dropped on my part as well as the realtor's. This is our first rental purchase that had tenants, so a lot of it was diving into the unknown. We had seen the rental agreements and they were all month to month but they are students and students usually don't move mid semester so we were sure to have them until the end of the year at least. I wanted to start advertising the other units but didn't because it wasn't ours yet. We have the funds to cover us for quite a while but now have to put off the renovation of our other property. We really can't owner occupy
Last resort, (potentially first resort depending on the town) rent it out on AirBnb!
Yes, you are all right, just push forward and make it work!
Thank you all for the advice!
I love this site!
I always get copies of the tenants contracts during due diligence. Have you checked the hud for deposit credits toward purchase price. Always check the financials on college Apts too, sometimes the rents will vary Summer Fall, Winter, and Spring. Place ads everywhere, and check the backgrounds of your tenants criminal and credit. Dont lease in haste due to stress over debt service, and try to have their parents cosign as much as possible to shift liability. You will make it through this just fine and it will be one of those great learning experiences. The best things come out of situations like this. I learned the most creative ways to reduce operating costs from a similar situation
if it takes 10 months to rent the property, I'd walk away.
Buying a seasonal property is not a good idea (in this context, I'm sure it could be wonderful to get a beach house in SF). What happens if the next tenants won't move out on time and you miss the summer break window again?
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