Rental property sale with delayed improvements

[Matthew Heffernan]

I've been searching for a while here on BP but have not found a thread related to my situation:

I've been renovating and renting a property for just over 2 years and may be in a position to sell/close in the next 30-60 days.

I am trying to cut-off major projects at this time to make a clean break, however we have committed to replacing windows in one of the units (windows are already ordered), with total project lead-time of 45-60 days (windows have been hard to get for the past year).

In the event we have a closing date PRIOR to window installation, how should we handle paying the contractor?

Do we just lower the sale price by equal amount and the contractor will need to take payment from the new owner?  What if the new owner backs out of the job and gives it to their "regular guy", will the original contractor come after me for any expenses/materials spent?

Do we write a check and have the Title company hold it until work is complete? assuming work completes after closing.

In the event of an audit, is it a red flag if we claim an "improvement" after the closing date occurred?   Thinking about capital gains tax implications.

I hope that's enough info.  I appreciate any responses!

[Jason Watson]

Good question. You can do a seller credit and ask the buyer to execute a new contract with the window guy. This takes you out entirely.

You could hold the funds in escrow, and have the title company release only to the window guy upon your approval. You remain a bit tethered, but control the narrative.

As far as improvement after the closing... I would not be worried. You can easily demonstrate that you were liable for the improvement. A seller credit reduces your cap gains... or having the amount in escrow shows your commitment to the improvement.

Others might have better ideas.