We just did our first deal to buy a townhome in our area at well below market value from a family friend. Basically, they had bought the property for cash about three years ago as a place for their daughter to stay as she got her career off the ground. Now that we are under contract, they have generously allowed us access to the property for about a month before closing - even giving us a key - in order to show to prospective tenants and do cleaning, small improvements, etc... The wisdom of such an arrangement aside, my question concerns establishing a rental contract for a property you don't legally own yet:
If we close on the property on December 1st but have access to the property all through the month of November, can we have a signed rental contract to start on that date (or just thereafter) - even if the rental contract is signed before we actually own the property? This seems like a dumb question, I know, I'm just looking for any way to leverage this situation to our advantage, other than just getting an opportunity to do marketing / open house for renters prior to being responsible for the holding costs, etc?
It depends on the contract you have signed for the purchase. If you have a legal contract, under the given circumstances, I would go ahead and sign a tenant. If you have a handshake to purchase I would not commit to a tenant until after you legally take ownership on Dec. 1st.
In your situation it is a judgement call on your part. If you decide to go ahead and sign a tenant I would clear it with the seller first.
Thanks Greg! I have an actual contract to back our handshake, so we're all set on that front, and I don't think the seller would object to us signing a tenant. The only concern is we get a rental contract in place with a tenant and for some unforeseen circumstance the deal falls apart at the last second and we don't close. In that scenario, could I just refund the deposit and walk away from the rental contract, or could there be penalties for breeching the rental contract before it starts?
Run this by your attorney, but you might be able to add a clause to your lease with the prospective tenants to exercise a right of rescission in the event the closing doesn't take place.
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