Any downfall to starting rehab after Pre-Possession?

19 Replies

My in-laws and I just got the signed pre-possession authorization on our first flip for a house that we close on in two weeks.  My father in law has been a landlord for over 40 years, but this is his first foray into flipping.  My brothers-in-law were excited to get started so they started working on the house already. 

My thought was that if we could get a substantial amount of work done in that two weeks, we'd be dodging some interest payments. 

But is there a downfall to this approach?

The risk is that it doesn't close for some reason and the sellers get all your repairs for free...and you just wasted a bunch of time/money... 

@J Scott

I guess that was my question:  In what instances after everything is agreed to would a seller be able to cancel the sale of the home? 

My initial thought is that this would have to be evaluated on a case by case basis.  In this case, the prior owner passed and the sole heir wants nothing to do with the place, as it has fallen into disrepair and the electrical would cost about $7k to redo alone if it had to be contracted out. 

Famous last words but, "what could go wrong?"

Sounds dangerous, mainly because you don't own the house. Does the owner of the house know you are working on it? 

@Katie Neason

That was the point of the pre-possession, was to get a jump start on renovations, although for the most part we've stuck to taming the out of control landscaping. This should please the neighbors.  You never know when they might come in handy!

Title issues?  Survey issues?  Appraisal issues? Market changes? Death or incapacitation of owner? Owner refusing to sign paperwork for any reason whatsoever? 

Thanks for the reply, but I now have a follow up question:  What the heck's the point of Pre-possession paperwork then?  What are the supposed advantages to the buyer?

Welcome to BP.

You don't own anything until property closes. Very dangerous idea.  

Especially in any inheritance type you have the title work back yet? Has it been verified the necessary probate process has been completed? Etc.?


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@Jon Behlke

It is risky to start renovations before Close, even with consent ... for all the reasons Jason gave you.

Sometimes it is necessary - we've done it twice.  The most memorable was to prepare a house for my sister and her kids on short notice.  I posted a $10K bond and a detailed renovation plan with the Vendor.  We finished the renovations, then 2-days before Close, the lender dropped the ball and asked for a 2-week extension ... a week later the Vendor had a health issue and ended up in the hospital.   We ended up calling in a favour for a bridge loan, the vendor Closed from the hospital and the bank eventually advanced the funds for the mortgage ... and, after an intense 1-hour meeting with the regional manager, they reimbursed the $2K we paid for the bridge funding.

... so, things can go wrong ;-)

If the house burns down, who is liable?

Originally posted by @Jon Behlke :

Thanks for the reply, but I now have a follow up question:  What the heck's the point of Pre-possession paperwork then?  What are the supposed advantages to the buyer?

The advantage to the buyer is that he has the option to do what you want to do.  Just because it's possible to do it doesn't mean it's a good idea.  I've seen retail real estate contracts that have no contingency for clean title -- just because that contract exists doesn't mean any buyer should ever consider using it.

It might be reasonable for an owner occupant to take pre-possession of a property.  Perhaps the buyer needs a place to live and the house is vacant -- there's not much risk to either side.  But, if you're planning to sink $$$ into the property, doing so prior to closing is not a good idea in my opinion.

I was actually thinking about the same idea- get a head start on a house. In my situation, closing is in 2 weeks. It's a hoarders house so during those 2 weeks, I'd like to get it emptied from all the stuff. Sure something could fall apart and I'm out the cost of 4-5 dumpsters. I do have written permission to start the work from the current owner. This is an estate sale and one of the children is a snowbird and is flying up to do the close end of February. I wouldn't sink serious cash into a property until I am owner. 

I'll be the contrarian voice, as this is something I have done several times. It is all a calculated risk assessment. High probability of small benefit, very low probability of HUGE loss. It's all very individual, and depends on the specific property, and the specific owner.

There are risks associated with all transactions, mitigating them is crucial and your own personal assessment of the risk vs reward us in order.

I have done this as well, very recently in fact, and it worked out fine. That said, most of the work I did was demo and haul away, I did not start installing any expensive materials until close and as such, had very minimal risk and saved some holding costs.

Dot your i's and cross your t's, make sure you gave accounted for everything and then if the reward is worth the risk, proceed, if not, simply wait.

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