"Take posession prior to closing and use rental payments as down payment"..?

Question

To take posession prior to a closing and use the rental payments (on a multi-family) as the down payment.. this would probably not work if there was a real estae agent involved would it? For it to be doable it would have to be an FSBO deal-yes? Dan

Don Konipol · Answer

This is one of those things taught by the nothing down gurus.  In limited circumstances it can work.  Best if purchasor gets a master lease to be able to run the complex before actually buying it.  Buy please be aware that the rental payments are not all profit - at least 50% will apply to the operating expenses.

I was involved in  just so a transaction recently.  I was the lender to the original purchasor, he turned the apartment complex over to a buyer on a master lease until the buyer was able to get financing.  Six months later the borrower finally got financing, the property was sold, and our lien position was paid off.

David Schweibish · Answer

Dan,

Even with FSBO, that's risky business!

The complex (and perhaps not so complex) legal issues that could arise from taking formal possession prior to close makes it a bad idea in general. I will let the attorneys and those who know first hand of these issues comment...

Additionally, I would think the seller would not be interested in such a thing simply because they want to soak up as much of the property's "juices" before letting it go.

But, perhaps I'm wrong...?