There are likely going to be passionate investors on both sides of the fence supporting or condemning the idea of keeping a seller inside of his or her property after you have bought it. I mention this because it is important to remember that you always have free will. Ultimately, the choice will be yours when you are presented with the situation of whether to keep a seller inside their property after it sold to get the deal done. Do you agree to let them stay or demand the property be vacant as soon as you pay them for their home?
Below are thoughts and recommendations on how to safely and profitably run your mobile home investing business with regard to keeping sellers in their sold homes after the sale.
When NOT to Keep Sellers in the Home
Let’s face statistics. If some real estate sellers could easily afford to remain living in their homes, then they probably would not be looking to sell to an investor like you. There are, of course, exceptions to the rules, however, many sellers that we investors work with may have current financial troubles and may even be behind on monthly payments to the bank or mobile home park. It is safe to say that many of these folks would not be your ideal first pick as renters or new buyers for your investment properties.
Pro Tip: Many prudent and experienced investors will say it is a fundamental rule never to rent or resell an investment property back to the person you purchased it from.
Still, there are certain situations in which you may be buying commercial property and the seller wishes to “lease back” the property for a certain duration of time. This is much more commonplace and safer because we are dealing with another investor looking to run a business versus a seller selling his or her primary home residence.
When to Keep Sellers in the Home
If there is any reason to keep sellers inside their homes after you close on it, it is because the sellers need a few extra days or weeks before they can vacate the property. It is important to remember that we are investors; we are not end-user buyers. This means that we should aim to be a seller’s one-stop-shop with regard to what they need to close on their property.
Many sellers will already be out of their home when they sell it; however, some sellers will need a bit more time and flexibility. Many sellers do not want to feel rushed to vacate their homes immediately upon the sale. This is because many of these sellers will need the profit they make selling their primary home in order to move, re-purchase, or rent a new home moving forward.
Pro Tip: Allowing sellers to remain in their “sold” homes after closing is a great way to add value to a sale for certain sellers. This is something that most end buyers will not be able to do, as they will want to move directly into the home as soon as they pay for it. This flexibility can help separate you from any competition.
How to Protect Yourself
The main argument with re-renting a property back to the sellers is that these sellers-turned-renters may likely default on the monthly rental payment amount. There is also a fear that these sellers may “cry wolf” to a judge and claim you took advantage of their situation when you purchased their home.
With all this said, let us eliminate the need for the seller to ever pay you anything after the closing. If you choose to allow sellers to remain in their homes after closing, it will be as part of the “terms of the sale.” At closing you will withhold approximately 25% of the seller’s profit; this money will be given to the sellers at the moment they leave the home vacant and broom swept, after you perform the final walk-through.
You will deduct appropriate fees and costs according to the following:
- If the seller stays for longer than expressly agreed, a daily charge of $X will be deducted from the amount withheld.
- If there are additional repairs needed that were hidden or covered by existing furniture, an appropriate amount will be deducted for the repair of these issues.
- If the home is left filled with junk and/or not cleaned properly, appropriate cleaning fees will be deducted from the amount withheld.
- If the lot rent is not paid in full by the seller while they are still living in the home, a reasonable fee will be deducted from the amount withheld.
From experience, many sellers will be so happy to be moving on with their lives that they will leave the property earlier than expected in a very clean condition. Many sellers will call to alert you that they are packing their things up and wish to have you walk through the home to finalize the transaction. Once you approve of the home’s condition, you will then take the keys from the sellers and hand the remaining balance owed to them for the property.
The agreement to be signed by buyer and seller that outlines all these conditions may often be called an “After Closing Agreement.” This agreement is a meeting of the minds between buyer (investor) and seller and establishes the rules and penalties for both buyer and seller moving forward.
Pro Tip: Take Titles and have all selling paperwork signed at closing. The seller should receive a copy of all closing documents and retain a copy of the home keys. At closing the sellers will be receiving a good portion of their profit; however, you will be withholding approximately 25% of this cash until they have left the home on time and in a clean condition.
Positives to Consider
You are able to close the deal in a relatively safe fashion. As long as you withhold a sizable part of the seller’s profit, you will remain in control; the seller will be highly incentivized to make sure they are out of your newly cleaned home on time. During the time the seller is in the home, you may often be able to start repairs to bring the home to current resale condition. You may even be able show the home to potential buyers who may be interested in repurchasing this property from you in the near future.
Negatives to Consider
Some sellers may overstay their welcome or not leave the home in a broom-swept condition or on time as agreed. Make certain to withhold enough money to pay for two months of debt service and reasonable eviction fees. In my experience this has never come to pass; however, it is always wise to remain in control and be prepared for almost any situation.
Pro Tip: Be aware of the time of year. The winter months are sometimes a bit slower for reselling mobile homes in many markets. For this reason you may not be as agreeable to a seller remaining in the home during the Autumn months of the year.
In conclusion I hope that this article has expressed the importance of staying in control and stacking every deal in your favor. As long as all parties do what they say they are going to do, then everyone should be happy. Still, sometimes sellers lie, and for this reason it is important to always aim to help sellers while not acting naïve or foolish. If a seller wishes to remain in a property after closing, it will be only for a limited time and you will want to withhold a sizable portion of their profit until you have complete possession of the home and it is left in exactly the condition agreed.
What’s your take on this: Do you ever allow sellers to remain in the property for any period of time?
Let me know with a comment!