Brenda Kellen: What should I know about buying a home with renters in it?
September 9, 2008
Q. I am purchasing an investment property with renters. How will the rent and other documents specific to the renter be handled?
A. Per the terms of the Colorado Real Estate Commission approved contract, rents shall be based on either rental money actually received or accrued. It is better to choose rents accrued; if the renter has not paid you will still be entitled to a full pro-ration credit regardless of monies received by the seller.
The title company will calculate the daily rental rate based on the monthly amount due and credit the buyer for the days during the month of closing that the seller does not own the property. For example, $40/day times 20 days = $800 credit to buyer, debit to seller.
The title company will transfer via the settlement statement the security deposit, first or last month rent, and pet deposit (if applicable). Essentially, any monies held by seller on behalf of the renter are transferred to the new owner. As the new landlord, it is imperative to create a separate rental account and deposit these monies into it.
Seller shall assign all leases to buyer and buyer shall assume all leases.
A lease supersedes the sale. The lease may include a move-out clause in the event of a sale, but if not, the renter has the right to stay per the terms of the lease. Review the lease carefully during the due diligence period of the contract in order to understand who pays utilities, late fee provisions, length of the lease, and what deposits have been provided.
It is also a good idea to ask the seller if the renters pay on time.