The security deposits thing you should check with a lawyer to see if it is allowed in your state. Remember that those deposits are supposed to be returned minus damages after tenant move out. However, that sounds like one of those things that you could keep going for some time. The way I see it when your old tenant moves out any deposit refund he is owed could be payed from the new incoming tenants security deposit. Things might get tight if you have a lot of vacancies and no new incoming tenants to pay the old tenants off.
Sheets uses these two techniques also in his course.
Posted by Marc/ATL on January 29, 2000 at 22:13:54:
Help me out here, if possible.
I’ve read tons of messages on this site and I hear the same concern pretty frequently (not enough down payment).
Here goes;
Situation: (#s are not important)
buyer is looking to purchase property from seller, let’s say
a 20 unit apt bldg @ $xxx,xxx let’s say the apts go for $600 per month…,
Seller is asking $xx,xxx down payment which buyer cannot afford.
Now according to let’s say…, Russ Whitney, you can close on the 3rd of the month, because by law the present owner must collect the rents. In turn you get the other 27 days rent back to you (as new owner).
With me so far.
Can you really use this $$$ toward the down payment?? let’s say $570x20=$11,400
Can you use their 1 month security deposits also toward the down payment $600x20=$12,000 It is yours isn’t it?
This is big creative money $23,400.
Is it possible or is R.W. blowing smoke.
Thanx a million, well actually only $23,400 this time.
Marc/ATL
Re: Yet another newbie question. - Posted by Ray (NJ)
Posted by Ray (NJ) on January 30, 2000 at 10:42:36:
In my state, security deposits are NOT yours. They are the tenants and actually must be held in an interest bearing account with interest going to them. They only become yours after you prove they had damages at the end of their tenancy. Check with an attorney, first.
In some areas deposits must be held in trust, not comingled with your regular funds.
In any case if you are doing deals with this thin a margin for error and no cash to fall back on you are going to get burned bad, more likely sooner than later.
Forgot to mention that when you sell the property at a later date the buyer is going to be looking at the paperwork. Usually the security deposits are in a seperate account. So, your buyer may notice that the numbers don’t quite jive with the security deposits that are supposed to be on hand.
On the other hand maybe the property gets refinanced by you after it appreciates and you put some of the excess cash back to replenish those depleted accounts.