4. THE RENTERS
In nearly every real estate transaction involving rental real estate property, the renters are instrumental in helping the real estate investor with the down payment. Of course, they are not aware of it. And few real estate investors are conscious ahead of time of how important the role of rents and deposits is to their success in reducing the cash down payment.
Technique No. 20 Rents
Since rents are paid in advance, a real estate investor who closes on the first of the month when rents are due stands to receive the gross rental income for that month. The first mortgage payment is generally not due until thirty days after closing so the real estate investor has a thirty-day breather. His immediate cash down payment obligation has therefore been offset by an amount equal to the rents.
Technique No. 21 Deposits
The situation with tenant security deposits is similar. It is not uncommon for the landlord to require the tenant to pay an amount equal to the first and last month's rent as a damage deposit. If a real estate property is sold, the deposits are passed along to the new real estate investor. Unless state law prohibits the commingling of deposit funds with the rental accounts, the real estate investor can effectively use the deposit funds given to him at closing as an offset to the cash down payment obligation. Of course, when a tenant moves out, all or part of the deposit must be returned. If the new real estate investor is a wise manager, he will require a buffer period before returning the deposit. This will give him some protection against the possibility that the tenant may have neglected to pay some bills and will allow him meanwhile to find a new tenant who can add to the deposit kitty.
Virtually every real estate transaction involving rental real estate property has the potential of providing access to these two techniques. For example, the real estate investor of a $325,000 mobile home park in Cheyenne, Wyoming was able to raise $8,000 of the $25,000 down payment from tenant rents and deposits in a recent transaction. We know of another case from our Los Angeles files where the real estate investor of a 72-unit apartment complex received $7,000 in rents and deposits at closing to apply to the transaction.
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