Is it legal to market rental for a property under contract?

Question

Have a property under contract.  It is closing in 10 days and everything is on track to close.  The seller  is aware I am an investor and will be renting the property out.  I even showed the property to a prospective renter with seller allowing that showing to happen.  (1) Can I start advertising the property for rental on a full scale?  I do make a full disclosure to the prospective tenant.  (2) If I do find a prospective tenant, can I sign a lease before I own the property with full disclosure in the lease?  Although I suspect (2) may not happen until I get title, since I don't want to trouble the seller again with another showing.  Any insight is much appreciated.

Jay Hinrichs · Answer

@David Krulac  in our state this would be totally illegal.. you need to be a licensed broker to rent property.. and since he is not owner of record he is acting as a broker...

Mike Cumbie · Answer

Hi @Senthil N.

Personally I don't recommend it. If you plan on them moving in on that tight of a time window something will come up. An attorney is going to find a cloud in the title that takes an extra day to clean up. The underwriter is going to realize they didn't look at your library card and need to put things on hold for 2 days while they petition the state for a copy. One lawyer is going to be sick and his assistant is booked up so she can't do it. Once that happens you are going to have a tenant that wants in (Has a moving truck full, has scheduled appliance delivery, catered food is coming at 6:00 for all the people helping, moved out of her house so is now homeless) Of course she is going to want to be compensated for all of it.

Of course since it was a Thursday it will run over the weekend and she is going to want hotel costs and storage costs covered as well. That is if she still takes your apartment, if not she decides to take something else to get in on an "emergency" basis she is really going to want to get paid. Then you will be standing in front of a judge and he is going to say "Wait you signed a lease for a property you didn't own"?

Just my 2 cents and I wish you the best in whatever you decide!

David Krulac · Answer

Yes, when you have a binding contract to purchase you have equitable interest in the property, even though you don't have record interest, and can sell your interest.

Record interest is when the deed is recorded in your name or entity.

You should have permission of the owner for showing.  If the property is vacant usually the owner will be more cooperative.

David Krulac · Answer

@Jay Hinrichs

With permission of the record owner of course.

David Krulac · Answer

@Jay Hinrichs

I would say he is an equity owner since he paid a downpayment/consideration and has a binding contract pending settlement.  You probably remember when the VA financed their foreclosures and did so on a 30 year installment contract.  Those buyers were not on title, but by virtue of their contract were certainly allowed to rent those properties for the next 30 years.

Senthil N. · Answer

Thanks @Michael Totman & @Mike Cumbie.

I have done this before.  In a couple of instances, the current owner or tenant had a lease back which made things a bit easier.  I could market during the lease back period and was able to have a short downtime between owning and renting, having lined up repair work etc.  To your point @Mike Cumbie, I have run into issues with tenant needing an extra day and the new tenant already on truck!  But it worked out as both were reasonable. I do plan to give a few additional days this time, between the actual closing and renting.  To your question @Michael Totman, I believe I can do the screening beforehand which I in fact did and rejected a prospective tenant.  That I believe is valuable time saved by doing this sooner than later.  Based on @David Krulac's response I will at least market and screen.  I will allow a few extra days between closing and renting for contingencies and repairs.  I will just have to figure out the money part and a proper document / contract that keeps me both legal and honest.  All this to save a few bucks you may ask.  And that would be correct :)  It also give me a good feeling of building in as much efficiency into the business as I can while being aware of risks and return.

Michael Totman · Answer

If this is such a great deal that you can simply accept the deed and keys from the seller in the morning and place a tenant in there after lunch I would be surprised. Is there nothing you want to do to the property to improve its value and increase the rent? If you're really closing in 10 days and the property is immaculate and ready to go at the highest quality it can be then go for it. Get the tenant lined up, it will probably take at least a week to get them screened, update your lease, get it signed, etc. Tell them the move in date is an hour after you close and go for it. If it's such a good deal like this could I ask how it go to the market in the first place?  Or did you pay too much for it?

Senthil N. · Answer

Thanks again @David Krulac.  The money is important because if there is no hold, then it diminishes the advantage of doing this before sale.  As you mentioned, this may need an attorney and perhaps a non-standard leasing agreement that may be beyond the scope of a discussion forum.

David Krulac · Answer

@Senthil N.

I'm not an attorney and am not giving legal advice, suggest you talk to an local real estate attorney.  Personally I would show and take an application, fully explaining the circumstances but I wouldn't sign a lease or take money.  At our local REIA group there is an attorney on retainer who comes to all the meetings and answers questions at the meeting for free.

Senthil N. · Answer

Thanks @David Krulac.  What about getting application and lease signed.  Can I do that subject to me buying the property?  Can I collect deposit/rent again subject to me buying the property or full refund if I cannot hand over the property by the said date?

Is it legal to market rental for a property under contract?

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