Security Deposits

[Nathan A. Johnson]

When buying a rental property you inherit the old tenants that have a valid lease. What happens with that tenants Security Deposit? Does the old landlord transfer the money to you? If so, what would that process be like? Do you have to ask for this during negotiating/closing? Or does the old landlord give the money back to their tenant to give to the new landlord?

[Tyler Hodgson]

I just closed on a property and the title company offered to add the prorated rent and the security deposit to the CD (Closing Disclosure) as an adjustment, which would lower my total cash to close, or we could handle the transaction separately with the seller.

If you are going to handle it on the CD make sure your lender is okay with that.

We opted to just have the seller write us a check for rent and a check for the deposit at the closing.

Either way is the same net, and if your accounting is in-line you will have no issues determining what money belongs where.

Just make sure to have the conversation with all involved parties, and choose the option that everyone is most comfortable with.