Deposit Rental Money Transfer
What happens to the advance rental deposits you have already collected for this year? Do you, the owner of the property when the deposits were paid, get to keep that money or does the new buyer get it? It is possible you have already spent deposit money.
If you are selling a rental property, there is a good chance you will be in possession of advanced rental deposits at the time of closing. This money is considered rent and therefore belongs to whoever owns the property at the time the renter occupies the premises. What this means is you might owe some or all of these advance rents to the buyer.
Here is an example of how this might play out; A buyer looks at your house in the end of May and makes an offer in June. The closing takes place on a Wednesday in July while renters are enjoying your house on their vacation. The rental money will be prorated so that all the proceeds collected by you or the rental company for the timeframe before the Wednesday closing will remain yours and any money collected for the timeframe after closing will go to the buyer. If the closing takes place in the middle of the day, you and the buyer will each receive one half of that day's rent.
If the closing takes place in May, before any renters check in but after you have already collected the advanced rental income for the season, you will have to turn over all of the rental proceeds to the buyer. You will not be the owner during any of the time the house is rented so none of the money goes to you.
This may not seem fair but if the renters will be using the house at a time when the buyer is the new owner then it really is only fair that the new owner receives the rental income.
This is one of those little things that gets routinely overlooked by everybody up until the closing statement is distributed.
You need to know this up front to avoid the shock that many sellers experience just before closing when their closing attorney notifies them of their proceeds. Don't worry if you have already spent this money as the funds can just be subtracted from your closing proceeds, so no money needs to actually ever changes hands.
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