Was listening to a guru about how he made a purchase on a multi-unit apartment building and he stated briefly how it was advantagous for him to close on the 3rd of the month.
He stated that by choosing this date in particular he had minimal expenses and maximum revenue. I’m assuming this coincides with incoming rents due on the 1st.
Does anyone have any further clarification why choosing a date in the month like this is advantagous?
Thanks,
-Mike
Rent is paid in advance and interest is paid in arrears.
If you close after the first, the next payment is due the first day of the second month. At closing, you should get 27 or 28 days of pro-rated rent for the current month but the mortgage should have already been paid. You will pay a prorated interest at closing for the current month. On the first day of the second month (probably), you rents will be due and they will come in again on the first day of the third month so, basically, you will reap 3 months of rental income and only be out of pocket for 1 month plus the interest at closing.
Make any sense?
Keith
ok…so I’m feeling like my toddler does when he stands in the middle of the floor and walks in circles and then tries to recooperate.
Thanks Keith…I’ll let this one digest.
-Mike
if you close earlier you get more prorated rent, but pay more interest for the month
if you close later, you get less prorated rent, but pay less less in interest.
You do profit a little more by closing earlier I guess because the gap between interest and rent is much greater at the beginning then the end. thats the only advantage i see.
what keith is saying is there is NO mtg payment due for the second month, thats paid in the beginning of the 3rd month (paid in arrears), where you should have 2 months of rent payments (2nd and 3rd month) in hand to pay the mtg.
But if you were to close on oct 25th or Nov 3rd, which would yield more profit? i think October 25th becuase you make a small amount from Oct and all of Nov. you would still have Nov and Dec rents before your first mtg was due, if you closed in October.
I think you can slice it an dice it anyway you want, but unless there was a huge benefit, i would not postpone closing. I would want that puppy under my control and know it was closed.
If it is a large multi-unit, obviously, the extra money could be significant…otherwise, it is probably several hundred dollars that I just put in my checking account for the management of the property.
Keith