The house is finished and empty in month seven, does anyone live in it

Question

When a luxury flip is finished and the buyer does not show up, the property stops being a project and starts being a monthly bill. The question that follows is whether to put someone in the house while it waits. A quick note on terms for anyone new. Carry is what the property costs you every month while you own it, so loan interest, property taxes, insurance, utilities and yard work. On a high-end house that is often 20k to 30k a month, which is why a long wait for the right buyer is the main risk in this strategy. Vacant means nobody living there. Staged means furnished for showings with nobody living there. The case for keeping it empty is simple. Showings happen whenever the buyer's agent wants, and the house stays exactly as it was photographed. The case for putting someone in it is money and risk control. A tenant or a paid caretaker covers part of the carry, and someone is there to notice a leak on day one. Insurance carriers also often charge more or restrict coverage on a house that sits vacant past a set number of days, which is worth reading in your own policy. The cost is control. A tenant with a lease has occupancy rights, and what notice you owe them and how quickly you can get access for showings depends on your state's landlord tenant law. Short-term rental rules vary by city, so check the local ordinance before you assume it is an option. How does the room handle a finished luxury flip in month seven?

samantha_ruiz · Answer

I did the caretaker version on a 2.7M house that went eight months. Furnished, a guy paying well under market who agreed in writing to a two hour showing notice and to keeping the place magazine ready. It covered maybe a fifth of the carry and it absolutely saved me a burst supply line in February. What surprised me was that a lived-in house shows better than a staged empty one, and it also shows worse, depending on the day. I got one complaint from an agent about dishes in the sink and it cost me a second showing. Worth it anyway.

dpatel_re · Answer

The part worth underwriting before anything else is what the lease does to the exit. A buyer at that price wants a vacant house at closing, and a twelve month lease either narrows the pool to investors or means paying someone to leave. It happens often enough that a sponsor takes a lease in month seven and then discovers the bridge loan matures in month ten, which turns a patience problem into a refinance problem. Keystone's structure works because a caretaker at a deep discount is really a service arrangement with rent attached, and whether that counts as a tenancy with full protections depends on the state, so it should be papered by a local attorney rather than off a template.

The house is finished and empty in month seven, does anyone live in it

2 replies