Many buyers feel the least of their worries is the actual date of closing, but that’s not true. There’s a strategy to closing on a deal that can determine just how smoothly the transition goes. In this Self-Storage University podcast we’re going to explore the impact of the closing date you choose (or get railroaded into choosing).
Episode 122: All About Closing Dates Transcript
We all know the importance of timing, but did you know that timing is even important on choosing the closing date to purchase that storage facility? This is Frank Rolfe with the Self-Storage University Podcast. We're going to talk about closing dates and how the correct closing date can get you off on the right foot, or it can really put you behind the eight ball. Now, when you choose the closing date, most people think you have to go on the first of the month because that's what the title company tells you they want to do. They want to have a closing on the first of the month. But in fact, the first of the month is the worst possible idea. Now, why would that be that to the buyer, the first is a terrible thing? Well, that means you're responsible to get all the rent for that month. That's the issue. So what's going to happen is the title company is not going to credit you for the rent coming in, right? So you have to go get it yourself. Mom and pop walk away free. They said, oh, yeah, I've got $15,400 of monthly revenue. But do you really know that?
You don't really know. If you close, though, not on the first, then the title company will give you credit for the entire month's rent and then prorate it back. So clearly, from a money perspective, you're always better off not closing on the 1st. Then why do people close on the 1st? Because they don't know any better. The title company always says, yeah, we got to close on the first. That's the right way to do it. And the seller, he's in on the game too. He's like, oh, yeah, we definitely want to close on the 1st. Don't you know that's the way to do it? Because the seller gains enormously from that. Not to mention the simple fact on the rent collection cycle, you may have some degree of anarchy if you're buying it right in the middle of it. Who knows? Someone may run off with the money. People may hear that the property is sold and not pay their rent as they normally do, hoping they get lucky, and you don't miss it. So when it comes to money, clearly the first is not the best closing date. Also, another problem you have if you close on the first is you often have to then race to pay bills that are immediately due, but yet you, again, don't have the money credited for the first of the month.
And in some cases, it can be even worse. In some cities and towns, they have in their agreements that you have to post a bond or some kind of deposit to continue on with your utility. And what happens if you don't post it? Well, they'll shut you off. So from a billing perspective, bills perspective, once again, it doesn't make a lot of sense to close on the first. So again, when do you close? Well, anything but the 1st. Let's say you close at the middle of the month. How does that work? Well, the middle of the month closing is going to require the seller to be credited or debited that he brought in the entire month's rent, even if he didn't. It will also require all those bills that happen to be due at the first of the month, which is most of them, that he paid them. So you're starting off on the right foot. And in that scenario, you also have at least a couple weeks to get your feet wet and on the ground so that you're in control before the next cycle of bills and rent comes due. But when you close on the 1st, you don't have any of those benefits at all.
Now, you might say, well, then why doesn't everybody not close on the 1st? Well, again, 2 out of 3 in the transaction want you to close on the 1st, the title company and the seller. They're going to ramrod, they're going to push for that date, but it's not a good date for you. So what do you do? How do you not do that? Come up with some reason why you can't. Tell them, oh, no, I'm sorry, I'm out of town on the 1st, but I'll be able to close on the 15th. Or if nothing else works, just tell them, no, I don't want to close on the 1st because I don't want to take the gamble. It's too much pressure, too much stress trying to get the rent and the bills paid. So, no, I think I'm going to close on the 15th. The seller's not going to walk the deal over that. They still want to get the thing sold. Title company will be mad at you, but you're never going to see them again anyway unless you buy another storage facility in that market through that title company. So their opinion on that doesn't matter much.
But for you, the buyer, you definitely would prefer to steer more towards the 15th than you would towards the first. And while we're on the topic of when to close, let's also talk for a minute about the macro, when to close. Title companies will again push you to do simultaneous closing. They're going to want to get both parties right there in the closing title company office together to sign the documents. Why is that? Well, it's simple. That's the easiest for them. If it takes them an hour to do a closing, then why would you want to spend two hours having one party do it, and then the next. You clearly want to merge them together right there, we have true efficiency. And then let's not forget about the notary. Most transactions will require a notary public to duly approve each signature. A whole lot easier to do that all at one time. You only have to bring the notary in once. So what's the alternative? The alternative is to close separately. Have the seller come in and close, then have the buyer come in and close. Now, why is that important? It's important because only bad things can happen when you have the seller and the buyer in the room at the same time during the closing.
I've been closing deals now for 30 years, and I have seen some of the craziest scenarios when you bring the buyer and the seller together at the closing table. Because at this point, the seller typically has what's called seller's remorse. They have suddenly changed their mind and decided they shouldn't sell after all. If they only waited another year, they'd get more money. That's what their neighbor Larry told them. Or suddenly their son or daughter says, oh, you can't sell that. Remember you were going to give it to me when you die. I always wanted to run it. Or they just get nostalgic. They drive by one more time around and they think, oh, remember when little Sally planted that tree at the entrance? Remember with little Johnny painted that bollard to keep the cars from ramming the building? And as they wax nostalgic, they change their mind. They say, oh, I don't want to sell it anymore. And when you get together with them, when the buyer and seller are there in the same room, sometimes emotions go wild. They go crazy. Not to mention the fact the buyer is also somewhat on edge. If they've never had one before, it's their first closing, they're all freaking out about that.
And closings are always distressful for everyone. So you're just inviting trouble to have buyer and seller present at the same time. We once had a closing. How awkward is this? The seller would not get out of his car. I was there as buyer. We were at the title company, but the seller wouldn't come out of his car. He was sitting in his car crying. So the title company, not knowing what to do, called him on his cell. You can see him answer the phone right there in his car and says, hi, we're just kind of wondering. Buyer's here. Had an appointment. You know, it's been about 20 minutes now. We see you out there in the car. What's going on? And the guy said, no, I don't want to sell. I don't want to sell. I've changed my mind. Tell him the deal's off. So we're like, what a mess. It was the most uncomfortable, weirdest closing you've ever seen. He ultimately came in, he ultimately signed the documents. It was about an hour and a half later, massive amount of drama, screaming, crying, what a horrible person the buyer was to force him to sell when he suddenly had changed his mind.
All could have been easily avoided by separate closings. If he came in and signed on his own, it still wasn't a finality move. And I would have not been there for all the drama. And I don't think me being there actually helped the drama in any way. But it's just best, if you can, to arrange for the title company to close separately. Now, it's the same price whether you close at the same time or separately. But clearly it's better for you not to be there. So once again, if you have to have a reason, just make something up. Oh, nope, can't do that day. I have to come in later in the day. Come the next day. Title company will get the drift. Or you can just tell them straight up, here's the deal. You know, there's a lot of emotions flying on this transaction. I think it's just better if we kind of do it separately. And to be honest with you, that's kind of something that in those situations title company also prefers is not quite as uncomfortable.
The bottom line to it is that the date you choose for your closing date can have huge ramifications on how that deal starts out. And as we all know, we all want to start off always on the right foot. This is Frank Rolfe of the Self-Storage University Podcast. Hope you enjoyed this. Talk to you again soon.