Everyone is used to walking into closing with cash, but we’d all like to walk OUT of closing with cash. Here’s a few tips to accomplish that.
Fix the Right Closing Date
If you are buying a multi-unit rental property, close around the fifth of the month. Rents are usually due on the first of the month, whether or not actually collected by the landlord. If you close on the fifth, the seller must pay you for 25 days rent, whether or not he actually collected it. Make sure the contract reads that rents are prorated by “accrual” not by “collected”.
If you are selling a property with an FHA-insured loan, close near the end of the month. FHA-insured loans charge you interest for the ENTIRE month regardless of when you close. Thus, it is best to close towards the end of the month if you are selling.
Watch the Contract Terms
If you are buying, make sure contract does not require additional cash for:
• Reimbursement to seller for tax and insurance escrows held by lender (on a subject to deal)
• Differences between the actual and estimated loan balance (when assuming or taking subject to a loan)
• Escrows for tax & insurance reserve on owner-carry loans
Delay the Agent’s Fee
If you are selling and a real estate agent is due a fee, ask the agent to take a promissory note or postdated check. It is not necessary that the real estate agents get cash or certified funds at closing, although their check is usually cut directly from the lender or title company. You may negotiate that the agent gets a higher commission, some or all of which is in the form of a post- dated check or promissory note. In many cases, a “surprise” charge is imposed by the lender at the last minute which the buyer is unable to come up with. If the deal will fall apart, a smart real estate agent will volunteer to cut his commission or take a post-dated personal check to make the deal close. Or, ask the agent to “double down” – offer to pay them when you resell plus interest and a second brokerage fee.
Get the Seller to Subordinate His Owner Carry Loan
Typically a seller carry loan requires a down payment and a note secured by a first mortgage or deed of trust on the property. Instead, offer the seller a SECOND mortgage behind a small first mortgage to collateralize a loan from another lender. This will give you cash to do repairs and put some profit in your pocket up front (but don’t spend it all until you SELL the property!).
