How much do you REALLY need to close on a property?

[Hunter Kahn]

Hey All,

I've been working on getting my first rental(Multifamily, 6-12 units, locally) and I think I came in too ambitiously. I'm starting out with relatively low capital and as I start honing in on prospects, I'm just now realizing that I haven't yet calculated closing costs into any of my deal analysis. Embarrassing, but...this is reality. I've been looking primarily at deals that offer owner financing or are otherwise open to a creative deal structure. It seems like there's a lot of variability in the category but I'd appreciate any experience this community would be willing to share!

Thanks so much in advance!

-Hunter

[Ko Kashiwagi]

Hi Hunter,

Deals with similar prices can have varying reserve requirements as different lenders have different requirements. Closing costs can look different depending on if you are purchasing a 50k property of 500k property. Depending on the type of strategy and the financing, reserves can also differ - whether it's a short-term rental, mid-term rental, conventional, DSCR, etc.

In general it would be:

downpayment + appraisal + title fee + escrow fee and prepaid + lender's fee

For rentals, you would usually be required to have cash on reserves for a certain number of months worth of PITI - typically anywhere from 3-12 months. If you want more specific numbers, it's best to get real estimates from your lender, title, insurance companies.

[Samuel Diouf]

If you have low capital and are brand new to investing, you should try and start with smaller multi-family. A duplex is a great way to start. You can get great cash-flow (In the right locations), use conventional loans (lower rates), have less to manage, and get in for a lower price. If you jump right into a 6-12 unit unexperienced, you will have a lot more room to lose money rather than earn.

[Jacob Sherman]

25-30% for the 5+ units