Investing in real estate can be very rewarding for a number of different reasons. Unlike other forms of investing, real estate is tangible; you can see it, and you can drive past a building in know that you own it and get a vast sense of pride and accomplishment. Not to mention the fact that it can be incredibly lucrative if you play your cards right!
One way to differentiates real estate investing from all other forms of investing is the fact that you have to sign a contract to purchase the property. You don’t have to sign a contract to buy stockson the stock market! These contracts are often quite complicated and are a good place to get taken advantage of, especially if you are a new investor and aren’t as familiar with the closing process.
To that and I thought I would write a quick article today and discuss several things you should check at closing. These are mostly financial figures that you want to check to make sure things add up correctly so that you know you’re on the right page and have done things correctly. Of course you probably have either a lawyer or your real estate broker, more likely just a real estate broker, with you at closing but ultimately the responsibility is yours since those other people are merely advisers.
So what should you look at as far as figures go during a real estate closing? The first thing to look at is monthly payments for your mortgage and many other payments. Before you go into the closing you should have the facts and figures in front of you as far as what you can expect to pay for mortgage and what you can expect to pay for insurance and what you can expect to pay for property taxes and other things. Make sure your figures match the ones that come out of the closing.
Next look at per diem figures for utilities and property taxes and also possibly interest. You will hardly ever purchase a building on the first day of a new year, usually you’ll close on any random day throughout the year which means several months may have gone by of the calendar year for which the past owner now owes property taxes and utilities on the building. The problem is, most of the time these payments accrue during the year but they don’t get paid until the end of the year at which point the old seller will no longer own the house or property. How these figures are accounted for will be spelled out at closing and you should pay very close attention to them so that you don’t get stuck paying them yourself.
Next you should look at the broker’s commission. You will usually know what your broker will be charging you before hand but that doesn’t necessarily mean it’s the same figure that will show up at the end of closing so make sure you reconcile the two figures and that you haven’t been taken advantage of. Most brokers are good people but some will try and slip in extra fees in the flurry of closing in the hope that you won’t notice it.
Finally if the building already has renters that are paying rent to the old owner make sure that the math on the amounts that they have already paid match the amounts listed on the documents during closing.
This is not a comprehensive list but it should give you a pretty good idea of certain things that you should definitely check during closing and hopefully it will put you one step ahead of the game.