i want to do a complete report on a wholesale deal for my buyer to make this a no brainer. how do i estimate closing cost, insurance, and carrying cost for a property.
do you know a loan broker?
i have one that i use all the time he fills in all that information for me.
if you dont have one on your team i would suggest you get one.
I’ll try to help, but you need someone in your area who has done similar class of property I suspect.
Closing costs are variable and include things like transfer and recordation taxes, title serach, exam and insurance, loan points, prorations for taxes, utilities, realtor commissions, misc settlement expenses, etc. – look at a HUD-1 from and you can see there are many items! I use 2.5% here in MD when ballparking, but it will vary from place to place, of course. Call a title company or Realtor in your area and ask for a average percentage.
Insurance is in two varieties: liability and property protection. Some policies come with both. Cost varies based on the coverages for each. For my latest rehab, it was $1200 for 6 months of $1M “builder’s risk” (liability) and property coverage for a $200,000 home.
Carrying costs are primarily interest, maintenance, and utilities – perhaps even taxes or home owner association dues. Again, variable. Interest is easy to calculate, the others can be guesstimated using common sense.
Chris Smith
i know he can fill it out for me, but i dont want to remain in the dark. i want to know how to make these est. myself. when i send a deal to a buyer, i want to do a report so that the deal becomes a no brainer for him/her. i dont want to have to wait on my mtg. bkr to do this.
i like the idea of 2.5% to estimate closing cost. i wish i had a percentage to estimate insurance and carrying cost. taxes are easy-- call local assessors office.
My input.
- If your buyer is a rehabber, they will know the estimate of those costs.
- I like the formula that I learned from the Ron Legrand Courses…
Maximum Offer = (ARV * .70) - Rehab costs where as the 1-.70 = 20% of the ARV is your profit and the 10% of the ARV is all other costs.
I change my .70 number depending on the deal…large or small and depending on the jurisdiction…since I operate in DC, MD, and VA.
Here are the variables I consider when substituting in another multiple of the ARV:
a. If I am using hard money, the 10% all other costs which include closing costs, carrying costs and selling costs may go up to 16%.
b. I use 12% in DC, because the transfer taxes are higher in DC than in VA.
c. Since the .70 assumes a 20% profit of the ARV (After Repaired Value) or back-end sales price, I might adjust the .70 to .75 if a 15% profit of the ARV is acceptable. Typically, I would accept a smaller percentage of profit if the back end sales price or ARV was over $750K. 15% profit on $750K would be $112.50k.
I hope this helps. I have done about 25 rehabs and am now a multi-unit developer…so I have a little experience, but there are others on this site with a lot more experience. The above has been successful for me in terms of quickly evaluating a property. I go in with my wholesaling price in mind to flip it and have several exit strategies.
Chip Hoisington.