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Commercial Real Estate Expert Knowledge On Holding And Closing Costs
hen investing in deduct operating income to come
commercial real estate, to an estimated figure.
investors have to
consider the projected costs Holding costs must be carefully
surrounding their investment. A considered when factored into an
savvy investor must have a investment. Without calculating
working knowledge of what the this cost, an uninformed investor
closing and holding costs for the could be faced with a disastrous
property will be prior to situation. All to often, new
committing themselves to the investors only factor the
investment. Working on the purchase price, and the resale
purchase price, and the market market value into their
selling price is simply not calculations. The result can be
enough to make an informed disastrous to the estimated
decision on whether a property profit margin if the investor
will be a sound investment. must produce a further sum for
their holding costs.
Holding Costs
When real estate investors An example of such a situation is
purchase property, their main buying a property for $200,000
goal is to sell the property for with an estimated resale value of
a profit. But during this $280,000. At this stage, the
process, the investor must take property would seem to be a sound
into consideration the amount of investment with a very generous
money they will need to pay out profit margin. But if the holding
before the investment is re-sold. costs of the particular property
Holding costs are also known as over a six month period were to
carrying costs. When calculating come to $90,000, it could mean
the holding costs, investors must severe loss to the investor,
include the purchase price, and rather than a generous profit.
carrying costs, and the total of
Estimating Holding Costs the two should be deducted from
Investors must pay close the re-sale price of the property
attention to their estimated in order to get an estimation of
carrying costs before investing the profit margin.
in a property. These include
costs such as operating expenses, Knowing what to expect from
mortgage payments, capital holding costs should be one of a
improvements, as well as the real-estate investor's main
selling costs of the property. priorities when looking for a
profitable investment. While
The best way to factor these these costs are important to
costs before purchasing an factor, the savvy investor will
investment property is to analyze always be able to creatively come
the associated carrying costs up with solutions to decrease
over a six-month period by taking costs, or find ways to make an
the sale price, and then extra income from the property to
deducting associated costs such make it more profitable.
as
· Purchase closing costs, Closing Costs
· Clean up and decoration Closing costs are an estimate of
of the property, the projected cost once the
· Mortgage repayments, property has been resold. These
· Taxes, costs are often calculated by
· Insurances things such as the lenders
· Resale broker experience with the real estate
commissions, industry, and the area being
· Resale closing costs invested in. The closing costs
are only an estimation, which can
Take the purchase price, plus the mean that they will change over
the term of the loan. closing costs for investors.
However, it is important to note
The lender has no control over that even with advertised no
how much the attorney or title closing costs, there will always
company will charge for their be costs, such as attorney fees,
expenses, but as a rule of thumb, insurance, local municipality,
investors should be able to rely and title company, that must be
on the final estimated expenses paid.
to be close to the estimations
given in their good faith The no closing cost programs
estimation from the lender. offered by lenders are an option
that applies to things such as
The closing cost figures, as far application, appraisal, credit
as the lender is concerned, reporting, processing,
should be especially accurate, underwriting, origination, and
although in a situation where discount points. These costs only
there are significant changes in factor into about a third of the
the loan program, or the total closing costs of a
borrower's qualifications, the property. Even with a no closing
closing costs could be inflated. cost option, investors may still
be required to pay other closing
No Closing Costs costs, such as title insurance,
While closing costs are essential attorney fees and county
to factor into an investment, recording fees.
there are options available to
remove some of the associated
About the Author:
Tony Seruga, Yolanda Seruga and Yolanda Bishop of http://www.maverickrei.com specialize in commercial and investment real estate. As of May, 2006, they and their partners are managing over $600 million dollars worth of new projects.
Read more articles by: Tony Seruga, Yolanda Seruga And Yolanda Bishop
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