How to get cash at the closing table?

[Brian Ronning]

When buying your first STR late in a season and you want some operating money to get through the slow season, how can you structure your deal to get the buyer to write you a check at the closing table?

[Ricardo R.]

Quote from @Brian Ronning:

@Ricardo R.

I was thinking about going with a loan that would cover the property ad a “vacation home” the property I’m looking at is a single family home that is used as a air b and b. I’m getting towards the end of the season and want some cash from the deal as operating money. I have the funds to do that and then some, but I want to use those funds for a brrr that I’m pursing now as well.

 Ok, I was trying to figure out what type of loan product you would be using but I'll try to assist with info given. Yes you can get cash back at closing, how much depends on the type of loan but if its a typical residential loan 1-4 units they usually allow up to 2-3% Seller cash back so one way to do is: 1) Negotiate the purchase price down first with Seller; 2) Then offer more than what you negotiated and ask for it back at closing as a credit. Ex: Property listed at $350K, you negotiate down to $320K (3% of this is @ $9,600) and then increase your offer to $329,600 and ask the Seller to credit you back $9,600 at the closing table. --- This is the same to the Seller as if it was a sale on $320K (slightly few dollars for the seller on closing costs) and you get a check for $9,600 at closing -- THIS HOWEVER DEPENDS ON THE LOAN PRODUCT YOU ARE USING, some allow up 6%, others only allow certain percentage but don't allow you to go over your actual closing costs, others calculate it based on your down payment, etc. etc. etc. - how much you can get back at closing depends on the loan product. 

So lets say you are putting 20% to purchase this property, well if you are able to get back 3% at closing well that means that essentially you only put down 17%... now PMI/MIP is usually not good on a primary property but this is an investment property, so PMI/MIP might make sense depending on what you are trying to do... so lets now say that the lender will also allow you to only put down 10% as a down payment, you will incur PMI/MIP but you run the numbers and your cash-flow is able to easily absorb it . Now in conjunction with your 3% cash-back at closing that now only equates to 7% down. So expanding on the example above: Example 1  - $350K listed property, you negotiate with Seller a lower purchase price to $320K and you stop here... it would equate to @ $64K out of pocket from you, not including closing costs 

but now you put it all together... 

Example 2: $350K listed property, you negotiate with Seller to lower purchase price to $320K, You also now increase the purchase price to $329,600 and ask for a credit from Seller at closing in the amount of $9,600 and you now also determine with your lender that 10% down is an option and after factoring the PMI/MIP it makes sense... this now equates to only @ $23,300 out of pocket not including closing costs --- SO YOU WILL GET TO KEEP $40,700... which you can use for funds for your BRRR.

It is important to note that by putting less of a down payment which also requires PMI/MIP this will increase your monthly mortgage obligation in two (2) ways; 1) your payment will be higher simply because your loan is now more because you are putting less down and 2) because you are now incurring PMI/MIP monthly.... this is why you HAVE TO MAKE SURE your cash-flow numbers are still okay and are able to absorb this... if they are... then why not? if it allows you to use your funds for your BRRR which may not be possible otherwise.

Again, this all depends on the type of loan product you are going with and even the type of lender. I sent you a DM on BP I hope you can assist. I hope this helps.