Escrowing Insurance/ Taxes & CapX Reserves

[Jeff D.]

Hi all,

Been doing some research about the multifamily closing process and was wondering the following: Do your escrows for Insurance and Taxes come out of pocket? Or can they be included in the loan amount? How about CapX reserves... part of the loan amount... or out of pocket expense?

Thanks for taking the time to clarify!

[Charles Seaman]

You're welcome @Jeff D.  Bridge financing can be helpful because they typically will fund loans on an LTC basis, meaning that your capital raise will be less.  However, you'll pay a higher interest rate in exchange for that, so play with both scenarios to see which option makes more sense for you.

3% of the purchase price should generally keep you safe for closing costs on most transactions. The equity contribution assumption will vary largely based on the market that you're investing in, the past financial performance of the property, and a few other factors. If you're in a larger market, you can usually get away with a 20% down payment. If you're in a tertiary market, you'll probably need 25% or 30% for the down payment. So your equity contribution will vary based on the amount of the down payment and the CapEx budget. If you're brand new, also keep in mind that you'll need to budget for lender required reserves that most lenders require due to the pandemic.