Closing HUD help

[Account Closed]

Closing on my first house tomorrow. Took 3 months to flip it. I don't really understand the HUD numbers and feel as if im getting gauged in costs.

Can someone take a look at these numbers and help me out? Im the seller.

Do these numbers seem correct?

Sorry I am such a newbie to all of this and doing a lot of learning as I go.

[Jon Holdman]

I don't think you posted all the pages.  But in what you posted it looks right.  What's your concern?

502 is mostly RE commissions and some small items, including the missing portion.

506 is, I assume, $100 you previously received from the buyer or someone.

508 is the owner's title policy.  If you're fix and flipping you should do a "hold open" when you buy and then just do an update when you sell.  You'll only pay the difference.

509 is concessions you made to the buyer.

511 & 513 are the property taxes for the portion of the year you held it.  If you bought this earlier this year, you would have received a credit for that seller's portion of the year, so you really only pay for the months you own.

517 is a home warranty you bought for the new owner.

[Mark Gallagher]

508 and 1111 are not common fees in my area. @Jon Holdman is 508 just another way to show the seller paying buyer's closing costs? In my area, the buyer bears the full cost of title insurance? 

1111 - $350 escrow fee? 

Maybe I'm not understanding what type of transaction this is. But all the fees besides 508 and 1111 look fine to me. 

[Account Closed]

Thanks for confirming that for me @Jon Holdman . 

What is this page all about? Good faith estimates? 

Also, is there any resource that you direct me to that explains HUD statements.

I bought this property for 55k. Put about 18k into it. & sold it for $106,500. 

What seemed like a pretty substantial profit to me quickly turned out to be not so much. 

After brokers commission & paying my lender back with 3% interest a month for 3 months & then all these closing costs my profit is diminished. 

I also entered this deal with a partner with whom we split everything 50/50. Thought this would be a great idea because he contributes a lot of sweat equity into the deal. We are building a system little by little. Just kinda disappointed in these numbers.

I do appreciate your feedback and support guys.

Thank you.

[Jon Holdman]

Sorry but that tells me you made some errors right up front.  These costs are slightly on the high side of what I would estimate.  But only very slightly.  You should have been expecting these fees from the start.  Live and learn from the school of hard knocks.

The page you posted this time looks like a summary of what changed between the GFE (good faith estimate) and the actual HUD-1.

If you don't understand something, ask the closer (title company person.)

@Mark Gallagher 508 is the title insurance for the new owner, paid for by the seller.  Always been a seller paid item where I've bought and sold RE, but this could vary.  REOs will typically only pay for it if you use their title company, for example.  I assume they buy a title policy when they foreclose and do hold opens.  You would have to do the same thing.  But I'd guess that would have saved several hundred, maybe $500.

1111 might be something that could be negotiated.  I assumed that was a fee to do the closing.  There could be some items on the missing page that could be negotiable, too.  There's another $500 or so there.  But the time to negotiate these is before closing.  Or during, if they differ significantly from the GFE.

[Greg H.]

@Account Closed 

Did your agent not go over these numbers with you by providing you a seller's net sheet when you received the offer ?  The contract should have dictated that you were paying $2700 in buyers closing costs as well a providing the buyers a home warranty.

The $100 is you crediting back the buyers option fee

Typical for seller to pay the title policy and the other title company charges are in line.  The $350 escrow fee is usually split between buyer and seller unless you agreed to pay for it ?

Call you agent and ask them to go over it with you as it is part of their job

[Mark Gallagher]

@Jon Holdman  @Greg H.   in PA/NJ the buyer pays for their title insurance policy. The only charges typically seen for a seller are prorations, commissions, mortgage satisfaction recording fee, and half of the transfer tax (PA). Maybe you guys can make a push for sellers to stop paying for the buyer's policy where you guys do business, ha. 

[Mark Gallagher]

@Account Closed keep your head up, and do it again. Learn by doing. My concern would be that you're paying 3% per month? 36% per year? That is WAY too much to be paying. So if you had $80,000 borrowed, you're paying them $7200 in interest? You'll certainly need to negotiate that for next time. Seems like you had a handshake agreement as well? Nothing written down? That's fine as long as the property is in your name. But you need to get that interest rate way down. What if this flip would have taken you another 2-3 months to sell? You would have really lost money in the deal. 

[Wayne Brooks]

@Account Closed The GFE section deals with the borrower/buyer, and doesn't affect you.  That's the federally required comparison of estimated verses final costs for them.

[Jon Holdman]

@Account Closed  I overlooked that 36% interest rate.  Outrageous, even for hard money.  And a partner in the mix?  Be very, very tough to make any money on a deal like that.

Sometimes folks push back on the 70% rule of thumb, saying that's impossible to hit. But its just a reflection of reality. If you buy with hard money, hold six months, and purchase plus rehab is 70% of ARV (($55K+$18K)/$106.5K = 69%) then your profit will be, at most, about 13% of ARV after the closing costs on the purchase and sale and the holding costs. About $14K in your case. Your money costs are well above typical, but your holding period was short, so that balances out. I'm not sure I'm seeing all the costs (purchase closing, for example, aren't discussed), but I get that you're getting right at $14K considering your net to seller on the HUD-1, your money costs and the purchase plus rehab. IMHO, that's right about what you should have expected. That's as good as it gets in the fix and flip business.

[Account Closed]

@Mark Gallagher Thanks for you advice! My uncle happens to be the lender in this case. He is only charging me 3% a month for 3 months regardless if the property sells or not. Thats the reason why it was a handshake deal. What would you suggest I propose to him?

@Jon Holdman14k was what I was supposed to make. After all of these closing costs that was cut to 10k net split between 2 people! (terrible I know) 

The whole profit from the deal not including broker commissions and interest was around 32k which IMO is a substantial profit off a 55k house. 

I have another house I am getting ready to sell soon in Pasadena, TX. The numbers are similar and now that I have learned of all these extra costs I will be sure to run my numbers accordingly this time so I know what to expect. 

My biggest challenge right now is lack of deal flow. I have the money just need the houses. 

I do want to add that I really appreciate your time guys. Thanks a lot.

[Mark Gallagher]

@Account Closed  so he's really just charging you a flat 9%? That's not terrible, but not great. An easier method in my opinion would be 1% per month. Can't get that kind of return in any other market. Just be sure you're on the same page if you were to get stuck with a property that you couldn't sell for a profit. How much does he get paid? What if you want to keep it was a rental, will he turn it into longer term financing? 

$5K profit isn't terrible either. There are plenty of people who lose money. All you can do is get better. 

[Account Closed]

@Mark Gallagher Your the man Mark! 

Hes a commercial real estate investor so hes no newbie to the game of investing or lending. Think I have it pretty good right now just need to fine tune my system. 

Thanks man.

[Mark Gallagher]

@Account Closed no problem. If he's essentially just giving you the money based on some general knowledge of the deal, that's a fair price. You'll want it to go down though once you prove yourself. You get what you pay for, so if it's a paperless loan that's very easy - 9% will be worth it for the first few deals.