Real Estate Closing Costs: Minimize Profit Eating Costs

Zillow.com recently stated that typically, home buyers will pay between about 2 to 5 percent of the purchase price of their home in closing fees. So, if your home cost $150,000, you might pay between $3,000 and $7,500 in closing costs. On average, buyers pay roughly $3,700 in closing fees, according to a recent survey.

How can real estate investors avoid high closing costs that eat into their profits?

Real Estate investing can produce amazing returns. Yet, steep closing costs can quickly become a pain.

Real Estate Investors with the lower closing costs get to save more money. And that capital gives them an increasing competitive advantage which snowballs over time. For Walmart founder Sam Walton, this was one of his guiding principles, and controlling costs better than the competition remains one of the 10 rules that the elite money earners lives by today.

Sadly, closing costs are one of the factors that the reality TV shows, and the personalities often featured in them love to gloss over. This may not be as exciting as big gross profit figures they show. However, in most of the deals on TV, the real profit is a fraction of what is shown due to thousands in closing costs and sometimes upfront fees. In fact, these can run into hundreds of thousands on really big deals. And at some you are going to have both buying and selling closing costs.

Keeping real estate closing costs low starts with getting educated about what they are comprised of, and what’s fair.

Some common variable closing costs include:

Mortgage points and origination fees
Junk loan costs
Title insurance
Closing fees
Homeowners insurance
Days of prorated interest and escrows
Liens
Recording Fee
Real Estate Commissions
Taxes
Appraisals
Closing Cost
Home inspections

Almost without fail closing costs will always be higher than expected. Sometimes you”ll pocket less than you thought, and it may even take longer to close than anticipated. Factor this into your math when you start closing deals.

Shopping around is a must. It helps keep attorney’s and title companies honest and ensures you know what is a fair price to pay for a specific service or product. However, the cheapest quote isn’t always the best. For a start, when you pit people against each other and they are literally fighting to put food on the table; they will often fold and just tell you what you want to hear, versus what the real deal is. This applies to service and closing times as well as costs. You often get what you pay for. But don’t over pay. Look for good, ethical, reliable, professionals that do what they say. Look for ways to minimize cost.

Finally plan ways to lower outside costs by expanding operations later. For instance; can you open your own property management firm, real estate brokerage, mortgage lending company, title company, etc.?

That could dramatically reduce your expenses, and create new streams of income to offset any costs you do have.

I”ll See you at the closing table,

Marcel Umphery the “R.E.I. Successmaker”