Re: Cash @ closing? - Posted by Gary
Posted by Gary on July 23, 2001 at 17:18:34:
It depends on if the closing is a refinance of a mortgage on a property you own or it is cash you get back when you buy a property. The first is easy in an appreciating market. I bought a condo two years ago for 39.5k. Today it is worth 60k. I am refinancing and getting a new loan for 48k. After paying my mortgage off and my closing costs, I will get a cash at close for about 9k. I want the cash to buy more property and since my interest rate is lower and I am getting rid of PMI (I only put 10% down when I bought the condo), my total payment is only about $25 more than my old payment. When you buy a multi-family property, the collected rents and security deposits might actually exceed your down payment. I know someone who bought a six family and closed in the middle of the month. The seller owed the buyer half the month’s rents ($2200) plus all the security deposits ($8000 or two months rent per apartment). The seller also paid the buyers closing costs. The buyer was only putting down 5% (he was going to live in one of the apartments) so the $10k in rents and deposits exceeded his down payment of $7500. You could also get a seller to hold a second mortgage on another property you own for more than the required downpayment. Hence, you get cash at close. Don’t think cash at close means that it is somehow free money. Usually, it means you are reducing your total equity and pulling it out in the form of cash. The only time I know this is not true is when the seller will give you credits at closing such as closing costs. If someone knows a technique where your cash is somehow free money, without trading it for equity in properties, please post!