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Commercial Real Estate Expert Knowledge On Holding And Closing Costs
By Tony Seruga, Yolanda Seruga and Yolanda Bishop
When investing in commercial real estate, investors have to consider the projected costs surrounding their investment. A savvy investor must have a working knowledge of what the closing and holding costs for the property will be prior to committing themselves to the investment. Working on the purchase price, and the market selling price is simply not enough to make an informed decision on whether a property will be a sound investment.
Holding Costs
When real estate investors purchase property, their main goal is to sell the property for a profit. But during this process, the investor must take into consideration the amount of money they will need to pay out before the investment is re-sold. Holding costs are also known as carrying costs. When calculating the holding costs, investors must include the purchase price, and deduct operating income to come to an estimated figure.
Holding costs must be carefully considered when factored into an investment. Without calculating this cost, an uninformed investor could be faced with a disastrous situation. All to often, new investors only factor the purchase price, and the resale market value into their calculations. The result can be disastrous to the estimated profit margin if the investor must produce a further sum for their holding costs.
An example of such a situation is buying a property for $200,000 with an estimated resale value of $280,000. At this stage, the property would seem to be a sound investment with a very generous profit margin. But if the holding costs of the particular property over a six month period were to come to $90,000, it could mean severe loss to the investor, rather than a generous profit.
Estimating Holding Costs
Investors must pay close attention to their estimated carrying costs before investing in a property. These include costs such as operating expenses, mortgage payments, capital improvements, as well as the selling costs of the property.
The
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best way to factor these costs before purchasing an investment property is to analyze the associated carrying costs over a six-month period by taking the sale price, and then deducting associated costs such as ·Purchase closing costs, ·Clean up and decoration of the property, ·Mortgage repayments, ·Taxes, ·Insurances ·Resale broker commissions, ·Resale closing costs Take the purchase price, plus the carrying costs, and the total of the two should be deducted from the re-sale price of the property in order to get an estimation of the profit margin. Knowing what to expect from holding costs should be one of a real-estate investor's main priorities when looking for a profitable investment. While these costs are important to factor, the savvy investor will always be able to creatively come up with solutions to decrease costs, or find ways to make an extra income from the property to make it more profitable. Closing Costs Closing costs are an estimate of the projected cost once the property has been resold. These costs are often calculated by things such as the lenders experience with the real estate industry, and the area being invested in. The closing costs are only an estimation, which can mean that they will change over the term of the loan. The lender has no control over how much the attorney or title company will charge for their expenses, but as a rule of thumb, investors should be able to rely on the final estimated expenses to be close to the estimations given in their good faith estimation from the lender. The closing cost figures, as far as the lender is concerned, should be especially accurate, although in a situation where there are significant changes in the loan program, or the borrower's qualifications, the closing costs could be inflated. No Closing Costs While closing costs are essential to factor into an investment, there are options available to remove some of the associated closing costs for investors. However, it is important to note that even with advertised no closing costs, there will always be costs, such as attorney fees, insurance, local municipality, and title company, that must be paid. The no closing cost programs offered by lenders are an option that applies to things such as application, appraisal, credit reporting, processing, underwriting, origination, and discount points. These costs only factor into about a third of the total closing costs of a property. Even with a no closing cost option, investors may still be required to pay other closing costs, such as title insurance, attorney fees and county recording fees. Tony Seruga, Yolanda Seruga and Yolanda Bishop of www.maverickrei.com specialize in commercial and investment real estate. As of May, 2006, they and their partners are managing over $600 million dollars worth of new projects.
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Slideshow: Wendy?s rolling out new looks, new foods in 2012
<img src='http://assets.bizjournals.com/columbus/images/DAI-Wendys-Santa-Fe-burger*100.jpg?v=2'>With Arby?s and 2011 in its rear view mirror, Wendy?s Co. is planning a busy 2012.
The Dublin-based fast feeder hosted an investor gathering Jan. 30 where executives laid out their plans for the year, including a wider test of the company?s newest package of restaurant designs and a continuation of its menu innovation with more premium burgers and potential tinkering or extensions of stalwarts like its chili and baked potatoes.
CEO Emil Brolick said the new Wendy?s (NASDAQ:WEN) pitch is to offer a fast-casual experience and products at the quick-service price...<div class="feedflare">
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<img src='http://assets.bizjournals.com/columbus/print-edition/2010/12/31/IR-Wexner-Les-05*100.jpg?v=1'>OK, folks, here you have it, a prediction from billionaire Limited Brands Inc. CEO Les Wexner on the next big technological revolution:
?I think the technology that?s going to change our lives most is voice recognition,? he said in the keynote address at Thursday night?s TechColumbus 2011 Innovation Awards, which honored inventions and improved processes from Central Ohio businesses and researchers.
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Logan called an NHL official to tell him she planned to be in Ottawa, Ontario, during the league?s All-Star Weekend Jan. 26-29. She also asked about where things stood with the Columbus Blue Jackets and the Sports Commission?s bid to host the event in 2013 or 2015.
Lo and behold, the league official said he was glad Logan checked in because the NHL was about to tell Columbus to update its 2-year-old bid for the 2013 All-Star Game...<div class="feedflare">
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Owens Corning's Granville-based Science and Technology Center took home awards for Green Innovation and Outstanding Product, the newspaper reports. The Green Innovation award was for removing ozone-depleting chemicals from a manufacturing process, and the Outstanding Product award for its eco-friendly insulating panels, the newspaper reports...<div class="feedflare">
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Traditional Estate Planning means preparing for the orderly and efficient transfer of assets at death. Also, estate planning involves planning for the accumulation and distribution of an estate during lifetime as well as at death.
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