One of the most common questions that we get is “How do I determine what a deal will cost?” Its a question as old as real estate investment itself. Some investors walk in and wing it when determining a buy price for a property Others get paralysis by analysis where they analyze a buy to a fault and they end up loosing out on deals because they can’t quickly make a decision. As the Institute prepares a new video for its members on building a decisioning model to take the guess work out of it, we thought it would be a good idea to share with you the first step in building a model.
A great start is to pull together all of the ALTA Settlement Statements that you can from previous closings. Believe it or not, my undergraduate degree is in accounting. I originally went to college to become an attorney, but I quickly realized that, at the time, I hated to read long, boring text. I was convinced by an advisor that, because I was a math wiz and very detail, oriented, I should become an accountant. One internship with General Electric as a cost accountant convinced me that banking was my true calling. I did, however, learn a great deal about how a Fortune 500 manufacturing company deals with analyzing costs. Many years later when I left banking in favor of Castle Rock, I quickly put those skills to good use my analyzing the trends in closings costs from previous closings. Gathering all of the settlement statements from previous closings will help you spot trends in pricing for such items as title insurance and closing fees. If you are just starting out and can’t pull together past closing statements, ask a realtor friend or a title company that you are planning to work with to help. Let them give me a handful of closing statements from past closings (redacting the names and addresses to protect clients, of course, and use those to understand what your typical fees will be. It will give you a more confidence in making your bids for assets that you are considering.
This is but the first step, but an important one if you are going to build a decisioning model that works for you. Stay tuned for more detailed articles and videos on preparing your very own decisioning model.