Follow These Exact Steps When Closing Your First Deal

Hey, it’s time for another awesome Q&A session. We know that when someone reaches out to us with a question, it’s usually something that others are wanting answers to as well. So that’s why we love to share these Q&As with you.

This question comes from one of our Insiders named BJ, from Fishers, Indiana:

“To get my first deal done, what are the exact steps I need after I get that deal on a contract… for the title company, an attorney, etc.?”

Patrick Weighs in First

patrick-round-240Depending on what state you live in, either a title company or an attorney will close the deal. In a few states, I believe both attorneys and title companies have that ability… for instance, in South Carolina, attorneys close transactions.

I suggest you ask some of the other investors that you’ve met and worked with in your area, and find out who they use. Getting referrals is a great way to get started.

Immediately, when you have that deal on contract, reach out to the attorney or title company and order the title search. You want to find out if the title is clean, or if there are any other liens or issues that you may not have found out about from the seller. Finalize your evaluation of the property.

Typically, prior to a contract, we do a preliminarily look into our estimated after-repair value (ARV). We’ll glance at some comparable sales, and we’ll make a judgment of what we think the repairs will cost. After we get the contract, then we do our detailed due diligence looking into the property’s condition, the needed repairs, the potential ARV cash flow and so on.

And, contact your insurance agent and get a policy for the property and get that ready for closing.

Depending on what kind of financing you use, there’ll be certain steps to take in this area. For instance, if you plan to use a private lender, then you’ll want to coordinate with your private lender to make sure the funds are in an available form – where they can be sent to closing by the date of closing. You can have whoever is doing your closing help draft the docs between you and your private lender.

If there’s any additional paperwork, you can have whoever is doing your closing draft do that for you as well. For instance, maybe you’re bringing in somebody who’s putting up the money and you’re going to partner on the deal with them – or if there are any other sort of special arrangements, that could mean additional forms to create, which an attorney or title company can handle.

JP’s Input

jp-round-240I totally agree with all that Patrick has outlined here. Let me add just a few more thoughts here…

Whenever we’re moving toward a closing, our rule-of-thumb is that we always make sure we stay involved. I like to remain on point, meaning that I’m the point person who nurtures the deal all the way to closing.

This differs from a lot of other investors who, once they have the buyer and seller in place, they sort of take a step back and let things happen. If you do that, that’s when you end up with issues popping up. These are things you might not even know are issues until the day before – or the day of – the closing.

By staying involved and staying in contact with all the players and being the point person in the middle, I often notice mistakes or misinformation as it occurs rather than being caught off guard at the last minute. This way I can respond almost immediately. That’s been a huge benefit for us in deals over the years.

Also, it helps me continue to strengthen my rapport with the title agent. One of the best things you can do is have your closing agent, closing attorney or title agent, as your advocate. By staying in touch, you can stand in as their assistant, so to speak. You make sure they have everything they need. By doing that in each deal, you build a lot of personal equity with those people…

And that can pay off big time in future deals. This is a very important step – staying involved and staying on point.

If this is not you, it can be someone from your team. Someone you’ve personally trained. These days, it’s not so much me being there, but rather it’s my assistant.

Another internal policy that we have, and I think it’s a critical step, is to make sure a copy of the HUD-1 Settlement Statement is emailed to us at least 24 hours before closing. This allows us to review it ahead of closing.

You can incorporate this policy as well. Just make it your standard, across-the-board policy, and let your closing company know this is non-negotiable. Because, frankly, this is where you’ll uncover the mistakes that might happen.

Human errors occur; misunderstandings occur, so you need to be able to quickly look through page 1 and page 2, right and left columns, and understand whether or not what is represented on that HUD matches with how you feel the transaction is meant to take place.

For instance…

  • Is the party who agreed to pay for closing costs paying for the right closing costs?
  • What about the taxes?
  • Does it look like they’re being prorated correctly?
  • If you’re a wholesaler, do you see your assignment fee represented on the HUD?
  • Is it represented in a way that’s congruent with the way your transaction’s being done? This is your payout, so you want to make sure it’s listed correctly.

Of course, if it’s a double closing you will need to see both HUDs.

Summing it All Up

So, there you go, BJ. This should give you a good foundation that you can build on. If you stick to these basic procedures, you’ll walk through your initial closings like a pro. Oh, and congrats on your first deal!

How about You?

What are some of the tricks you have up your sleeve that cause closings to run like a well-oiled machine? If you have points to add to our answers here, please share in the comments section below.

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