9 Ways To Come Up With Cash To Close
What Is Meant By Cash To Close?
Have you found yourself asking how you might come up with cash to close? Or an even more basic question, what is cash to close? No worries, we’ve got you covered.
Whenever you are purchasing a house, or property of any kind really, there are always fees and costs that need to be paid when you close on the loan. Not all of these costs are paid by the buyer, but they need to be covered nonetheless.
This will include fees charged by many of the parties involved with the transaction outside of the buyer and seller. Real estate agents, title companies, attorneys and loan fees fall into this category.
There are also costs associated with anything that needs to be paid in order for the title to be cleared if any problems have arisen in regards to that. There might be some property tax due or liens against the property for example.
As the buyer you are responsible for any of the costs that you agree to pay in order for the sale to be completed. All of the costs for the transaction will be totaled, including the amount you agreed to pay for the property as well as all of the previously discussed fees. Then the credits for the purchase will be applied against that total. This would be things like costs that the seller has agreed to assume, earnest money and of course the amount your lender is extending for the loan. If the sum of the credits is greater than the sum of the costs, you will not need to bring any cash to the closing table. If there is a difference and the costs are more than the credits you need to have that money with you or the sale will not be completed.
Purchase price $45,000
Loan costs $20,000
Rehab costs $28,000
Loan amount $89,000
Difference of $4000
That, in a nutshell, is cash to close.
How to Come Up With Cash To Close For Your Real Estate Investment
Business Line of Credit
If your credit is good enough (around 680) then you may be able to get a business line of credit. This is typically a credit card or group of credit cards. Often you can obtain this at 0% interest for a period of time. There are origination fees for this money, but it is just a one time fee, and the credit line is there for you as long as you keep it in good standing. Not only can you use this credit line for any cash to close you may need, but also for other unexpected expenses that may arise during the rehab that were not included in the original scope of work. (We have a source for this, click here to get started.)
Unsecured Seller Carry Back
This is when the seller aggrees to take an unrecorded note (meaning that they have no position on the property, not that it is not put in writing) and you would pay them back that amount and any agreed interest once the property has sold.
Agreed property purchase price $45,000
Loan costs & fees $20,000
Rehab costs $28,000
Loan amount from lender $89,000
You would need to bring the difference of $4000 to closing in order complete the sale. However, if the seller agrees to lower the purchase price to $41,000 and take the unsecured note from you for the remaining $4000 you won’t need to bring that to the closing table.
The feasability of this option will be affected by a few things, like the laws in your state, county and municipality as well as the seller’s willingness to utilize this strategey.
Reduction in Purchase Price
You can also work the example from above with the seller just agreeing to the reduction in the sale price to $41,000. This works best with highly motivated sellers.
Cash Advance on an Existing Credit Card
If you have an existing credit card already in your name you may just be able to cover the difference with a cash advance. Sometimes you can even negotiate for a higher line of credit from the card provider.
Cover Some or All of the Rehab Costs With Credit Card
Another option that can work for you with a credit card already in your posession is to cover part of the rehab costs with your credit card. This only works if your lender is willing to allow you to do this. (This is not an option with DHM’s direct loans)
401k or Retirement Account
Check with your retirement plan. Many will allow you to take advantage of differing options in relation to the funds you have there. You may be able to withdraw some of it (there will most likely be penalties) to use in your transaction. Probably a better option would be for you to take a loan against the funds there.
Business Partner – Debt Position
For many new investors, working with a business partner to complete a deal is the best option. Business partners can help you cover cash to close, either by utilizing their credit to take advantage of some of these options, or just by using cash that they have available for investment.
One of the ways for a business partner to work with you is for them to take a debt position on their involvement. This means that you are borrowing the money from them and will pay it back according to the terms you negotiate. You would be responsible for all of the money owed to them plus any interest they are charging you, regardless of the success of your deal.
Business Partner – Equity Position
This is similar to above, but instead of loaning you the money they agree to take a share of the profits. Because they are sharing in the risk this generally is a bit more profitable for them when you make a profit on your flip. And if the deal loses money they do as well, although many times these agreements may be structured so that you, as the flipper, take the bulk of the loss.
“Love money” is what I call the help you can get from anyone that loves you. Perhaps none of the options we’ve discussed will work for you, but will they work for someone that loves you and would be willing to take that step in order to help you complete your deal?
Bonus Strategy- Enroll in Find-Fund-Flip!
When you enroll in our Find-Flip-Flip System you have access to one of the best strategies of all- 100% financing with just one loan!
Members of this fantastic program have access to all of the resources they need to find deals that fit into our 100% financing model. When the property purchase, rehab costs and loan costs all total less than 70% of the ARV we can fund it all. But you need to be a member of the program and more importantly, you need to follow the system.
“That’s the great thing about Do Hard Money, they have a system that’s tried and true, that’s proven.”
Last year those who flipped a house with Do Hard Money utilizing the Find-Fund-Flip System needed an average $6000 cash to close. One quarter of them needed $2000 or less and 1 in 5 needed less than $500! Many even had ZERO cash to close. (you can read more about that here)