MIT 3.0: 4.1 Closing the Property

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MIT 3.0
4.1 Closing the Property
Cheat Sheet

1. Before the Closing
  1. By now you should have the AOS executed, the Due Diligence completed, and the credits negotiated and in writing
  2. The mortgage commitment letter is shared with the deal finder
  3. The appraisal has been completed
    • If the appraisal is lower than the purchase price, ask the seller to reduce the purchase price
    • If the seller agrees, then have your deal finder create an addendum for both you and the seller to sign
    • If the seller disagrees, then you walk away from the deal, even if you’ve invested money for the soft costs. You can always find another deal that fits your criteria
      1. Keep in mind that you’re an investor, so you never overpay for a property
  4. If the appraisal is higher than the purchase price, proceed with the closing 
2. Title work must be completed
  1. If the title work isn’t done by the scheduled closing date, then request an extension with your deal finder – get the extension in writing and both you and the seller should sign it
  2. For some local governments, they may do an inspection of the property prior to closing. If this is the case, then all repairs required by city or county officials should be completed before the closing, but if not, then get definite dates in writing from the seller as to when the work will be done
3. Keep any and all private money lenders updated with the projected closing date
  1. All limited partners including yourself must have funds liquidated a week before closing
    • If closing remotely, then the Limited partners must wire their money individually according to the closing attorney’s (or settlement companies) instructions directly to the closing attorney three days in advance of closing
      1. You typically wire the funds once you receive the HUD
      2. If you or your partners are having trouble liquidating funds
        • Postpone the closing for several weeks via requesting an extension until you have all of the capital liquidated
  2.  It’s your responsibility to continue to follow up weekly with ALL parties involved (deal finder, settlement company, partners, mortgage lenders, insurance brokers, etc – see list below) in getting your deal closed as soon as you get the signed AOS
    • Deal finders
    • Closing attorney
    • Mortgage lenders
    • Appraisers
    • Partners
    • Title company
    • Settlement company 
    • Backend Due Diligence
  3. A week before closing, you can request to complete the physical walk-thru (if you’re able to do so)
  4. Verify that all units are 100% occupied prior to closing 
  5. Verify that the property is in decent and habitable condition prior to closing
  6. Verify that the repairs were completed by the seller prior to closing 
  7. Verify that all keys to the property are in working order
4. Scheduling the Closing
  1. Schedule the closing to take place within the first week of the month
  2. The closing date is something that you should have outlined on the AOS 
    • If it’s within the first three days for example, the seller will get credit for the first three days of rent received for the month yet you will get credit the remaining 27 days of the month 
    • The security deposits the seller has for each tenant will be credited to you as well 
  3. Solidify the date, time, and location with any and All parties involved 
    •  If there’s any type of hold up, then ask for an extension by submitting an addendum that you and the seller will sign off on
      1. You will receive less rent proration if closing later in the month
      2. You will receive a lower property tax bill if closing later in the month
  4. It’s recommended to close in person at your closing attorney’s office or the realtor’s office 
    • If you need to close remotely, there are several options
      1. There are notary on-the-go services available that will come to you with the documents in hand for you to sign
      2. The closing attorney may also send you the documents via email that you and your partners print, sign, have originals notarized, and sent off via Fedex/UPS Ground or certified mail back to the closing attorney (make a copy for your records via using the Genius Scan app on your smartphone)
        • Always scan and send all signed and notarized closing documents to the settlement company and cc’ the deal finder prior to sending the original hardcopy closing docs to the settlement company for their approval
          1. Once you have their approval via email, then proceed with sending the documents to the settlement company via Fedex/UPS Ground or certified mail 
      3. Limited partners are not required to sign closing documents or attend closing (in-person or remote) if they hold less than 19% ownership in the deal; however, the can still attend the closing if the closing will be done in person instead of remote
      4. If the closing monies have not been wired, then a cashier’s check will be needed at the time of closing or you can place the cashier’s check in the Fedex/UPS Ground or certified mail envelope that includes the closing documents 
  5. Notify the insurance broker to get the binder drawn up
  6. Verify with the closing attorney that the title work is complete and ask when the HUD will be ready and available to share with all parties 
  7. Notify the property management company of the closing date if you decide to go this route  
  8. Either at closing or three days prior to closing (if closing remote), have the seller complete a change of ownership form for all government rental assistance programs and utilities that you’ll be responsible for, into your name and to include the date of when it will transpire
    • This is done to ensure that rental assistance payments are deposited into your business bank account and not the previous owner
    • In an event that you’re closing on a property with vacant units (even if the tenants pay their own utilities once occupied), have the utility account put in your business name and then take it out of your business name once you have a tenant to pay for the utility (if applicable).  You want to have all utilities in your business name during vacancies to just in case you need utilities to repair the property, or heat unit due to weather issues as a precautionary measure
      1. Make sure you request vacancy credits and have you and the seller sign the addendum
      2. The negotiations for vacancy credits should start at two months market rents but settle for no less than a vacancy credit equal to one month of market rate rent
    • A copy of the change of ownership is to be given to each tenant via yourself or your property management company
  9. Remind the seller to 
    • Bring all keys to the units/building to the closing
    • Bring all hard copy leases to every unit to the closing 
    • Bring all service contracts to the closing 
    • Bring the change of ownership form to the closing 
    • Bring the assignment of leases that has been changed into your name or your property management company’s name to the closing
      • The closing attorney will have this document as well 

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