How to get Big Credit or Big Cash at Closing on Your Commercial Deals
Why Getting Cash or Credit at Closing is Good
1. It makes you look good and it makes your deals even better.
2. Your buyers come out of pocket less at closing by the amount you negotiate.
- If you can negotiate a credit or cash at closings, your buyer will come out of pocket less by that dollar amount you negotiate. In their eyes, you'll be a super star.
3. Raises your cash and cash return a whole lot.
- Here's an example. If your down payment is $100,000 on your deal and you negotiate a $50,000 credit at closing or cash at closing, you have just doubled your cash and cash return by putting some language in a contract. That’s how powerful it is.
4. You will have money now to immediately do repairs, renovations or improvements.
- This allows you to immediately capitalize on their proper potential.
- If the property needs a new roof and you need some interior decorations or renovations to raise your rents, you now have money to do this and it's not your money. You got it from the seller.
What Exactly is Credit at Closing or Cash at Closing
It's the process of negotiating a dollar amount that you'll be receiving at the close of escrow in hopes of increasing the merit of your deal.
What is the Difference Between Cash at Closing or Credit at Closing?
Credit at closing reduces your downpayment. We negotiate a credit at closing, the closing agent will reduce your down payment by that credited amount.
Cash at closing on the other hand, you will get a check or wire transfer at closing
Which One is Better?
- Credit may be better if you don't have all the downpayment dollar saved up.If you don't have enough money, maybe getting credit at closing is the best to go.
- Cash at closing may be better if you need money in your pocket to do repairs or renovations to increase the cash flow or property value.
3 Keys to Getting Credit at Closing.
- You need to substantiate the credit amount you're asking for with more than one contractor's estimate.
- Get at least 2 or 3 credible estimates to justify the credits you're asking for.If you need a credit for roof or some siding repairs, kitchen repairs, whatever it is, get 2 or 3 estimates so you can say here is a reason why I need to credit to make me want to move forward in this deal.
- Look at these estimates and if you average the 3 out, this is what I'm asking for for the credit or take the highest one.
2. Expect for the seller to counter
- To counter your requested amount of credit with the lower amount, This is real estate 101, Consider slightly increasing your credit amount in anticipation of the counter.
- If you need a credit of $25,000 to make your deal super duper, ask for $35,000. Ask for $35,000 so when he counters you, you end up with $25,000, exactly what you want.
3. Never agree to anything verbal
- Get it all in writing on the contract and make sure the closing agent has the amended contract.
- Everything you do in negotiating credit, once it's final and done, needs to be written down and amended in your purchase contract, in your purchase agreement.
Getting the Cash Back at Closing
I had a student get back over $100,000 cash back at closing because the property needed some repairs and he also needed some help with his downpayment as well. We negotiate $100,000 cash back at closing.
The Key to Getting Back at Closing.
The key is the language that you use in the contract.
This is key language I've been using for almost 2 decades. Here's the language. "Seller hereby agrees to sign at close of escrow to buyer's choice of entity, the sum of $100,000 in the form of check or wire transfer for property renovations."
4 Keys to Getting Cash Back at Closing.
- Be upfront with everyone and explain very well what you are doing.
- This can be a very confusing thing to do, but a very powerful thing to do once you understand it. Here's what I want you to do. In the wording, use the word assign and not credit if you want to get cash back at closing.
- Remember, assign means that you'll get cash at closing but credits means that the closing company will credit you that amount at closing towards your down payment. Big difference,
2. Wording. I word the contract so that the money will be assigned to the buyer's choice of entity.
- We use that wording so that the cash at closing does not go to you personally. That raises too much suspicion in my opinion and it maybe consider loan fraud if you're doing it wrong.
- We want to make sure that we are doing everything by the book.
3. When you assign the money to your buyer's choice of entity,
- that's a choice of entity that you have so you can just open up an LLC You already have set up or set one up in the future and assign the money to be paid to that entity.
- Another way of doing this is you can assign it to a contractor or you can assign it back to the bank.
4. Use the wording property renovations and not repairs
- We're assigning $100,000 to a buyer's choice of entity for the purpose of property renovations, not repairs because the word repairs means there's something wrong with the property, it's in poor condition. That makes banks nervous. It makes people nervous, especially lenders.
Now I explained to you how to get cash and credit at closing, right? Again, it makes you look good. It makes your deal better. If you're a wholesaler, you come out of pocket less at closing.
- It can potentially double your cash and cash return to pay in the amount that you can get credit or cash for.
- Then if you get cash at closing, you'll have money to immediately do repairs, renovations and improvements.
- It allows you to immediately capitalize on property potential and realize that the property's true potential.