One of the biggest concerns for real estate investors is having cash on hand. After buying a home, an investor needs money left over to do home repairs. However, since mortgage companies almost universally require a 20% down payment, how can you lower your costs when buying investment property? The secret is, when making an offer to buy, to include language to reduce closing costs in a way that benefits both buyer and seller.

Is that how it works. I recently bought an investment property for $ 105,000. Knowing it was a buyer’s market with many more sellers than buyers, and I needed cash on hand after closing to make repairs, I asked the buyer to pay 2% of the non-recurring closing costs.

Use the correct language in your offer

When I made the offer I included the language “the seller will contribute 2% of the sale price to the buyer’s non-recurring closing cost.” Two percent is the maximum a seller can contribute. This represented a savings of $ 2,100 in closing costs for me. Instead of paying $ 4,527 at closing, I paid only $ 2,427.

Make it easy for the seller to agree

The good thing for the seller is that it is relatively easy for him to cooperate in these types of agreements. They do not have to be presented at closing with a check, so it is not money that comes directly out of your pocket. They pay 2% when they receive a slightly smaller check for their house. In this case, they receive a check for $ 102,900 instead of the sale price of $ 105,000.

A fast nickel is better than a slow penny for sellers

Was it worth the seller receiving less? Wouldn’t it have been better for them to hold the entire $ 105,000? No, because it allowed them to sell the house faster than they could have. If they have a live buyer with money on their hands, is it best if they wait and see if someone else comes up with a slightly better deal? Not in this buyer’s market. They may find themselves waiting a long time.

Do what I do. The less cash you have for closing costs, the more cash you will have for repairs and other maintenance costs. Include closing cost-sharing language in your offer to buy to sellers and you’ve established a true win-win situation.