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Reading a Settlement Statement (HUD)

Jul 13, 2024

Reading a Settlement Statement (HUD)

Introduction

  • Presenter: Hayden Crabtree
  • Purpose: Teach how to read a settlement (closing) statement, also known as HUD.
  • Audience: First and second-time real estate investors.

Overview

  • Settlement statements can be overwhelming with accounting, debits, and credits.
  • Walkthrough of two different settlement statements:
    1. Rental property purchase
    2. Storage facility sale

General Information

  • Settlement statements include details on the buyer and seller, property location, lender, and settlement agent.
  • Terms to know: Summary of the borrower's transaction (buyer) and summary of the seller's transaction.
  • Common elements: Purchase price, settlement charges, prorations (taxes, rents), and adjustments.

Buying a Property

Example: Rental Property Purchase

  • Purchase Price: $169,900
  • Settlement Charges to Borrower: $4,937.38
  • Adjustments/Prorations: Property taxes, mobile home taxes (since purchase date to end of the year).
  • Total Amount Due: $175,403
  • Loan: $127,425 from the bank.
  • Other Credits: Security deposits, rent prorations equaling $131,252.
  • Cash from Borrower: $44,150

Detailed Breakdown

  • No brokers: No commissions involved.
  • Settlement and Other Charges: Various fees: Origination charges, appraisal, flood insurance, homeowners insurance, title charges, government recording charges, transfer taxes, etc.
  • Adjustments: Ensure prorations and credits are correct (property taxes, rents, etc.).

Selling a Property

Example: Storage Facility Sale

  • Sale Price: $1.761 million
  • Adjustments/Credits: Buyers credited for prepaid rent, security deposits forwarded to buyers, prorated property taxes credited to seller.
  • Charges to Seller: Real estate commissions, attorney fees, existing loan payoff, accrued interest, prepayment penalties, escrow, transfer taxes, other misc fees.
  • Net Proceeds $1.149 million after loan payoff and other charges; went into a 1031 exchange.

Key Takeaways

  • Verify all numbers and charges to ensure accuracy.
  • Ensure all credits (e.g., rent prorations, security deposits) are correctly accounted for.
  • Keep track of any fees payable to third parties (attorneys, brokers, etc.).
  • Understand loan terms and payoff implications (e.g., prepayment penalties).
  • Always review settlement statements thoroughly before concluding the deal.

Conclusion

  • For any questions/comment drop a comment below.
  • Subscribe to the channel for more real estate investing content.
  • Goal: Help 1,000 people buy their first rental property and change their financial future.
  • Books: Check out Hayden's books for more real estate investing tips.

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