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:
- Rental property purchase
- 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
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- 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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