Closing the Deal
To put the world right in order, we must first put the nation in order; to put the
nation in order, we must first put the family in order; to put the family in order,
we must first cultivate our personal life; we must first set our hearts right.
—CONFUCIUS
A
fter securing financing for your
property, the next step is to prepare to finalize and close the transaction.
Depending on the size of your acquisition, the closing process can be fairly
simple and straightforward, or it can be quite involved, with extensive doc-
umentation required. It is also time to begin planning and defining what
your role as a strategic manager will be. This, too, will depend on the size
of the transaction, as well as your level of experience.
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CHAPTER 11
Closing Fundamentals
The closing process is the time when everything comes together to finalize
your transaction. You have studied the market and analyzed numerous apart-
ment buildings, you have successfully negotiated terms and conditions accept-
able to both you and the seller, and you have sought out the best financing
alternative for your property. It is now time to bring all the parties together to
close the sale. Before you do so, however, there are several factors to consider
that may affect the closing. They include a thorough review of all related clos-
ing documents, a final inspection of the property, and the timing of the close.
Closing Documents
While numerous ancillary closing forms and letters will need your attention,
the primary closing documents that will require a careful review are the title
report, closing statement, deed of trust, and promissory note.
The title report, also known as the abstract of title, provides information about
the property’s chain of title. In other words, it gives a history of ownership,
judgments, liens, and anything else that may have been recorded against the

You should take the necessary time to review each charge on the settlement
statement and verify its accuracy. I cannot think of a deal that I have been
involved in where all settlement charges on the closing statement were com-
pletely accurate. Errors are inadvertently made for one reason or another.
For example, the title company may have an incorrect payoff amount for the
seller’s loan, or it may prorate the rents or taxes incorrectly, or it may not be
aware of a credit you are entitled to because of a specific clause in your pur-
chase agreement negotiated by you and the seller.
Do not assume that because the closing officer works at the title company
and acts as the facilitator in numerous closings, the officer must be right
because the closer should know. Precisely the opposite is true. The fact that
the closer does act as the facilitator in numerous closings is all the more rea-
son that he or she must rely on you to provide accurate information for the
settlement statement. The inherent risk to you by neglecting to review the
closing statement can be substantial and potentially cost you hundreds or
even thousands of dollars.
The lender is responsible for preparing the deed of trust and the promissory
note. These documents outline the terms and conditions under which the
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Closing the Deal
lender has agreed to loan you money. Repayment terms are specified,
including the amount of the loan, the interest rate and amortization period,
and any prepayment penalties that may be imposed. Other lender require-
ments that may also be included are escrow conditions for taxes and insur-
ance, minimum insurance amounts, standard of care for property condition,
and default provisions.
Many years ago, when I was first getting started in real estate, I bought my
first two single-family rental houses. The seller owned 10 or 12 rental prop-
erties and was beginning to sell some of them. He offered each of the two
houses that I bought for a sales price of $23,000, with only $1,000 down. In

performing one final physical inspection of the apartment building. Doing so
could potentially save you thousands of dollars. On one particular acquisition
I was involved in, a cracked slab was discovered on one of the buildings about
two weeks before the scheduled closing. The weather had been extremely hot
and arid that summer, with no rain for several weeks. The soil below the foun-
dation (which was a cement slab; there was no basement) had completely
dried up due to the lack of moisture in the ground. This caused a portion of
the building’s foundation to settle downward and subsequently crack. Fortu-
nately for me, this incident occurred before I took possession of the property.
While this was an unfortunate incident for the seller, he knew he had an obli-
gation to repair the foundation at his expense. A repair crew was called out to
lift up the settled portion of the slab with hydraulic jacks and then pour sev-
eral cement footings underneath to support the building. Although I did not
see the final bill for the repair work, I am sure it was not cheap.
Closing Credits Can Add Up
Closing credits most often consist of prorated credits for rental income,
security deposits, and taxes. The time of month your closing is held can have
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Closing the Deal
a significant impact on the credits you are entitled to as a buyer. Suppose
you close on the very first day of the month. Although you would technically
be entitled to receive the full month’s rent at the time of closing, assuming
rents are due on the first of the month, chances are the seller will have col-
lected very little of the rental income yet. Most landlords provide a two- to
three-day grace period before rents are considered late. If the seller were to
give credit for the full month, this would put the seller in the precarious
position of having to collect the remainder of the rent after the date of clos-
ing when he or she is no longer the owner. It is better to wait until the fifth
of the month or so. By then, over 95 percent of all rents should have been
collected and as the buyer, you will be entitled to receive a prorated credit

average security deposit of $300:
100 units × $300 average security deposit = $30,000
Now assume the seller required a security deposit equal to the first and last
months’ rent:
100 units × $600/unit average rent × 2 = $120,000
Keep in mind that although you will receive a credit at closing in the form of
cash, there is an offsetting liability equal to the credit received. The money
you receive at closing really belongs to the tenants; however, because they
move in and out over a period of time, the cash flow from operations is not
materially affected. As old tenants move out and are reimbursed for their
security deposits, new tenants move in and replace the funds. The primary
benefit to you as the buyer is received at the time of closing when the trans-
fer of the asset (cash) is made.
Depending on the area where the property you purchase is located and also
on the lender’s specific requirements, you will either receive a credit, give
the seller a credit, give the lender a credit, or some combination of these. I
have purchased property both in areas where taxes are paid in arrears and in
areas where taxes are paid in advance. In the case of the former, you will
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Closing the Deal