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Forums » General Real Estate Investing » Well, this is awkward ... (HUD 1 will say I'm loaded when I'm not!)

Well, this is awkward ... (HUD 1 will say I'm loaded when I'm not!)

32 posts by 16 users


Rehabber · East Lyme, Connecticut

Hey all,

We are scheduled to close tomorrow on the sale of a property we rehabbed (woo-hoo!). This is my first rehab, and we will make a decent profit (again, woo-hoo!) ... however, the profit is nothing close to what the paperwork will make it appear to be!

It occurred to me today that we will walk out of the closing tomorrow with a check for about $150k-plus. The majority of that will pay back money we borrowed for rehab, a hunk of cash my business partner put into the venture, etc.

The thing is, I don't want the buyer to think 150k is the profit we made, for a variety of reasons. How do you handle this, if at all? I was thinking along the lines of a joke during closing, like, "Man, I wish we were pocketing all that!" haha

Do you all say anything, or just leave it be?

SFR Investor · Texas

Say this if asked.

Originally posted by Karin DiMauro:

The majority of that will pay back money we borrowed for rehab, a hunk of cash my business partner put into the venture, etc.

If not asked, don't say anything

Real Estate Investor · Central Valley, California

Karin: the buyer doesn't see your side of the HUD1 and you don't see theirs.

Regardless, you definitely want to get clear about your feelings of having to justify profit to anyone (or to yourself). There are people (and buyers) who think $10K on a rehab is excessive and gouging. They are comparing it to their annual income or what their brother in Iowa makes on a rehab...or whatever. If you inherited the property free and clear and your proceeds were $150K, would you feel the need to justify that?

Real Estate Investor · Ellicott City, Maryland

Originally posted by K. Marie Poe:
Karin: the buyer doesn't see your side of the HUD1 and you don't see theirs.

In my state, the buyer and seller both see the entire HUD (with both buyer and seller numbers)...

Small_lishproplogoJ Scott, Lish Properties, LLC
E-Mail: [email protected]
Telephone: 770-906-6358

Rehabber · East Lyme, Connecticut

Same here as for @J Scott - both buyer and seller see the entire HUD 1.

And no worries, @K. Marie Poe, we earned every penny and I don't feel bad about that at all! :-) Though I do worry a little about coming across unscrupulous folks at some point who would view us as "rich investors" and look for some reason to sue or whatever. Although that's another topic that would cover LLCs and the like! (We have various protections in place.)

I think my concern is actually more along the lines of wondering whether they're going to think they can now call us up for any little thing that pops up afterward; they've already been tacking on oh-by-the-way requests in addition to the inspection report requests. Some we've agreed to, some we haven't (see @Glenn Schworm's admonishments about karma and being the good guy even when you don't have to). I figure if they're under the impression we just pocketed 150k, they'll be inclined to call us for God knows what.

SFR Investor · Wheat Ridge, Colorado

The only way you would be pocketing $150K would be if you got the house for free and spent nothing to fix it up. While, as us physicists are prone to say, it should intuitively obvious to the most casual observer that you paid something for the house and something to fix it up, I guess to some folks it might not be. If questioned, simply point out that while there is profit in that money, the profit is much less than the $150K, for the reasons you've stated.

If they call you post-closing, simply point out its their house now.

Jon Holdman, Flying Phoenix LLC

Rehabber · East Lyme, Connecticut

@Jon Holdman, there are a lot of things that I feel should be intuitively obvious that the casual observer does not, unfortunately! lol Then again, I'm sure that I've been that casual observer plenty of times myself...

Thank you for the reply. I believe we will let it be, and let them think what they think. :)

Residential Real Estate Agent · Newport Beach, California

1) $150K is a lot of money? To whom?

2) You attend your closings personally?

Rehabber · East Lyme, Connecticut

@Jake Kucheck, 150k is a lot of money to ME for one - especially if it was the profit on just one single-family rehab. I can't think of very many people who would turn up their nose at that.

And yeah, I'm attending the closing. I don't plan to attend them forevermore, but as I'm still a newbie, I look at every step in the process as a place to learn something. And for now, I'm still absorbing the ins and outs of closings, what info goes on all the forms, what each party does, etc. And come on, who doesn't want to be there for their first-ever rehab to grab the check? lol

Note Investor · Fort Lauderdale, Florida

A HUD 1 is not the bottom line of a P&L. I don't think most Buyers ever even think about what the Seller is making at the closing table. usually they are pretty caught up in their side of the closing and whether the loan funds and they really get the home or not.

I wouldn't say anything. In most cases, I wouldn't even sign at the same time as them either. Your not their real estate agent and you don't owe them anything more than what is in the contract. You making $1 or $1 Million doesn't change the sale price you were willing to accept. It's great you have compassion for the topic but I would let that callus up a bit, it's really nobodies business what your bottom line is and a HUD 1 is not a bottom line.

Real Estate Investor · Saint Petersburg, Florida

It's a rehab project so any buyer is going to expect that you had rehab costs. The price you paid vs the price they're paying doesn't reflect your profit and most people should know that.

As for the closings I always go and pre-sign my documents the day before when I'm selling. I can go pick up the check after the buyer leaves, I don't like having direct contact with the buyers.

Rehabber · East Lyme, Connecticut

@Patrick L., I like the idea of pre-signing, will definitely look to do that on the next one.

And @Dion DePaoli, you make a great point about most buyers being caught up in their own side of the closing. True enough!

I probably should have mentioned that I served as listing agent for this as well, so there's an added element regarding why I would attend the closing. (I'm not only a newbie investor but a newbie agent as well, got my license only to aid in my investing.) But yes, certainly, things will proceed differently as we progress and do more and more.

Real Estate Investor · Ellicott City, Maryland

Originally posted by Jake Kucheck:
1) $150K is a lot of money? To whom?

To most people, I would guess...

2) You attend your closings personally?

I do. At least all the local ones. Agents appreciate this and a large percentage of agents who bring us one buyer will ultimately attempt to bring us many more buyers because they know we will treat their buyers well. If attending closings brings me future business, I'd be crazy not to go! :)

Small_lishproplogoJ Scott, Lish Properties, LLC
E-Mail: [email protected]
Telephone: 770-906-6358

· West Palm Beach, Florida

@Karin DiMauro By the way, the HUD doesn't show your purchase price, just the mortgage pay offs, liens, taxes, etc. Nothing says you didn't pay $100k above your selling price.

Real Estate Investor · Central Valley, California

@Jake Kucheck's question is a CA thing. There are no closings to attend in CA. Documents and funds are collected and escrow records when everything is ready. My sellers never go to the escrow company. I only go if I'm in the area on the same day that docs are ready and want to take advantage of the free notary and not having to pay overnight mailing (and they have nice bathrooms). Checks go out or funds are wired. It's all very anonymous if it was a listed property.

Can anyone else confirm that you don't see both sides of the HUD1 in CA. I never see the other parties numbers in my docs or on the HUD1. Sometimes when I'm trying to clarify shared costs, escrow tells me what was charged to the Buyer, but I can't see that anywhere. In fact, I have a HUD1 in front of me and the Buyer's side is blank except for their name, address and lender.

@Karin DiMauro I'm sure you "earned every penny" on your rehab. But even that phrase suggests that you think people have to earn it, which is why you think others might notice or care what you earned. I've sold a lot of properties with no rehab and have made more than the rehabber several times. Did I earn it? :)

Real Estate Investor · Springfield, Missouri

If you feel guilty or the need to explain, take your shoe box of receipts to closing with you to show them you aren't netting the amount shown, as that is simply the sale proceeds, not the profit.....I mean if you really feel the guilt and the urge to explain yourself, otherwise smile and walk out like I do. :)

Financexaminer@real estate investor dot com

· Baltimore, Maryland

You definitley shouldn't be feeling guilty even if you were making $150k profit. If they are happy with the house and they agreed to the price they should be happy.

Originally posted by Jake Kucheck:
1) $150K is a lot of money? To whom?

Were you seriously asking that lol?? If it's not alot of money to you then you should give me $50k which I'm sure you can spare if 3x that isn't alot to you.

Rehabber · East Lyme, Connecticut

lol I never meant to imply I feel any guilt! No worries on that end. Just kind of wondered whether it was a little weird. And I think I got my answer(s). :-) (As an aside, I wonder if this thought perhaps crossed my mind because I've been an employee for much of my working life, and no one talks about salaries in that world. It's taboo to discuss what you make. And now I'm headed into a scenario where this check is out there for everyone to see - and it's not even accurate! haha)

@J Scott, thank you for the insight into why you attend closings. I really respect your approach and am working to emulate a lot of what you do, so I appreciate the input.

And yes, @K. Marie Poe, I think you absolutely earned whatever you made on the "no-rehab" sales! There's a ton of ground work that goes into any aspect of investing. To me, that's "earning" it - putting in the time to learn the business, to network, to market for and find the properties and then to figure out the number of creative ways you can make a deal happen, to stretch outside of your comfort zone ... etc etc etc. That's hard work. I find it fascinating and fun, but it's still a tough business. But that's part of what makes it great, right? The payoff feels that much more satisfying.

SFR Investor · Milwaukee, Wisconsin

In Wisconsin we see both sides of the HUD as well.

"If it makes dollars, it makes sense."

Real Estate Investor · Woodland Hills, California

Originally posted by @K. Marie Poe:
Can anyone else confirm that you don't see both sides of the HUD1 in CA.

I just checked my Final HUD-1 from my primary residence purchase last year and the all the numbers on the sellers side are there. Shows $412k cash to seller on a $450k purchase price (REO).

@Karin DiMauro If it makes you feel any better, I don't even remember looking at this bottom dollar back then as I was so caught up with closing and MY numbers being correct!

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