I'm hoping you can help me understand how you look at your initial investment amount.
I purchased my first multifamily last year (and am now looking for a second). Previously, I added together the the percentage downpayment, my total closing costs, and any renovations made to calculate my initial investment. Looking back at the closing table I noticed there were a lot of other expenses paid including prepayment of insurance, initial payments into escrow, and principal reduction payments (to cover unused seller concessions). My thought is that some of these closing costs are operating in nature and should not be included when determining the initial investment. Please let me know what you think.
Hi Dominick, not sure what you're doing it for, but I add up any money that left my bank account during the first 60 days or so as my initial investment to keep it simple. At the end of each year you can plug your net cash flows into an IRR chart to figure out what your return has been.
For tax purposes your accountant may look at it differently.
Hope that helps!
Welcome to Biggerpockets.
There are many costs paid at closing.
Some costs are related to the acquisition of the property(think 20% down payment, title costs, loan processing fees, etc).
There are also costs that are more-so related to operations(pro-rated real estate taxes, escrow payments, insurance costs, etc).
There is no technical way to determine how to calculate the amount required to purchase a property.
Ultimately, you need to pay for all the operating costs at closing...otherwise, they won't give you the property.
Whether you decide to include it in your calculation is up to you.