Strategies to avoid High Closing Costs

[Travis Ferreira]

I recently purchased a 3-unit rental property in the Rochester, Ny and used conventional lending (bank loan with 75% LTV, 30 year fixed, 4.25% interest), I quickly learned this strategy has high closing costs (~8% of the purchase price in my case) and a large amount out-of-pocket.

What strategies do BPers recommend to avoid paying high closing and out-of-pocket costs?

[Jeff Dulla]

@Travis Ferreira I have mentioned this before on other posts but I do not think looking at it as a percentage is a fair way to measure closing costs. I cannot speak for NY but in most every state I work in, the bulk of the costs are third party - appraisal, title, transfer taxes, etc. Most, if not all, will exist regardless of the loan you do (more traditional loan products). 

Being that many of the costs will not change drastically depending on the price of the property, on some properties costs will be 12% (if lower priced) and some will be more like 5% (higher priced property).

Almost every strategy I can think of replaces long term increase in cost versus short term/immediate higher costs. You could negotiate a higher price and ask for a seller credit to cover costs. A lender could increase your rate to credit you costs. Again, increasing the cost over the long haul. If you are looking at something short term, like a flip, maybe this isn't a bad idea. But if this is for long term hold, you would be better off paying the costs in many cases.