ESTIMATING YOUR TIME OF ARRIVAL

How Long Does It Take to Fund and Close a Real Estate Deal? And What Can Real Estate Investors Do to Streamline the Process?

Real estate closings and, in particular, financed acquisitions can be tricky. Yet, being able to count on a closing is crucial for real estate investors who want to keep consistent deal flow and a solid reputation. So how can investors successfully navigate the common roadblocks?

How Long Will It Take to Close?

Before digging into this question, it helps to go back and remember the big-picture real estate investing game plan. Real estate investment, like wealth building in general, is a marathon, not a sprint. Each deal should fit in and propel you toward your overall mission. But there will be moments to sprint—and closings are often sprint time.

You want to be able to make offers fast, close fast, and resell or lease fast. But with so many moving parts, closings take time and attention. You’ll run into sellers who don’t want to close for a month or two. Others are under serious pressure to close immediately. Regardless, it is crucial to allow yourself enough time to close, otherwise you risk your reputation, the opportunity, and any deposit you have made. This underlies the importance of having a good team to work with.

While some investor-buyers as well as lenders advertise being able to close in as little as three days, this is more a rarity than reality. For the cash investor, it is possible to close in three days, and it’s also possible if you are using a private money lender with whom you have an established relationship and track record of success.

But when you are looking for institutional investment property funding through a hard money lender, the safer bet is a ten-day closing, which is entirely possible when you have your ducks in a row and come in well prepared. But often, it’s the small things that can take time. And they can add up. That doesn’t account for any hiccups either. Title and insurance can take a couple of days. Sometimes appraisers are backed up at least a couple of weeks. Then there may be holidays or nonbusiness days that can slow things down. What if your loan processor gets sick and has to pass your file to someone else?

For more traditional lending sources like a local bank, forty-five days is now seen as the standard and provides a more realistic and comfortable timeline.

Steps Involved in Closing a Real Estate Deal

After getting preapproved for financing and screening potential deals, getting to closing requires:

1.Making your offer and negotiating the contract

2.Making your formal loan application

3.Commissioning due diligence items (e.g., inspections, quotes, appraisals)

4.Obtaining insurances and any necessary approvals

5.Satisfying any underwriting conditions

6.Coordinating the closing

7.Finalizing the closing, title exchange, and funding

Things That Will Slow You Down

Crying Wolf: Rushing Your Vendors Unnecessarily

All of the steps listed previously are “sprints.” And they must be given enough time to be completed. If every single one of your deals is an urgent “rush” for your vendors and partners, you risk burning them out and lose credibility. Allow them time to do their jobs well while still getting the job done. Build relationships, and try to reserve the big favors for when you really need them.

Busy Markets

Sometimes delays are simply a matter of the market being overwhelmed with volume. Appraisers, inspectors, and contractors can sometimes be backed up for weeks. These must-do items can hold back underwriting of loans. This doesn’t mean to avoid these markets, but it is important to be alert to current turnaround times, making sure your contracts and closing dates accommodate them.

Inexperienced Partners and Vendors

What really slows down the loan process and closings more than anything is a vendor that fails to alert you to potential issues immediately. In a busy market, it may be because they are just busy themselves. In other cases, it’s lack of experience. They don’t recognize potential problems in advance. This is especially true when it comes to appraisals, titles, and contractors. Waiting until the day of closing to tell you that the seller’s ex-spouse needs to be hunted down in another state to agree and sign the contract just isn’t cool. You need professionals who know the business and lender’s requirements and who will be proactive about keeping your deals moving.

Chain Transactions

Having multiple deals lined up is great. However, having multiple deals relying on each other to close can be risky. If you are waiting on one closing to fund the down payment on another property, there is a lot that can go wrong. The more links in the chain, the more likely there will be delays. Try to line up additional sources of capital and credit lines to ensure that you can close, even if there are delays.

When You Close—Watch the Calendar

Friday afternoon, the end of the month, and during any holiday can be tough times to close. They are just prone to issues. And delays can then run days or weeks longer versus a matter of hours. When you schedule your closing, be sure to ask the closer or scheduler about any upcoming calendar gotchas that could send your deal into a tailspin.

Three Roadblocks to Watch For

Roadblock 1: Watch the Lender Timelines

It is important for real estate investors to understand individual lenders’ timelines. Know how long it takes to:

•Get through processing (the loan application and related documentation)

•Move through underwriting (the lender’s assessment of the risk of writing the loan)

•Clear all of the conditions

•Receive a solid loan commitment

•Prepare the approved loans for closing

For example, once loan conditions are sent in, it may take at least forty-eight business hours to sign off on them (if they are accepted). Then it can take another couple of days after final approval to get to close status. And then another three days to actually get to funding. Get to know your lender’s processes so that you can be prepared for any detours.

Roadblock 2: Keep the Pressure On

While putting an extended closing date on your contract can theoretically give you more cushion, it can also leave others slacking. They are working on files in order of priority by closing. But you don’t want your file collecting dust for a month before even being looked at. Make sure to keep the pressure on and ensure that consistent progress is being made. In addition, the introduction of new Truth in Lending Act disclosure rules in 2015 changed the way lenders and closing attorneys process and fund loans. Be sure your team is well aware of guidelines and processes so that you’re not caught unaware.

Roadblock 3: It’s Not Closed Until It’s Funded (and Then Some)

“Don’t count your chickens until they’ve hatched.” Don’t count on the money until it is not just closed, but you’ve got the money in your hand. And note that in fraudulent deals, money can still get yanked back.

Preparing for Closing Day

Ensuring smooth sailing through the closing requires being prepared for the closing. That means making sure your ID is valid, you have the cash available to close, and all parties are free to sign.

Savvy investors recognize that actually converting an acquisition into profit also requires renting or reselling. The faster that is arranged, the faster returns actually happen. So make sure property management, renovation teams, and the marketing team and collateral are all ready to go on the day of closing.

Be sure you have a system for keeping documents stored and ready. And after closing, don’t forget the thank-you cards and gifts for those you’ve built relationships with.

Going even further, document your takeaways from each transaction. What went well? What could have been done better? Many seasoned investors whom I’ve talked to say they wish they had kept “what happened” notes to help them learn from past closings to improve future ones as well.

TAKEAWAYS

What are the key actions you can take to ensure a smooth and timely closing?