The HIDDEN COST of buying Real Estate…

What's up you guys, it's Graham here. So here's a topic that very few people cover when it comes to buying or investing in real estate, myself included. I've been making videos for a year and a half now, and I have yet to cover this topic even though it's something that could cost a buyer thousands or tens of thousands of dollars. So this video is a very long time coming.

The thing is, anytime you invest in real estate or buy something for yourself, the cost is never just whatever down payment you're putting down. I wish it were that easy. The reality is that there are some substantial costs that seem to just come out of nowhere that if you don't budget for, I promise you will be caught off guard anytime you're buying something.

So I'm going to be covering just about every unexpected hidden cost that most people aren't mentioning to you until the bill comes due and you have to pay it. So with that said, let's get right into it and I will try to keep a tally of the ongoing costs on... I hope it's this side of the screen. I could be wrong. I'll try to keep it right here so we can keep a total of the average $500,000 home and what that is going to cost you.

So first things first, let's say you've been looking at properties. You're writing offers, sellers are denying them, even though they should have taken your offer. Then finally, out of nowhere, you end up getting something accepted. What's the first cost that you might have to incur? And that is inspections. This is the point where you get to inspect the property for any defects, repairs, or anything that's wrong with it, and then after those inspections, decide whether or not you want to move forward with the deal.

Typically, you're going to be doing a general inspection, sewer line inspection, foundation inspection, mold inspection, roof inspection, electrical inspection, plumbing inspection, pineapple shrimp, lemon shrimp, coconut shrimp, shrimp! I've seen them even get more nuanced with this. When you've done slope analysis, geological inspections, I've seen radon gas inspections, termite inspections, and even electromagnetic radiation inspections. I kid you not!

Depending on the age, size, and type of property, an inspection can generally run you anywhere from $300 on the very low end all the way to like $3,000, depending on how granular you want to get with the process. Even though this is an out-of-pocket cost for the buyer, I generally found that whatever money you spend on inspections can be renegotiated off the purchase price after you find repairs or problems with the property.

So for example, let's say if you're buying a $500,000 home and you just spent $2,000 on inspections. In almost every single scenario, you can find at least $2,000 worth of repairs or damage or something that is wrong with the property. Then, which points you can go to the seller and say, "Seller, I want $2,000 back off my price or credit towards my closing costs." That way, for you, the inspections aren't really an out-of-pocket cost because you can usually just renegotiate with the seller afterwards.

Now, what ends up happening more commonly is that you spend $2,000 on inspections and find $20,000 worth of repairs. So I generally find that whatever money you spent on inspections you can get back plus some in repairs or credits from the seller. Now, of course, sometimes the seller is going to get overly confident and they're not gonna budge on their price, or maybe they have an even higher offer than yours and I don't want to give you any sort of credit. So it really depends on the seller, the type of property, how low you are buying it. There's a lot of factors that go into it, but just so you know, the out-of-pocket cost for you is going to be approximately that much... or this much, depending on where on the screen I put it. It's gonna be one of those much.

Okay, so the next thing you will need as you're doing your inspections is what's called an appraisal. Anytime you're getting a loan from the bank, they're going to have an appraisal done on the home to make sure it's actually worth what you are buying it for. Otherwise, there's nothing stopping you from buying a $500,000 home but writing a purchase price that’s like a million dollars. Then all of a sudden, the bank gives you a loan on a million dollars.

Then, let's say the home burns down, or you just stop making payments, and the bank realizes, "Wait a second, the home was never worth this to begin with. We just lost a ton of money." So, appraisals are usually done within a few days to maybe a week after you get your offer accepted and typically run anywhere from like $400 to $1,000, depending on the type of property, if it's multifamily, how large it is. The bank has a lot of factors that go into this, but generally, that's the range that you could expect.

Now, if you're a really good bank client — if you have a great credit score, if you have a lot of money with the bank, if you have a good relationship with the bank — every now and then, they will waive the appraisal fee. I've seen this happen. I've had this done for me a few times, but this isn’t necessarily the norm. So if they don’t do this, just count on this being approximately how much this is going to cost you.

Now, while we're on the topic of getting a loan, banks love to charge you fees—lots and lots of fees. Now, I took a look at one of my recent closing statements from a year ago, and you'll see I paid $950 for an appraisal because it was multifamily. But then I paid an additional $150 to have that appraisal rushed because I was on a quick time constraint to get this in—$150 extra.

Now besides that, I paid $40 just to have them run my credit report. I paid like $92 for some sort of tax service fee. And then I paid an additional $1,000 as a loan origination fee, which depending on the bank could either be a lot or really cheap. There were some banks out there that could charge anywhere from a half a percent to a full percent as a loan origination fee anytime you get the loan. So if you're getting a $500,000 loan, this could be anywhere from $2,500 to $5,000 just from loan origination fees that the bank will charge you.

Now again, ultimately this really depends on the bank, your relationship with them, how much money you have with them, what your credit score is, how good of a customer you are. There are a lot of things that play into it, and it also depends if you shop your offer around. Let's talk about this one because that could save you a lot of money.

So this is what I typically do anytime I get a loan: I go to Bank number one and I have them give me an offer for whatever loan I want. I take that then to Bank number two; I have them beat that offer. Once I get that in writing, I go back to Bank number one and I say, "Can you beat that offer?" They always will, or at the very worst case, they will match it.

But let's just assume they beat it. I then go to Bank number three and I say, "Will you beat that offer?" And I keep doing this until I get the best possible rate. So they’re basically all like, "We can just match that offer, but if you bring in like X amount of money, like you bring in a hundred thousand dollars to our bank, then we’ll start covering your closing costs." So we can start covering these fees or we’ll throw in this, and they start throwing in perks at this point.

So you can continue playing these banks back and forth over the period of like a week to then get the best possible deal on your loan. What about my home in Culver City? A little bit over two years ago, the lender paid for everything. I had no fees. I had a 3.375% loan on thirty years, and they gave me a $2,000 credit back after closing. By the way, that was Chase Bank, and part of the requirement from that was that I had to move $250,000 into Chase. I know not everybody could do that, but there are certain things you can do with banks that they will give you preferential treatment just if you do whatever they want you to do.

Oh, and then I also had to do an auto deposit withdrawal from my Chase account, which is again super easy, doesn’t make any difference whatsoever, but that was how it was done. So like I said, make sure anytime you're getting a loan, try to shop it around. Try to get the lowest fees you can, try to get the best rate you can because banks usually have a bit of a padding anytime they give you quotes. They make money upselling other little things, so just make sure to shop your loan around because that will save you money.

Now, one other thing that lenders require anytime before you close is that you have to have your insurance paid for. And this is to prevent you from closing on the property if there's no insurance on it. If the home burns down, there’s an earthquake, there’s a natural disaster, the home is no more, and then all of a sudden it’s not insured, and everyone loses money. So you must have insurance when you close, and typically, you prepay the premium for like six to twelve months ahead of time. This is factored into your closing cost.

You'll see my insurance here was $1,282, which isn't really bad, but this is often an expense that many buyers don't even think of until they're actually getting the insurance and they have to realize they have to quote it out and get that paid for at the time of the close of escrow. So just make sure that is not something that you didn't expect to pay.

Now after that you also have your escrow fees. Now some states might have lawyers instead of an escrow company, but here in California, we have escrow companies. This is really just an intermediary, a totally neutral third party to the transaction that just makes sure both parties fairly comply with the contract. And of course, like any good service out there, they have a fee.

Now here in California, most escrow companies typically charge a base fee plus two dollars for every thousand dollars of purchase price. So on a $500,000 home, the fees could range anywhere from like $1,000 maybe to as high as $2,000 depending on the type of escrow company and services that you're getting. But like I said, remember everything is negotiable.

If you watch this entire video but just forget everything afterwards and you switch over to like a cat video or something else that's more exciting than this, just take away one thing from this video. If you take away one thing, it's just this and repeat after me: everything is negotiable.

We'll say that again: everything is negotiable. You can negotiate with the escrow company to charge you, the buyer, a lower fee. Ask them for $1 per thousand, maybe try to settle in the middle at a dollar fifty per thousand, or like a dollar seventy-five or a dollar eighty per thousand. Negotiate with the escrow company. Just ask! You can get a lot just by asking.

Now sometimes they’ll say no, they don’t negotiate, and that’s totally fine, but you lose nothing just by asking. And if they give you anything, essentially it’s just free money just for asking. But the fees don’t stop there because then you have title fees. Now a title company ensures that the property is being delivered free of any liens or encumbrances, and that you can actually take legal full rights of that property without having to worry about Joe Schmo over here saying that he also owns that property and he has a lien on it that nobody knew about.

And these services obviously don’t come without a fee, and you’ll see I paid $885 for my title insurance and recording fees. Now I’d say these fees generally range anywhere from $500 to $1,200 depending on the complexity of the deal, the title company, your relationship with them. There are some different factors that play into that, but for the average $500,000 home, expect to pay around that.

And then last but not least, you have the awful just miscellaneous fees that just tend to crop up out of nowhere. Like we have here a $250 notary fee, a $65 messenger fee, a $30 on it fee, a few hundred dollars for recording fees. So let's just add this up. Let’s just say it's on average an extra $500 in random miscellaneous little tiny things that just add up; sometimes not all the time.

So I don't want to make the general assumption that this happens to everybody, but sometimes escrow companies will charge you just generic fees as part of the service, whether or not you actually end up using them. If you don't end up using it, just itemize each part that you didn't do and then ask the escrow company for a refund. Again, not all escrow companies do this, but I have seen quite a few where these little things tend to slip through the cracks as just a base level service that they offer, again whether or not you actually use those items.

So now you're gonna see here we have quite the wide range in expenses. Now I'm taking a typical home in California, average price of $500,000, but still, we can all agree that $14,000 in closing costs is extremely expensive. But keep in mind this really depends on the type of lender you use, your credit score, what origination fees you get, what escrow company you get, what title company you get, if it's multifamily, single-family, a condo, if it's for investment, if it’s gonna be owner-occupied. There are a lot of things that play into this number and also how much credit you can get back from the seller to offset these costs.

Or maybe... I'm going to put it here, I don't know. This also depends on how well you were able to negotiate these costs ahead of time and also how well you shopped your loan around. I always recommend you do that because they promise at the very least, even if you suck at negotiating, you should be able to get something back from this amount or I don't know if I'm putting it here—here.

So like you should be able to get something off of that amount. I don't know which way I'm pointing, but yeah, just negotiate. And one last thing that I want to mention that can save you on a lot of money anytime you're buying something—and don't click out of the video yet because like this is very important—is negotiate with the seller during your inspection period to cover your closing costs.

Now, I typically do this after I get my offer accepted and after I've done my inspections but before I've removed my inspection contingency. Whatever repairs or damage is done to the property, I will ask the seller to preferably issue a credit, and it's called towards non-recurring closing costs. This means that if you have, let’s say, a $5,000 closing cost associated with your deal, you can ask the seller, “Just give me a credit for this,” that way you don’t have to come out of pocket for those items.

Now, you have to be a little bit careful here because in California, the seller can only credit you up to the amount of non-recurring closing costs, which means that they only can credit you for fixed one-time costs of your deal. They can't credit you towards like several years of property tax in the future; they can't credit you towards like insurance payments over the next few years.

So whatever your closing cost is going to be, I generally recommend taking a credit up to that amount, and anything over that amount you do is issued as a reduction of the purchase price. So let's just say, as an example, you're buying a $500,000 property. You spend $2,000 on inspections, and those inspections uncovered that you need $20,000 worth of repairs. You go to the seller and you say, "Seller, I want $20,000."

And they say, "Okay, buyer, we'll give you $20,000. How do you want it?" If you see that you have $10,000 worth of non-recurring closing costs, you will say to the seller, "I want $10,000 towards my non-recurring closing costs, and then I also want a $10,000 reduction in the purchase price." This totals $20,000, but your closing costs are paid for, so you don't have to come out of pocket for those amounts.

And just by doing this, just by watching this video and implementing some of these things, this could save you thousands or tens of thousands of dollars anytime you're buying real estate.

And all I ask from you guys, if this is helpful, just hit the like button, just comment whatever you want down below, just do anything to increase engagement on these videos. And that's it. So with that said, you guys, thank you so for watching; I really appreciated. If you guys enjoy videos like this, just make sure to subscribe and smash that notification bell so YouTube notifies you anytime I post a video.

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So if you want to add yourself to that, the link is in the description. Thank you again for watching, and until next time!