Closing costs.

What's included

• Title insurance — protects against covered title defects
• Escrow or settlement fees — paid to the closing or settlement provider
• Recording fees — paid to record the deed and mortgage
• Lender fees — may include origination, underwriting, appraisal, and credit-report charges
• Transfer taxes — vary by state and local jurisdiction
• Prorations — may include property tax, association dues, or utilities allocated through the closing date
• Insurance prepayments — may include an initial hazard-insurance payment
• Tax and insurance impounds — initial escrow funding that a lender may require

How closing costs enter a PriceDNA analysis

Closing costs increase the initial cash invested in the property.

That larger cash-investment base can:

• reduce cash-on-cash return when annual cash flow stays the same;
• reduce projected ROI and the equity multiple when modeled gains stay the same; and
• change the goal-convergent price when cash-on-cash return is the selected goal.

Closing costs do not directly change DSCR or cash velocity because those measures do not use initial cash invested as their denominator.

Closing costs are not operating expenses

Closing costs are paid at acquisition. They are not recurring property operating expenses and are not subtracted when calculating net operating income.

Some underlying costs may also appear elsewhere in an analysis as recurring assumptions. For example, property taxes and property insurance affect annual operating expenses, while a tax proration or insurance prepayment at closing is an acquisition-time cash-flow item. PriceDNA keeps those roles separate.

Closing costs and operating cap rate

Operating cap rate is calculated from modeled NOI and purchase price:

Operating cap rate = Net Operating Income ÷ Purchase Price