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How To HUD Settlement Statements and Refi’s Question

Posted on December 4, 2015March 16, 2022 By Mike Butler

QUESTION from Becky:
(italicized green are Mike’s comments)

Hi Mike,

I just joined as an annual member today and have a few questions. I’m trying to get through as many videos as possible as quickly as possible in order to get the books done for a client of mine who has 25 LLCs, each with multiple rental properties and properties he has bought and sold. Unfortunately I don’t have time to watch the full series as I am in a major crunch at the moment.

Oops and Sorry Becky, but I can not help you on this one… your crunch thing.

I’m specifically looking for videos that will explain how to enter a HUD from a purchase when there is a loan involved and a line item referring to “improvement escrow account” as well as “down payment reserve account”

First of all, please understand that many investors create weird accounts that really do not fit properly in the world of bookkeeping for real estate investors.

The BIGGEST Thing to Focus on is getting your/their books set up so they are “Investor Friendly” through out the year allowing the investor to “Push A Button” to instantly retrieve those special reports investors want along with pushing a button at tax time.

For Example:
CASH FLOW Report, monthly, year to date, previous year etc.
REHAB Report – shows true cost of any rehab to the penny in real time
TAX SUMMARY REPORT to hand off to their Tax Preparer, Accountant, CPA
CASH FLOW REPORT – by entities, by properties, etc.
PLUS dozens more .

when a loan is involved with a line item “improvement escrow account”
Mike – i assume this appears on your HUD 1 Settlement Statement and I also assume that your client has borrowed money from a lender.

I strongly recommend to review the video on “Post Office Accounting 101” where i use the analogy of the post office boxes to help both investors and accounting professionals to set up clear communication with each other.

“IMPROVEMENT ESCROW ACCOUNT” has obviously been set up by the lender and it appears the lender is holding back some of the borrowed money until something is completed in the repairs dept. I do this too when I loan money.

For Example, an investor wants to borrow $60,000 on a house he bought for $40,000. After $20,000 in rehab and repairs, the investor will have a house conservatively worth $100,000.

I really do not want the investor to walk out of the closing with ALL of the money including a big chunk of cash. I will set up a schedule of disbursements based on a improvements completed. Phase 1, 2, 3, etc. for disbursement of funds from the “Improvement Escrow Account” set up by the lender.

The easiest way to properly enter this would be to create a long term liability account for this particular entity and property.

Under “other current assets” create an escrow account label funds held by lender for the particular entity and property.

Now when you enter the HUD 1 – the amount borrowed dollar amount will be using the long term liability account for the loan you set up in #1 Enter the Total Dollars Borrowed on the loan.

The dollar amount the lender is holding to disburse late, would use the “other current asset” escrow account you set up in #2

Now you should see total amount borrowed and you will see money in the escrow account.

As money is released to borrower, simply enter a deposit in to the proper bank account and pull the money from the escrow account.

This Works Beautifully.

Also, what I am seeing him do on a regular basis, is take out a loan with the line items mentioned above, and then refinance a few months later. So i am looking for the refinance side of that as well.

Just watch the refinance video

Could you point me in the right direction on where to find this information?

Yes, just click on the topics on the left

Thanks!

You are welcome Becky. I highly recommend you enroll in our affiliate program to earn commissions for your business and let us train your investors. Here is the link to sign up

Mike Butler


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