Want to Find the Red Flags in a Deal Fast? Start with the Closing Costs. If the model says “1%–2% for closing” and leaves it at that… Keep reading. You’re about to uncover what they didn’t want you to see… or worse—what they didn’t know, didn’t check, or were just too lazy to figure out. Too many sponsors toss in a generic number like they’re ordering off a menu. But closing costs aren’t fixed. They’re layered, lumpy, and if you guess wrong—your deal doesn’t run out of cash flow… it runs out of cash. The danger? These misses often get masked by: Prepaid rents Tax and insurance prorations A month or two of float on vendor bills So everything looks fine on day one. Until it isn’t. And then you're scrambling to cover gaps with working capital that was never properly budgeted. Here’s what actually needs to be itemized: Acquisition fee (how much are you getting paid?) Lender fees (points, underwriting, admin) Legal fees (yours and the lender’s) Appraisal, engineering, and environmental reports Survey Interest rate caps Title insurance Mortgage recording taxes Prepaid insurance (sometimes the full year—can be $1,000+/unit) Escrows for taxes and insurance Utility deposits (easily six figures on large properties) Zoning reviews or setup costs Travel and closing coordination Working Capital Reserves for Site Etc. (Each deal will have its own line items) These aren’t optional. These are checks you will write. Miss just a few, and suddenly your deal is undercapitalized. Detail protects you. Vague numbers betray you. If you’re the operator: list every line item. If you’re the investor: ask for the breakdown—or walk. If they’re using 1%–2%, odds are they’re either new to the game or didn’t bother to dig in.