As today’s climate of record low inventory and record home sale prices continues, real estate investors must understand and implement a wide variety of tactics and strategies to keep their portfolios alive and profitable.
When done correctly, a double closing allows investors to move quickly on acquiring investment properties with minimal capital. Utilizing a double closing is a creative exit strategy for real estate wholesaling.
In this ultimate guide, we’ll break down everything you need to know about using the double closing method.
After reading this article, you’ll learn the following:
We hope you enjoy Double Closing: The Ultimate Guide! Let’s dive in and learn how to close more deals!
A double closing is a real estate investing strategy used primarily by wholesalers. This method provides a secondary closing option to get an investing deal done.
A double closing is when two real estate transactions take place at the same time and typically involve three parties: the original seller, the wholesaler/investor, and the end buyer. The wholesaler/investor is involved in both closings.
In the current 2020 real estate market, inventory remains low. However, there are sellers out there who must sell quickly. Investors who understand the double close exit strategy can capitalize on this and set up a deal where all parties win.
A double closing is organized and coordinated by the real estate investor/wholesaler. This investor essentially acts as a middleman.
Since there are so many moving parts to a double close, the investor should be organized, know the real estate market comps thoroughly, be communicative with all parties, and work with a knowledgeable title company.
Think of the two deals as:
The first transaction (A→B): The Seller is “A” and the wholesaler/investor is “B”.
The second transaction (B→C): The wholesaler/investor is “B” and the end buyer is “C”.
As the investor (“B”), you will purchase a subject property at a discount from a Seller and then immediately sell that property to a new end buyer, “C”.
The funding can be set up in a way where the cash proceeds from the investor’s sale to the end buyer (B→C) can fund the purchase from the original seller (A→B) through escrow.
When the title company receives the end buyer funds and closes out the A→B transaction, the investor can then immediately close out the sale of B→C.
When B→C closes, the proceeds are what the investor makes on the deal!
Because these two transactions are happening at the same time, the term “double closing” was coined. A double closing may also be called a “simultaneous closing” or “back to back closing”.
Every state will have its own requirements and rules around conducting a double closing. That being said, double closing is legal in many U.S. states. Investors should always work with a local reputable real estate attorney to stay up to date on the latest rules and regulations.
Many states do allow wholesaling and double closing with caveats around the following points:
There are many misconceptions around the concepts of wholesaling and double closing. This confusion can scare off investors from perfectly legal investing opportunities. It’s very important to seek real estate legal advice and understand what you can and cannot do in your state.
A double closing is legal in California. However, the “same day” double close will actually take place over at least two days. The B to C transaction will close at least one day after the A to B transaction has closed.
This allows for the minimum required “title policy procurement” time mandated by the state of California. Each portion of the double close must close independently with its own funds.
A double closing is legal in Florida. However, investors can no longer utilize the end buyer’s purchase funds to fund their purchase of the subject property from the original seller. Therefore, investors must front their own capital to close on the A→B purchase.
A double closing is legal in Texas with a few caveats.
Just like Florida and California, investors can no longer utilize the C transaction purchase funds to fund the A→B portion of the double close.
An investor can utilize transactional funding or hard money to fund the initial purchase. Transactional funding may also be called “flash funding”, “same-day funds”, “ABC funding”, or “one-day bridge loan”.
Here's a step by step overview on how to do a real estate double closing:
The wholesaler/investor will locate a motivated seller and subject property utilizing his/her marketing efforts, the Multiple Listing Service (MLS), investor network, buyer list, driving for dollars, bird dogs, bandit signs, direct mail, or other advertising methods.
The wholesaler/investor will work with the owner/seller to negotiate a purchase price and secure the property with a purchase and sale agreement. This is the A→B part of the double close.
*Note: If the wholesaler is considering a traditional wholesale deal at this point, it would be crucial to include an assignment clause. However, since the wholesaler/investor is planning to double close, an assignment clause is no longer required.
The wholesaler/investor will work to locate a new end buyer for the property. Once this buyer is found, the wholesaler/investor will negotiate with the end buyer and secure a separate purchase and sale agreement. This is the B→C portion of the double close.
The wholesaler/investor will work with an investor-friendly title company and closing agent to coordinate these closings. Ideally, both closings will take place at the same time or within hours of each other, depending on the state requirements around funding.
When the title company closes both transactions, the buyer takes ownership of the property, the seller collects the proceeds from the sale, and the wholesaler collects a nice wholesale fee!
For more on what happens during a real estate closing, watch this short video:
Whether you need money to double close or not is dependent on your specific state.
If the state allows the A→B closing to be funded with B→C funding, the wholesaler/investor does not need to bring money to the table for closing.
In this case, the end buyer is ultimately bringing the money that will fund both deals. The end buyer brings funds to purchase the subject property and the title company holds this money in escrow.
If the state will not allow funds from the second closing to be used for the purchase in the first closing, the investor must bring his or her own capital to the table. If the investor does not want to utilize his or her own cash, transactional or short-term funding can be leveraged.
Double closings and assignments are two exit strategies commonly used by real estate wholesalers. There are key differences between the two strategies.
In an assignment of contract deal, the wholesaler/investor never actually purchases or owns the subject property. The wholesaler gets the subject property under contract to purchase with an assignment clause and then assigns the right to purchase to a different end buyer.
The wholesaler makes money by collecting an assignment fee when the real estate closing takes place. Therefore, the wholesaler is never the property owner and never appears on the chain of title.
In a double closing, the wholesaler/investor will briefly own the property before selling it to the end buyer. This means the wholesaler/investor will appear on the chain of title.
A double closing involves two separate closings with two separate sets of closing disclosures, HUD-1 or other settlement statements, and title insurance/closing fees. The investor will actually purchase or sell one property in the first closing and then purchase or sell the property in the second closing.
A double closing is also more expensive than an assignment. In a double closing, the investor pays closing costs on two separate transactions.
In an assignment deal, the investor never actually owns the property. This means the investor will typically not have to pay those closing costs for either transaction!
The wholesaler/investor must evaluate the level of risk he or she is comfortable taking on when deciding to do an assignment or a double closing.
Some title companies can perform double closings. However, given the unique timing needs and multiple moving parts of these types of investment deals, it is vitally important that the investor works with an investor-friendly title company or a seasoned closing attorney.
Many title companies will either not know how to execute a double closing or refuse to do them. It’s important to interview multiple title companies and ask for recommendations from your investor network to locate investor-friendly ones.
Funding a double close can happen in one of two ways.
The first way is if the end buyer is bringing funds to purchase the subject property (B→C) and the wholesaler/investor uses those funds to fund the first closing at the same time (A→B).
Many states no longer allow this practice, so wholesalers/investors can either utilize their own capital or find transactional funding.
Transactional funding is when a lender will loan up to the full amount of the deal to the investor/wholesaler to complete the A→B purchase. This allows the investor to close without leveraging his/her own money.
The transactional funding lender will typically charge a percentage of the loan as well as an origination fee. These fees are not cheap! However, if the deal is sweet enough and the investor has found that the deal makes sense, this funding may be worth it.
Transactional funding lenders, unlike hard money lenders, will typically require a quick turnaround time to get paid back. Therefore, a double close must take place quickly, typically within hours or 1-2 business days, for this funding source to work.
Here' a video overview of transactional funding for real estate double closings:
Traditional mortgage options such as a conventional or FHA loan will not work with double close investing deals due to national regulations and seasoning requirements.
Do you want to learn how to build a cash buyers list? Check out Cash Buyers: The Beginner's Guide!
There are many advantages to double closings.
Unlike a traditional contract assignment, a double closing allows for more privacy. The investor’s net profit when wholesaling the deal will be confidential from the original seller and the end buyer because of the two separate closings taking place.
This is especially advantageous if you are netting a higher profit or if you were able to sell the property for a higher price than the original seller thought the property was worth.
Some sellers or end buyers may be frustrated or threaten to back out of a deal if they think a wholesaler/investor “made too much” on the deal.
A double close allows for privacy so that these other parties do not know your end profit.
Double closings are more expensive than a simple assignment because there are two closing transactions, not just one. Therefore, the wholesaler/investor must be prepared to pay for closing costs on two transactions: on the buy-side (A→B) and the sell-side (B→C).
A double close also requires more work from the investor/wholesaler. This investor is managing two real estate transactions, two separate lines of communication with the seller and the final buyer, and all of the associated paperwork.
However, the greater risk and required man-hours can be well worth the extra effort as the investor can potentially make much more on a double close over a traditional assignment deal.
Understanding how and when to utilize a double closing can be a savvy method for real estate investors of all experience levels.
Whether you're flipping houses, wholesaling distressed properties, or looking for long-term passive income, finding a dependable investing niche and strategy will serve you well as you search for your own real estate deals!
Have you ever coordinated and executed a double closing? Tell us about your experience in the comments below!
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