While wholesaling can be a profitable business for many, we believe in using assignments as an exit strategy rather than your sole strategy for real estate investing. As a result, we encourage many investors to continue to build a toolbox of different skillsets, strategies, and resources that they can ready to utilize when necessary. Of those strategies, one of the most useful to a real estate investor is double-closing.
What is a Double Close?
Double closing is exactly what it sounds like – two closings. If you’ve ever wholesaled real estate, you’ve likely had to navigate the treacherous waters of a seller questioning why you are being paid an assignment fee for their property. While you can, and should, prepare sellers and buyers by front loading your role in the transaction, there will always be that one person that will bring the transaction to a halting stop when they realize that the property was being sold for one dollar amount and bought for a different amount. The easiest way to maneuver this situation is to avoid it entirely.
Segment the deal into two separate transactions with three different individuals:
- Person A: Seller (the property owner)
- Person B: Purchaser (you, the wholesaler, normally the assignor)
- Person C: End-Buyer (normally the assignee)
In a normal wholesale deal, settlement commonly occurs with an A-to-C transaction. The wholesaler usually has the end-buyer sign an assignment agreement, where they are essentially buying Person B’s rights to the the transaction in exchange for an assignment fee. Sometimes the assignment fee is referred to as a finder’s fee, but wholesalers should be cautious to not confuse their right to assign a contract with brokering a real estate transaction.
Rather than have an A-to-C transaction, double closing converts the single transaction into two separate transactions – first an A-to-B transaction and then a B-to-C transaction. As the purchaser, you can close on the purchase of the property and then handle the sale between you and the end-buyer in an entirely different transaction.
Why Use a Double-Closing Strategy
Double closing is a strategy that is commonly used by real estate investors when they don’t want the other parties, the seller and the end-buyer, to see the terms of the initial transaction. Instead of assigning your initial contract and having them assume the terms of the contract, being privileged to all of the terms and financial figures outlined in the transition, you can engage in two separate transactions.
How Does Double-Closing Work?
Find a Property & Secure a Deal
Before you can arrange a double-closing and negotiate an agreement with an end-buyer, you need to find a property and secure a deal. Each buyer’s acquisition strategy may vary, but in general, wholesalers are looking for properties that are distressed, abandoned, or neglected. You’ll need to have to negotiate terms and have all parties sign a contract of sale. As laws vary by jurisdiction, wholesalers are encouraged to consult an attorney to ensure their contract is legally sound and not a cookie-cutter contract that is copied and pasted from the internet. Contracts may range from simple one-pagers to multi-page documents. However, wholesalers should consider ensuring their contract grants them access, marketability, and assignability.
Complete the A-to-B Transaction
With a double close, you’ll need to first settle on the property before completing the transaction with the end-buyer. This requires you to have all of the paperwork required by the title company to settle. Prior to settling, the title company will require the funds to settle the deal, including closing costs. If you don’t have cash to pay the purchase price and closing costs in full, you may need to explore options available for financing the transactions. Wholesalers have used a variety of loan products – ranging from personal loans, lines of credit, hard-money loans, and even transactional funding.
Complete the B-to-C Transaction
Now that you’ve secured funding for the initial A-to-B transaction and closed the deal, you just need to get the end-buyer to the settlement table for the B-to-C transaction. Since the transaction won’t be recorded yet, you’ll need to work with the end-buyer to make arrangements to use the same title company as the A-to-B transaction. They should have all paperwork for the B-to-C transaction well before the A-to-B transaction closes, so they can close the B-to-C transaction as soon as possible. Ideally, the B-to-C transaction would occur the same day as the A-to-B transaction or next day so that cost associated with the funding for the A-to-B transaction are kept to a minimum. Once everything is in order and you’re given the clear to close on the B-to-C transaction, all parities can sign the related documents, your double closing can be completed and you can get paid as soon as funds clear with the title company.