Part two of “Wholesaling Real Estate” will focus on the art of Double Closing. In the past double closing has been used interchangeably with the term simultaneous close, but over the past few years the two have taken on slightly different meanings. Even some others might use “Double Escrow” to mean the same thing. Who uses what and when all usually depends on the generation the investor grew up in, but it’s a good idea to be up on the lingo in order to avoid a misunderstanding.
A double closing is a very useful tool when wholesaling real estate and a lot of the time the last resort before moving on to other investment options like rehabbing or renting. The reason why is because, as the name says, you have to close twice and are forced to pay two sets of closing costs (which can be avoided if use a simultaneous close). This is the basics of the transaction…
A = Seller
B = You
C = Your Buyer
A sells to B for 100k and a closing takes place. You bring money to the table to buy the house and close. You agreed to pay closing costs for the seller.
B sells to C for 120k and a closing takes place. Your buyer pays you. As the seller you usually pay closing costs. That makes Two Closings you payed for.
So you have 100k coming out of your pocket (or your lenders) and then you get payed 120k and then settle your debts. You make about 12k on this transaction after closing costs.
The process is pretty simple and straight forward and in most cases you will be able to do this type of transaction. The only obstacle that can actually get in your way is the buyers lender. If they are an FHA buyer, meaning their loan is FHA approved, then the lender will require YOU to have had legal ownership of the property for 90 days. That 90 days starts when the deed has been filed with the county. You may have closed on the property 90 days ago, but if the deed was filed 2 weeks later then you will have to wait another 2 weeks before closing with your FHA buyer. This is usually not a problem for rehabbers as they will most likely take 90 days, or more to do a rehab but for us who wholesale real estate and are looking for a quick turn we have to use conventional buyers, cash buyers or buyers using hard money.
For you first time wholesalers out there I want to list the steps you should take to wholesale a house.
- You need to find an attorney or title company (depending on state) who is familiar with double closings and will do them for you. Some will object to this type of transaction saying it isn’t legal or because they are just unfamiliar with how it works. Rest assured that it is fully legal.
- Disclose your intentions to all involved. One of my rules is to let everyone involved know what my intentions are. This eliminates most of the last minute drama when a buyer or seller finds out what you are doing. Some money hungry investors have problems with you making your fair share and will object. If they know about this from the beginning it makes life a lot easier. Also this covers you with most lenders and title companies who require you to notify all parties you are double closing.
- Sign the purchase contract with the seller (make sure you have a rider that explains your intent).
- Sign a purchase contract with your buyer (have the same rider that explains your intent)
- Schedule your closings with the same title company/attorney.
- Close with the seller. Write a check out to the seller and receive the deed.
- Close with your buyer. Get a check from your buyer and sign over the deed to him/her.
That’s it! Just make sure you have all your ducks in a row before the closing and you will have a smooth transaction with everyone being happy. The key is to be honest, be prepared and always leave some money for the next guy.
Hope this helps
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