The Complete Guide to Double Closings
I have put together something special for you today. It’s “The Complete Guide to Double Closings; How to Buy Property Even When you’re Broke”. Double closings are also called simultaneous closings.
There is so much confusion when it comes to doing double closings especially for new investors. While this subject appears to be complex, it is really quite straight forward in how it is done.
There’s a lot of information to cover so let’s get started. I will go over what a double closing is, exactly how it all works, and I also tell you why I prefer double close rather than assign the contract.
What Exactly Are Double Closings?
Double closings or simultaneous closings as they are sometimes called are when you (the buyer) actually take title to the property just before you sell it. You buy the property and sell it usually in about a 30 minute time span.
This means that your name or the name of your company will go on the chain of title whether you sell the property the same day (which is typical for a double closing) or 30-60 days or more down the road. The main advantage to doing this type of closing is that you do not need to bring any of your own funds to the closing.
It also gets rid of the question about whether or not wholesaling is legal since some states have put a big red flag on contract assignments. Double closings are common in most areas. They are a way of buying then selling a property with no money out of your pocket.
How Does A Double Closing Work?
This whole process probably seems very strange to a lot of folks that are unfamiliar with them. These people are usually the first to assume that what you are doing is illegal. That couldn’t be further from the truth. I can assure you that they are not only legal, but they are frequently used in many areas around the country.
The Two Parts of a Double Closing
There are two parts to double closings. The first part of the transaction which is typically called the A to B transaction is between you and your seller. This is the part of the transaction where YOU buy the property.
The second transaction where YOU sell the property to your end buyer is called the B to C transaction. You are “B” in both cases. Once as the buyer and then as the seller.
I am Always “B”
As a wholesaler, I am almost always funding the A to B transaction (my original purchase) with the funds from the B to C transaction. Simply put, my end buyer is bringing all of the money to the closing for both transactions.
There are two settlement statements created for the closing. One settlement statement (formerly called the HUD 1) is between you and the seller. This statement reflects the amount that you paid for the property. The second settlement statement is the transaction between you and your end buyer, and it reflects the amount you sold the property for. Your profit is the difference between what you paid for the property and what you sell it for.
The thing to remember is there are two separate transactions and two sets of closing costs.
How Much Are Closing Costs for Double Closings?
In my area those closing costs are about $300-$400 per transaction. My average cost is right in the middle at about $350. These costs are for the title search, the document preparation, title insurance etc. If your end buyer is getting any type of bank financing they will have additional costs but that doesn’t affect your costs.
The difference in the amount of closing costs is primarily due to whether or not I was required to purchase title insurance. In most instances, since I only own the property for 10-15 minutes I don't get title insurance. Every now and then the closing attorney will require me to purchase the insurance if there is anything that could come back to be a problem down the road.
What If I’m not Working With a Buyer that Actually Has Cash in Hand?
I am almost always selling my properties to other investors that are cash buyers or “cash like” buyers. That investor is usually a rehabber or a landlord, and they may (or may not) be using their own cash.
Here are Some Scenarios
On some occasions, I'm not working with a buyer that has their own cash. In these instances they will be using some type of financing such as:
- Hard money
- A HELOC (home equity line of credit)
- Funds from their self-directed IRA
- A private lender
- An investor friendly bank.
In all of these cases, they are also considered to be cash buyers since they can typically close in 7 to 10 days without any problem. Being a cash buyer just means you have cash available to you to close in no longer than a week or two.
If my buyer happens to be a rehabber, then it is quite common to get a “construction” type of loan from one of the local banks. This type of loan will generally cover the purchase of the property and some (if not all) of the repairs. In all of these instances, the lender is familiar with simultaneous closings and you will find that they don’t have a problem with doing them.
On several occasions, my buyer has turned out to be someone that intended to fix up the house and live in it. When that happens, they cannot get a traditional mortgage if they are purchasing the property from me. They need to use one of the financing options we talked about previously.
As a wholesaler, I have to close quickly with my seller. That means I need a cash buyer for the property.
I had one buyer purchase the property through an investor friendly bank then refinance with a longer term traditional mortgage down the road. That strategy certainly works when someone is looking for a good deal and they want to put a little “sweat equity” into the property.
How Does This All Work?
Let’s go over exactly how this process works. The key point to remember is that you can never bring a personal check to any closing.
It doesn’t matter if you are buying your personal home or an investment property. You must always bring a certified check from the bank. This means that funds are already in the hands of the attorney or title company at the time of the closing so there is never any question about whether the deals will close.
When you are doing the B to C transaction (where you are selling the property), as you are signing the documents there is a certainty that the first transaction (the A to B transaction) will close. Your end buyer has brought certified funds to close the deal. The money is there.
As soon as the paperwork is signed for the sale to the end buyer, the A to B transaction takes place and you buy the house. (I know it sounds a little crazy.)
The funds that I just “made” on sale of my property are actually used for my original purchase (the A to B transaction). I just love this process!
It’s important to understand that no money changes hands until all the documents are signed. The money is always dispersed in the proper order.
Is Everyone In the Same Room for Both Closings?
No. The parties are in two different rooms. These individual closings take place in two different rooms, and everyone stays there until both transactions are completed.
Rarely does my seller, know that I have resold the property. However, my end buyer always knows that a double closing is taking place. This is never a problem because my buyer is a real estate investor. Since the B to C paperwork is completed first, my buyers know that they will be waiting a few minutes until the A to B transaction is completed.
I always tell my seller upfront that I don’t know what I will ultimately be doing with the property, and that it will likely depend on how many houses I have at one time. It's important to note that I make him aware that the house could be fixed up and sold, or it might be rented. I also tell him that I might even sell it directly to another rehabber.
While my seller is aware of the possibilities, they do not need to be privy to the exact details of what I plan to do with the property. My seller just needs to get their money as agreed.
What Are Negative Aspects of Double Closings?
In my part of the country there just really aren’t any.
We use closing attorneys rather than title companies for all of our closings. As I said, it only costs me about $300.00 – $400.00 on average for each closing. That comes to about $600.00 – $800.00 for both closings which I think is pretty cheap. Folks in my area are pretty much evenly split on whether or not they buy title insurance on the property. In most cases, I only own the property for about 5 – 10 minutes so I rarely buy title insurance when I am wholesaling properties unless the closing attorney requires it. .
Be sure to familiarize yourself with how things are done in your area. Closing attorneys in my city have no problem with double closings (simultaneous closings). However I have heard that title companies in some areas won’t do them.
What’s the Solution?
Find and use an investor friendly banker, title company, attorney and insurance company. Your life will be a whole lot easier. Once you’ve done a couple of double closings you’ll understand just how simple they are.
Can You Use A Traditional Mortgage Lender?
No. There are several reasons for this.
First of all, it just takes too long to get a traditional mortgage even if you could overcome the other hurdles. These lenders have no knowledge or experience when it comes to double closings.
Secondly, we buy distressed properties that often need a lot of work. Banks and mortgage companies don’t consider these properties to be a good long term risk and generally won’t make loans on them.
The third issue is that if you are wholesaling a house and your buyer wants to use a traditional bank, you will most likely run into a seasoning issue.
Seasoning is a term to describe how long a person has owned the house. Many banks will not fund the deal unless the title has been held by one person for at least 90 days. Some banks require you to own the property even longer. These rules were put into effect to protect homeowners from that small percentage of unscrupulous investors who were out to take advantage of folks.
I did run across a transactional funding company recently that would do loans for up to 6 months, however this doesn’t really fit with our double closing strategy.
Why Not Just Assign the Contract?
How you close your deals is a personal decision. I personally don’t like doing assignments unless my assignment fee is small so I do double closings. In my opinion the probability of the deal blowing up increases when you assign the contract. Your seller and your buyer see exactly how much you are making just for being a “transaction coordinator”. And in most cases, the seller is not going to be happy with what they see. The larger your assignment fee or profit on the deal, the higher the probability this will happen.
Think about this for a minute. You have just negotiated with your seller to get the price down on the property. Then while you’re at closing they see that you will be making thousands of dollars on the deal. Would you be happy?
Should You Tell Seller’s You Are Wholesaling the Property?
First of all you should never use the term wholesaling when talking to sellers. Any mention of wholesaling will only raise a red flag.
I do recommend you be truthful and transparent.
As I said before, I always tell my seller from the very beginning that I am not sure what I will be doing with the property. I let them know that at times I pass on properties to other investors, and they are always clear on the fact that my intention is to make money from this transaction. However, knowing this “intellectually” does not really alleviate the problem when they see just how much you made right there right there on the documents.
So What’s the Answer?
I like double closings. They are cleaner and a whole lot easier in my opinion. In more than 20 years I have only assigned the contract a few times. The advantages of doing simultaneous closings far outweigh the fact that I have to pay a little more in closing costs. Pick what works best for you, and you have made the right decision.
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This post was originally published in July of 2016. It was updated on 8-3-2020.
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