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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Thanks for the blog post. I’m glad I stumbled across this post. Do you k ow of any Closing Agencies here that are investor friendly that you would recommend? Offline if you don’t want to name a company without proper go ahead or buyin.
If you’re in Louisville I use Borders and Borders Robert. I don’t know about other areas.
I am gonna study further double-closing and wholesaling. Overall I like your business ideas. Looking forward to your new blogs.
Thanks for sharing information and your blog is the best blog.
After listening to the podcast, I noticed that the article has a number of mistakes (e.g. article says close with a to b first, while podcast says close with b to c first); that difference really resolved some initial confusion of mines created with the idea of trying to close with a to b first, which is the less creative way of doing things and the way most people who don’t know what they’re talking about proposes or the people who do know, but have some type of other idea in mind to suggest it in such a way (e.g. and this includes lots of investors who purport to be training gurus; they should know this but instead insist on telling people to close a to be first, which, honestly, pulled me out of consideration between when I first started looking to this in about 2011 and about 3 months ago, when this idea was passed; I tried thinking of ways of getting around the a to b transaction first, when, now I learned it isn’t necessary); so, the key to closing this transaction seems to be with the closing attorney or title company, in terms of them dividing out the funds for me, as the wholesaling; I definitely want to keep the buyer from knowing my cut, most of the time, in order to prevent the deal from going wrong, even though investors say that assignment fees are common; however, I’m in the situation where I’m working with a buyer and a seller who are both out of state or not local for me; I’ve already suggested that we use my buyer’s title company or closing attorney to my buyer, as I’m focusing on getting the buyer first, before I try to do anything else; I’m trying to coordinate my transaction via reverse wholesaling, co-wholesaling, and virtual wholesaling, as they are called, where I first came across the idea of reverse wholesaling a few months ago but the guru or, more specifically, the staff I could not work with; thus, would it be better for me to get my closing attorney or title company in the state where the transaction is occurring, to try to make this work for me? Or, can I obtain the information on the closing attorney or title company from the buyer and make arrangements with them, as that already denotes that they are investor friendly? I learned that this is a possibility from this guru who mentioned the idea of reverse wholesaling. Also, can I pass all of the attorney fees to the the buyer, as part of the closing costs, or, with that goal in mind, would an investor friendly title company produce the least hassle (e.g. assuming that the closing attorney is likely to require some upfront fee first, before even doing anything; or, please tell me that this assumption is a mistake)? This stuff had been a hang up for me over the past few weeks, but, your podcast clarified this for me down to these few questions for me (e.g. I knew that it seemed to be possible from the reverse wholesaling material, but, I wasn’t quite sure).
Hi David – Both closings are scheduled at the same time; in the same 30 minute time span. Everyone is there, but they are in different closing rooms. The reason it works here in KY and not in some areas, is because of things like different tax structures or tax stamps that we don’t have.
Here’s how it works. I’ve been double closing for 20 years.
The B to C is paperwork is always done first. The investor and the end buyer sign the paperwork. No money changes hands at this point.
Then you immediately (the investor) walks into the room the seller and actually closes the A to B transaction. The seller gets paid out of the guaranteed bank funds held in the B to C closing. In reality the closing company has a big escrow account where all fund from all closings are held. The check to the seller will be written out of that account.
You need an investor friendly attorney or title company no matter what state you are in. I would not recommend you try virtual wholesaling. You need to have some years of experience doing deals in your own backyard. That’s first. Then you can move into other areas if that’s your choice. Personally, I think it is risky and I don’t do it. Now if I lived in southern California or another really expensive area I might think differently. Wholesaling is simple. This is the process.
You find a deal and sell it to a buyer. Your end buyer will always be an investor. They don’t care what you make so long as they are getting a good deal. Investors that buy from wholesalers don’t want to do the marketing to find the deals. It’s as simple as that. You are providing a service t them.
The seller on the other hand cares what you make. That’s why I double close instead of assigning.
In my area, each person pays their share of the closing costs. Taxes are pro-rated between the buyer and seller here (it’s the law). You will not actually pay any of taxed here when you double close. They will show up on the A to B Hud-1, but they will go away when you sell it (on the A to B).
You will find your buyers at your local REIA. That’s where I have found mine over 2 decades. You only need 3-5 REAL buyers ie solid rehabbers with access to cash, and a few solid buy and hold landlords. You must however hand them a good deal. That’s why it’s important to work where you live and you know the neighborhoods. You cannot possible know what a good deal is in another state when you are new.
I came across your podcast the other day and I am LOVING your blog! On this particular article (thank you buy the way, I was terrified of the Double close), you made everything very easy to understand and I only have one question. You never mentioned Earnest money and a deposit from you and from your end buyer. Most of the classes I have taken said we need to put down a small earnest money deposit and they normally get one from the end buyer as well to cover ours and our time if the end buyer were to back out for some reason. Are you not required to do this in your state, and if it is, what is the average you put down? There is no required set amount here in NC, but we do have to put something down to show good faith.
Thanks so much Lisa. I’m glad you’re enjoying the blog.
You are correct. You always need to put down earnest money. I put down $100 on each contract payable to my closing attorney. (Never to the seller)
Hey Sharon, A couple questions.
I see you mentioned $300-400 for each transaction are your costs for a double close so it comes out to be about $600-800 total. What about property taxes, doc stamps/transfer fees, etc. Aren’t you picking up these additional costs at least once on the two transactions? or if they are paid on one transaction are they not due on the other?
Also I think the average fees in florida for municipal lien searches are $125 and then $150 for a title search with a $200-300 closing fee. Without adding in the tax/transfer and recording fees that’s like $475-575 just for one transaction, what am I not getting here? I’m not understanding your numbers… help!
My end buyer is picking up their costs. I’m only paying for my buy (the A to B). The property taxes are always pro-rated but I don’t pay anything since I only own the property for 5 or 10 minutes.
If you use the same closing company they won’t charge you for a title search in my area. All in I’m $300-$350. Now bear in mind I almost never have to buy title insurance. On the rare occasion that I do, that adds a little more. I guess the fees are just lower here.
I think I understand. Yes taxes are always pro-rated and I hear you on the title insurance, but what do you mean the buyer is picking them up, they are picking up the property taxes?
If you are double closing and the A-B and B-C are closing back to back, are you saying you don’t have to pay any taxes for the property transferring to you at all because title is then transferring to the next buyer right away?
The way we were setting it up is net to seller on both transactions so first transaction is net to our seller then when we sell its net to us, so we are having the buyer pick up all costs… but I thought you as the buyer had to pay property taxes and then your buyer has to also pay them because its 2 different owners/transactions, or are the taxes just prorated based of you having the property for a day and then due to selling it the end buyer has to pick up the taxes? Please clarify…
Yes. It goes on your HUD for the A to B, but then it gets credited back to you on the B to C. (all of it). They are essentially prorated on the 2nd closing and your share is $0. It’s just on the HUD. I always close with an attorney and he takes care of it.
You provide such great information. The things are cleared up for both the buyers and sellers. We are always looking for this type of information and you not even discuss pros but also problems with solution. Thanks for sharing.
I would like to learn more about Real Estate investing.
There is a wealth of information on all aspects of real estate investing Chad right here on the blog.
Great post. To the point yet very informative. Outlines the details eloquently. Thank you for the information and opinions!
Thanks so much for this. It was clear and concise. I’d love to hear what could go wrong in a double closing. For instance, what happens if A backs out after C already closed?
Rae – Your B to C closing is always with an investor so they would understand the process. However, I have never had that happen so don’t worry about it.
I was able to find good information from your articles.
Thanks for stopping by Jacques.
Really your post is too wonderful. carry on your good work and share your information from us
This is probably one of the best posts that I have come across recently. My favorite blogs are the ones that address the issue and bring in their own perspective to something relating to the reader. Great article keep up the good work.
Thanks for letting me know. I appreciate it.
Sharon – thank you for such an informative post! I haven’t read anything yet that has brought so much clarity to the subject of double-closing and wholesaling. I live in NC and am just starting out in REI. I like the idea of wholesaling and am already in the process of locating motivated sellers. I am definitely going to look into the double-closing process here in this state, and I think I agree with you that it makes sense from a cost-benefit standpoint.
Keep up the good work!
Thanks so much Jason!