There is so much confusion especially for new investors when it comes to doing a double closing. While this subject appears to be complex to some folks, it is really quite straight forward in how it is done.
Since this is a lengthy topic, I am going to break this post into two parts. Today we will go over what exactly a double closing is and exactly how it all works. Tomorrow I will cover what the negatives are, and why I prefer not to do contract assignments.
What Is A Double Closing?
A double closing or simultaneous closing as it is sometimes called is when you (the buyer) actually take title to the property just before you sell it. 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.
How Does A Double Closing Work?
The first part of the transaction which is typically called the A to B transaction is between you and your seller. The second transaction where you sell the property to your end buyer is called the B to C transaction. 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 or HUD-1 is between you and the seller which reflects the amount that you paid for the property. The second settlement statement is the transaction between you and your end buyer and reflects the amount you sold the property for.
What If I Am Not Working With A Cash Buyer?
Now this whole process probably seems very strange to folks that unfamiliar with double closings. However, I can assure you that they are quite common. This process works because the majority of the time I am selling my properties to other investors that are cash buyers. On the occasions when I am not working with a cash buyer, they will be using some type of financing such as hard money, a private lender or an investor friendly bank. 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 which will cover not only the purchase of the property but 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.
How Does This All Work?
The key point to remember is that the certified funds are already in the hands of the attorney at the time of the closing for the B to C transaction, so there is a certainty that the first transaction (the A to B transaction) will close. As soon as the sale to the end buyer is completed, the A to B transaction takes place. 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!
These individual closings are always taking 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 almost always knows that a double closing is taking place. This is never a problem because my buyer is always 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; I make him aware that the house could be fixed up and sold or 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.
A double closing is also called a “simultaneous closing”.
I probably can’t help you with Las Vegas. I dont know that market. I can probably answer general questions that you have though.
Sharon
Rea
on April 6, 2013 at 9:02 pm
Hi Sharon, I found you on BiggerPockets and loved your explanation on “double closings”. I have wondered about this for a long time and now I truly understand it. There was a term that you use regarding the “second closing” and its technical term that it is called. I wasn’t able to decipher the term you spoke of. It sounded like “deed to seir”. I am a newbie and really trying hard to get into the wholesaling area of real estate. I don’t want to be a landlord at this pint in time. I would love to speak with you personally, if that is possible to ask some other things regarding my market and get your thoughts. Thank you again for your clear explanation on this subject.
LouisvilleGalsRealEstateBlog
on January 10, 2012 at 1:28 pm
Vicki – The inspection is something the seller always pays for. It is “optional” and is the buyers choice as far as the bank is concerned. If you were looking at any kind of house, not just bank owned and you decided not to buy, you would be out the money as well. The same goes for any other money you spent such as a termite inspection, appraisal etc.
Vicki
on January 10, 2012 at 1:21 pm
I made an offer on a house, they accepted…..it was a short sale. They also were paying the closing costs. Offer !35,000.00 500.00 earnest money… next step was to get an inspection, that was 300.00 on me After inspection it went to my lender. My realtor had to send the contract back several times because of the strange ways they had things written, when it went to the bank, they felt something was fishy and they felt like the seller didn’t have the title and had no right to sell the house, when ask to show the title they couldn’t or didn’t and I was within my time to drop out of the deal. My Bank felt they were trying to screw Bank of America and were trying to make big profit. They claim they had the right to sell. I found out today its because it was a double closing which was never disclosed or explain to me. They said they didn’t have to give my earnest money back but they did..my realtor told them by law they had to. I also think that they should refund me my 300.00 for inspection. They are emailing me and explaining that everything they did is legal and they don’t have to pay me anything and that I dropped out of the deal and that they didn’t have to give the earnest money back, which they never do, but they did… because they are honest people, but they won’t give me the inspection money back because they don’t have to do that either. Of course we have told them we were going to turn them into the Real Estate Commission. Would like to know if I have any rights to fight for my money back on inspection? Thank you
Anonymous
on April 18, 2011 at 1:03 pm
I’m glad it was helpful.
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on April 18, 2011 at 5:35 am
I have never heard about double closing but after reading this post i got information about double closing and you have described every thing very clearly. Great information for me.
Anonymous
on April 7, 2011 at 8:28 pm
Hi Scott –
Real estate investors in my area do double closings routinely. They’re pretty straight forward so they really aren’t a hassle. Even though they cost me a few hundred extra dollars, it’s worth it to me.
I always buy property in a land trust, and I have to explain that to the seller. I think the average seller wouldl be pretty confused about the process you use, but I’m happy it works for you.
I have heard of more than one closing blowing up at the closing table when the seller discovered how much the investor was making. That’s the main reason I never do assignments. I am always upfront with the seller, and I let him know that I may be reselling the property to another investor to rehab. For me, this is just a cleaner way to close the deal and it’s a lot less stressful for all of us.
It sounds like you have a process that works well for you and in the end, that is what we all want. Take care.
Anonymous
on April 7, 2011 at 3:32 pm
Do investors really still use Double Closings? Seems like a lot of hassle to me. What I prefer is to be totally upfront with the “A” Seller and have him/her place their property’s title in an escrow like trust. Such a trust is not considered a transfer of title or create seasoning issues as long as the original seller remains a beneficiary. The Seller only need assign you an interest in their trust and then both of you simply direct the trust/ee to sell the property to the Buyer and distribute the proceeds as agreed. This only requires one sale and one close.
There is no longer a need for Double or Simultaneous Closings, selling or assigning of a contact, taking title in your name first or the use of any of your own money or credit.
Contrary to what most Realtors, Investors, Title Companies and even some Lenders have heard about using Escrow Like Trusts, I assure you it is with full disclosure, legal and is done every day by “those in the know”. This has been my business for going on 13 years now.
~ About Sharon
Hello from Louisville, KY, and thanks for stopping by my blog!
I love this business, and I am passionate about helping other people become successful real estate investors.
Come along with me on my journey as I create a business and a lifestyle that I love.
A double closing is also called a “simultaneous closing”.
I probably can’t help you with Las Vegas. I dont know that market. I can probably answer general questions that you have though.
Sharon
Hi Sharon, I found you on BiggerPockets and loved your explanation on “double closings”. I have wondered about this for a long time and now I truly understand it. There was a term that you use regarding the “second closing” and its technical term that it is called. I wasn’t able to decipher the term you spoke of. It sounded like “deed to seir”. I am a newbie and really trying hard to get into the wholesaling area of real estate. I don’t want to be a landlord at this pint in time. I would love to speak with you personally, if that is possible to ask some other things regarding my market and get your thoughts. Thank you again for your clear explanation on this subject.
Vicki – The inspection is something the seller always pays for. It is “optional” and is the buyers choice as far as the bank is concerned. If you were looking at any kind of house, not just bank owned and you decided not to buy, you would be out the money as well. The same goes for any other money you spent such as a termite inspection, appraisal etc.
I made an offer on a house, they accepted…..it was a short sale. They also were paying the closing costs. Offer !35,000.00 500.00 earnest money… next step was to get an inspection, that was 300.00 on me After inspection it went to my lender. My realtor had to send the contract back several times because of the strange ways they had things written, when it went to the bank, they felt something was fishy and they felt like the seller didn’t have the title and had no right to sell the house, when ask to show the title they couldn’t or didn’t and I was within my time to drop out of the deal. My Bank felt they were trying to screw Bank of America and were trying to make big profit. They claim they had the right to sell. I found out today its because it was a double closing which was never disclosed or explain to me. They said they didn’t have to give my earnest money back but they did..my realtor told them by law they had to. I also think that they should refund me my 300.00 for inspection. They are emailing me and explaining that everything they did is legal and they don’t have to pay me anything and that I dropped out of the deal and that they didn’t have to give the earnest money back, which they never do, but they did… because they are honest people, but they won’t give me the inspection money back because they don’t have to do that either. Of course we have told them we were going to turn them into the Real Estate Commission. Would like to know if I have any rights to fight for my money back on inspection? Thank you
I’m glad it was helpful.
I have never heard about double closing but after reading this post i got information about double closing and you have described every thing very clearly. Great information for me.
Hi Scott –
Real estate investors in my area do double closings routinely. They’re pretty straight forward so they really aren’t a hassle. Even though they cost me a few hundred extra dollars, it’s worth it to me.
I always buy property in a land trust, and I have to explain that to the seller. I think the average seller wouldl be pretty confused about the process you use, but I’m happy it works for you.
I have heard of more than one closing blowing up at the closing table when the seller discovered how much the investor was making. That’s the main reason I never do assignments. I am always upfront with the seller, and I let him know that I may be reselling the property to another investor to rehab. For me, this is just a cleaner way to close the deal and it’s a lot less stressful for all of us.
It sounds like you have a process that works well for you and in the end, that is what we all want. Take care.
Do investors really still use Double Closings? Seems like a lot of hassle to me. What I prefer is to be totally upfront with the “A” Seller and have him/her place their property’s title in an escrow like trust. Such a trust is not considered a transfer of title or create seasoning issues as long as the original seller remains a beneficiary. The Seller only need assign you an interest in their trust and then both of you simply direct the trust/ee to sell the property to the Buyer and distribute the proceeds as agreed. This only requires one sale and one close.
There is no longer a need for Double or Simultaneous Closings, selling or assigning of a contact, taking title in your name first or the use of any of your own money or credit.
Contrary to what most Realtors, Investors, Title Companies and even some Lenders have heard about using Escrow Like Trusts, I assure you it is with full disclosure, legal and is done every day by “those in the know”. This has been my business for going on 13 years now.