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.