As a real estate investor, you may want to entertain the thought of a double closing, otherwise known as a simultaneous closing. As the name suggests, there are two closings – the original closing when you purchase the property from the seller (A to B transaction) and the second closing when you sell the property to the end buyer (B to C transaction).
Ultimately, a double closing makes you the ‘middleman.’ You buy the property for a low price from the seller and sell it at a higher price to the end buyer. You walk away with a profit and no property to manage. It’s a win-win for investors.
How Double Closing Works
It sounds complicated right?
It doesn’t have to be. Here’s a breakdown.
You secure temporary funding to buy the home from the seller. With your real estate expertise, you’re able to locate under-priced homes or negotiate great deals with motivated sellers.
Still using your real estate expertise, you’ll find a buyer willing to pay the market price for the home. See the difference? You buy low and sell high – the traditional investment theory that works every time.
Since it’s a simultaneous close, you buy the property in one closing with a separate Closing Statement and closing process, and turn around and close the next transaction, sometimes that same day and sometimes within weeks of the original closing.
No matter when you sell the property, you’ll always be on the chain of title as an owner, no matter how brief the ownership. Once you close the B to C transaction, you use the funds to pay off your original (temporary) loan and walk away with the profits.
Why Should You Consider A Double Closing?
Real estate investors specializing in double closings do the original sellers a favor. They are often sellers in dire circumstances that need to sell their home fast. Many want to keep their identity anonymous because of the situation or they want a fast transaction, which wholesalers, such as yourself, can offer in this situation.
Essentially, you work as the ‘agent’ finding an end-buyer for the home, but you take the home off the seller’s hands. In most transactions, the wholesaler (you) finds a buyer quickly – within 30 – 45 days for the fastest turnaround and quickest profits.
What You Should Know
If you want to use double closing as an investor, first you need a title company familiar with the process. This is especially important if you plan to do back-to-back closings because you have a large network of buyers.
Next, you must determine your fee that you’ll charge the seller. Some wholesalers charge a flat fee and others charge a percentage of the sale. Determine the average for the area so that you’re competitive if there are many wholesalers near you.
Finally, you’ll need funding. Where will you get the money? If you don’t have cash, you’ll need a fast funding option. Traditional mortgages won’t work. You need either a hard money lender or other non-traditional funding that can provide the funds quickly.
You may even want ‘flash cash,’ or an extremely short-term loan. Hard money lenders offer this option. It’s a loan that you must pay back in an extremely short amount of time (1 – 7 days). Wholesalers use this when they won’t keep possession of the property for more than an hour or two in between closings.
If you’ll find a buyer and close within 30 – 45 days, a traditional hard money loan is a better option. The hard money loan requirements may be slightly different than what you’d traditionally need. Since your repayment relies on the end buyer (B to C transaction), the hard money lender may require a loan commitment from the end-buyer to approve your funding.
Should You Be A Wholesale Investor?
Double closings as a wholesale investor can be exciting and stressful at the same time. If you thrive on finding undervalued properties and helping end buyers secure a property, it could be a good real estate investment venture to try.
Make sure you’re aware of the terms and what’s on the line if you don’t pay transactional funding back right away. Wholesalers often have years of experience in the real estate industry and most specifically in real estate investing to get the most out of the process.