Truly great wholesalers are smart enough not to entertain a deal without a proper exit strategy in place. To that end, the most prolific wholesalers of our time are always one step ahead; they know impending wholesale deals require not only one exit strategy but two. The ability to exercise multiple closing options at any given close is a credit to any investor and can easily tip the scales in their favor. Of particular importance to today’s wholesalers are the two most common methods for closing a deal: selling a contract and double closing.
Whereas most wholesalers favor the contract assignment method, it’s in their best interest to have a backup plan: the double closing. Otherwise referred to as a double escrow, a double closing is intended to facilitate a wholesale deal if a contract can’t be assigned; it’s a Plan B and a valuable one at that. Acquainting yourself with the double close real estate strategy could mean the difference between a good career and a great career.
What Is A Double Closing?
A double closing is an alternative wholesaling strategy to the wildly popular contract selling method. More specifically, however, double closings will witness an investor actually purchase a subject property, only to turn around and sell it fairly quickly—hence the name double closing. A double closing will literally have an investor close two independent deals (one with the original seller and one with the final buyer). A double close isn’t all that different from how you would typically buy and sell a property; it just happens in a much shorter period. It is not uncommon for double closings to occur over hours, days, or weeks.
To put things into perspective, a double closing will have two separate transactions. The first transaction will occur between the home’s original seller and the investor that intends to wholesale the property. Therefore, the second transaction is between none other than the wholesaler and the new buyer. That’s an important distinction to make, as a double close must consist of two individual transactions, each of which has its own settlement statements.
The first set of settlement statements, referred to as the HUD-1, will outline the deals agreed upon numbers—how much you have negotiated to buy the property for. Not surprisingly, the second statement will identify how much you have agreed to sell the same property to a final buyer.
When it comes time to sell the deal to another buyer, you will enter into a second purchase and sale agreement, only this time, it’ll be contingent on the first closing (the one that had you buy the property from the original owner). As a result, you must disclose that there is another agreement that must close before the subsequent agreement can move forward. To be clear, you must disclose everything about the first transaction to the parties involved in the second transaction.
If you have yet to sign any double closing contracts of your own, I highly recommend seeking legal advice. Don’t make any moves until a legal professional has made sure everything is on the up and up. A double closing real estate transaction isn’t rocket science, but many rules need to be followed. With a legal representative in your corner, there’s no reason you shouldn’t know how to do a double closing within the confines of the law.
Throughout a double closing, investors will incur the standard fees associated with a real estate closing, which are directly correlated to the state in which the transaction takes place. What’s more, the investor will be added to the chain of title, as they briefly owned the property at one point.
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Double Close Vs Contract Assignment
As I already alluded to, there are two primary wholesaling strategies: contract assigning and double closing. The latter I went over in-depth already, but the former has several differences that warrant your attention: the transfer of ownership or lack thereof. Whereas a double closing will have a wholesaler purchase the property (therefore being committed to the chain of title), assigning a contract will not require the wholesaler to purchase it. Instead, contract assignment (otherwise known as selling a contract) wholesale strategies will witness wholesalers sell their rights to purchase the subject property—not the property itself. That’s worth repeating: when you sell a contract, you are not selling the property—you are selling your right to buy the property to another investor.
Over the course of a contract assignment wholesale deal, the investor will sign a contract with the seller that gives them the right to buy the property. The contract legally gives the investor “equitable interest” in the subject home; they do not have a claim to the title. Therefore, when the contract assignment occurs, the investor is selling their rights within the terms already agreed upon with the original seller.
Unlike a double closing, contract assignment will never have an investor take title to the home, nor will they show up on the chain of title. Perhaps even more importantly, a contract assignment typically won’t require any funding on behalf of the investor. Instead, the new buyer will be paying the investor for the rights to buy the home.
Does A Buyer Need Cash In A Double Close Deal?
Cash is the single most impactful form of capital when conducting a double closing. If for nothing else, cash facilitates the speed necessary to make a double close possible. Sources of cash may include, but are not limited to:
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Home Equity Lines of Credit (HELOCs)
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Private Money
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Hard Money
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Self-Directed IRAs
While cash is inherently the single greatest way to conduct a double close, it isn’t necessary. Wholesalers who don’t have their own cash may try to seek approval for short-term transactional funding (otherwise known as “flash cash” or same-day funding) to secure the deal. Again, cash is ideal, but it’s not the only way to conduct a double close.
When To Use A Double Close
The double close real estate wholesaling strategy is typically best relegated to a reserve role. That’s not to say double closing in real estate isn’t a viable option, but rather that it’s usually better to assign contracts when possible. The best time to conduct a back-to-back closing is when selling a contract isn’t an option.
There are two primary reasons a double close should serve as an alternative to selling contracts: funding and fees. For starters, selling a contract can be completed in as little as a few hours without needing any funding of your own. Thus, the final buyer is actually the one paying you for the opportunity to buy the home. Perhaps even more importantly, however, selling a contract isn’t saddled with the fees that have become synonymous with real estate transactions. As I already mentioned, a double close will require investors to pay all the fees and costs that typically accompany transactions in the real estate industry. Therefore, if you want to avoid paying additional fees, assigning a contract will be a better alternative.
Pros And Cons Of Double Closing
The ability to conduct a double close is invaluable to investors. However, not unlike any other strategy, a double close has both pros and cons that must be weighed against each other. Let’s take a look at some of the reasons investors may want to consider conducting a double close and some of the reasons they may not want to.
Pros Of Double Closing
Double closings are an important tool for investors to have at their disposal. Here are some of the most important reasons it’s good to know how to conduct a double close
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A double closing gives real estate investors optionality. If assigning a contract won’t work, the ability to facilitate a double closing makes the possibility of a deal transpiring much more likely.
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In most states, a double close is treated just like a traditional close, which doesn’t require a licensed real estate agent.
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Wholesalers do not need to disclose prices to the end buyer because it is an entirely different transaction.
Cons Of Double Closing
Double closings aren’t without their drawbacks, not the least of which include:
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As their names suggest, double closings represent twice as much work. Investors will, quite literally, close two separate deals, calling for twice as much work.
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Double closings can be stressful, as there are multiple chances for indecisive parties to back out of a deal.
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Double closings are illegal in some states, so it’s important to check with local laws before moving forward with this strategy.
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Since double closings aren’t common, investors will come across closing agents who either don’t know how to do them or simply won’t do them at all.
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Since double closings have a lot of moving parts, it can be hard to align schedules for everyone involved in a deal.
Summary
Selling a contract has proven to be a viable exit strategy for today’s wholesalers. However, a contract assignment may not be in the cards for many reasons. Therefore, investors need to know how to conduct a double closing; that way, they can increase their odds of realizing a successful deal. At the very least, access to each strategy will see to it that you can follow through with more deals.
- While a double closing is most certainly a viable wholesaling strategy, it’s usually an alternative to the contract assignment method.
- To double close real estate deals, investors will need to actually complete two independent transactions.
- Real estate double close strategies are often misunderstood, but that doesn’t make them any less viable.
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