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What Is A Double Closing? A Real Estate Wholesaling How To

by Sharon Vornholt on December 10, 2012 · 49 comments

  
Double Closing

There always seems to be a lot of confusion about double closings. They are especially difficult to wrap your arms around when you are brand new. Here is the definition of a double closing:

“A double closing (also called a simultaneous closing) is where you will close the A to B transaction with the funds from the B to C transaction”.

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 reason I really like doing this type of closing is that you do not need to bring any of your own money to the closing.

How Does A Wholesaling Double Closing Work?

There are two parts to the transaction. The first part of the transaction which is typically called the A to B transaction is between you and your seller; this is where you buy the property.

The second transaction where you sell the property to your end buyer is called the B to C transaction. I am almost always funding the A to B transaction (my original purchase) with the funds from the B to C transaction since I am a wholesaler. To put this type of transaction in the simplest of terms, my end buyer is bringing all of the money to the closing for both transactions.

There are two separate closings and therefore there are two HUD-1 statements. One closing statement is the transaction between you and your seller which reflects the amount that you paid for the property. The second closing statement is the transaction between you and your end buyer. This reflects the amount you sold the property for.

Does my buyer actually need cash?

I only work with cash buyers. So what is a cash buyer? A cash buyer is anyone that shows up with cash, but that cash can be from a variety of different sources. Your buyer may actually have cash in the bank, but it is much more likely that cash will come from another source. It might be from:

  • A line of credit or HELOC (home equity line of credit)
  • Private Money
  • Hard Money
  • Self-Directed IRA’s
  • An investor friendly bank. (These loans are as good as cash and can usually be closed in 10-14 days).

The Secret Sauce

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. These two closings will generally take place 15–20 minutes apart. Once the B to C transaction is completed, the A to B transaction takes place. The funds that I just “made” on the sale of my property are actually used for my original purchase (the A to B transaction). I just love this process!

Look for part 2 of this article next week where I will talk about why I don’t typically assign the contract, using a traditional lender and whether there is a downside to doing double closings.

Photo: Tim Pierce

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{ 49 comments… read them below or add one }

Brian Padgett December 10, 2012 at 2:47 pm

Great job of explaining this process Sharon. I’ve never personally used this transaction method but know a lot of people do. I currently have a multi-family deal that I may take this route on. Thanks for sharing!

Brian Padgett – Real Estate Expert

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Sharon Vornholt December 10, 2012 at 3:04 pm

Brian –

It takes a while to wrap your brain around the fact that this is possible. One of the best decisions that I ever made was to use a closing attorney that was also an investor. He is very active in our local REIA. Everything is done by the book, but he knows about these types of things like double closings.

Sharon

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Brian Padgett December 10, 2012 at 5:22 pm

Thanks for the advise on the closing attorney Sharon. Is this someone you hired independently or is he part of another team such as the Title Company or REA? If independently, where would you suggest starting if I wanted to identify someone with this kind of background?

Brian

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Sharon Vornholt December 10, 2012 at 5:28 pm

Brian –

My closing attorney is also a member of my REIA group. I’m betting you have at least one in yours. Just ask around. Most folks in our group use the same couple of attorneys.

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Brian Padgett December 10, 2012 at 5:31 pm

Perfect! I will jump on this. Thanks again!!

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Sharon Vornholt December 11, 2012 at 12:50 pm

Great.

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Chris December 12, 2012 at 9:17 pm

Make sure to do your homework, state laws differ on the issue of whether it’s legal for the flipper/wholesaler to use his buyers’ funds to close on his purchase. In my experience, most states require you to use different funds for the A-B and B-C transacitons. Your area title companies will generally have a good grasp on your states’ rules, so have a good heart-to-heart with the title company before you embark on any double-closing deals using the end buyer’s funds.

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Sharon Vornholt December 13, 2012 at 7:41 am

Chris –

Since I work with an attorney, I know there are no problems doing this in KY. But each person does need to be clear on the laws of their individual state. Even in states where this practice is common, some non-real estate attorneys aren’t really familiar with this practice.

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Roy April 20, 2013 at 10:11 am

Exactly, in Alaska they can be done, but you have to use transactional funding, if you don’t have the money to buy outright yourself, due to the fact you have to show “wet” funds available and be able to access them because its required that the A to B sale be conducted first. The restrictions here for creative investors are very harsh unless you have a real estate license. Just means you have to be even more creative!

Roy

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Sharon Vornholt April 20, 2013 at 10:28 am

Roy –

Transactional funding is always another way to do it. Different states have different laws. Either way, you really can close the deal with none of your own money.

Thanks for your comments.
Sharon

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Colm McCormack December 13, 2012 at 3:50 pm

Sharon, nice job explaining a double close. Il ike reading your articles. I just did a double close an hour ago. I typically do about 25 doubles a year in CO. In CO, the only restriction on doubclosings are if the house is in default AND the borrower lives in the property when they sign the contract. In thatt case the buyer has to hold the property 14 days IF they have an agreement to resell it with a subsequant buyer PRIOR to the disbursement of the funds on the AB side of the transaction. Sounds confusing but easy to comply with.

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Sharon Vornholt December 14, 2012 at 8:15 am

Coln –
It’s great to hear someone is taking advantage of this awesome strategy.

Sharon

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Will Barnard December 14, 2012 at 4:42 pm

Double closings, back to back closings, simultaneous closings, wet closings, dry closings – unfortunately many of these terms have been intertwined and mixed up. I made numerous posts on the topic to at least have a BP Nation universal definition so that we all have the same verbiage for the proper instance.

To me, a double closing can be either a simultaneous or back to back which is A-B closes with separate funds from B-C.

Here in LA County and most other counties in CA, you can not do a simu close simply because we have funding day, then recording day the following day. Also, most title companies here and in many other states do not allow simu closings, not because they are illegal, but because they won’t insure title due to company policies.

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Sharon Vornholt December 15, 2012 at 8:27 pm

Will – That is interesting to know.

Sharon

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Paul Leason December 18, 2012 at 8:40 pm

Sharon, interesting article and I was trying to do exactly this with my Title Agency here in Michigan. I had 4 properties under contract with the same seller and wanted to sell them on to the final buyer. The title company suggested I had to do 2 separate closings, meaning 2 sets of Title Insurance, 2 sets of Closing costs and 2 sets of Sidewalk inspections! Double cost! And for all of this to happen, I needed to allow 2-3 days between the transactions! In the end, we changed the PAs and had Buyer C purchase direct from Seller A, with C cutting me a check for my Assignment Fee. Just as well Buyer C was reasonable and knew that I would be making money out of the deal! So with the Double Closing, can that be done without additional sidewalk inspections? Or is that just a Michigan thing? The Siedwalk Inspection is only good for 1 Sale.

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Sharon Vornholt December 19, 2012 at 7:25 am

Paul –

I have never heard of a sidewalk inspection. We don’t do those here.

I never have to buy title insurance unless there is some question about the title which has only happened 2 or 3 times over the years. My buyer will buy title insurance though.

I do pay double closing costs which in my case is about $350 on each transaction, but the whole double closing takes maybe 30 minutes tops.

I know that every area is different, so I guess I’m pretty lucky the way we can do it here.

Sharon

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Shaun December 19, 2012 at 7:47 pm

I am no lawyer and thank the lord I have never had this issue, but I believe that not getting title insurance when doing a double close does put you at some risk.
IF there turns out to be a title issue and your end buyer puts in a claim once they pay the insurance company tries to cover its loss and the first person to go after for restitution is the previous owner.
So you are the last owner of record even if the deed was passed on the same day.

Again I have no personal experience with this happening nor am I 100% positive about what I am saying but that was my impression and basically what my RE attorney told me.

Doesn’t mean you should buy it on all these double closings, but it might no be a “I don’t need to buy it” vs. “I am taking a calculated risk and not buying it” situation.

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Jason lam December 19, 2012 at 1:39 pm

Thanks for the explanation any chance you have a detailed example of how a double closing would work. Do you line up the buyers before you look for the property?

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Sharon Vornholt December 19, 2012 at 6:24 pm

I have a buyer’s list, but I find a property and then find the right buyer. That’s just the way it tends to work out. I do however, know where they like to buy. I also know where they won’t buy.You have to understand what a desirable property is for the folks on your list, and what price investors in your area want to pay in a particular area.

I generally send the first contract on over to my closing attorney especially if it is a probate. I want to make sure everything is in order with the estate. Sometimes there is a 30 day or longer wait with those. As soon as I have the second contract I will fax it on over to the closing attorney and set a date for the closing.

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Deborah April 15, 2013 at 2:33 pm

Great article and podcast Sharon. One question: Your end seller gives you a certified check made out to you or your company for the full amount including your wholesale fee. Then you walk next door with that check to close on the A to B portion. Since you haven’t deposited the certified check into your bank account so you can draw on it, how do you pay for the A to B purchase? Will the closing attorney let you endorse the certified check over to the A seller less your wholesale fee?

Thanks

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Sharon Vornholt April 15, 2013 at 2:43 pm

Deborah –

The funds to close are always made out to the closing attorney. It goes in his escrow account, and he cuts the check so there is no problem with the “money” end of this. I’m glad you enjoyed the podcast. Wholesaling is actually pretty simple, but it can be hard to wrap your brain around in the beginning.

Sharon

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Al Misuraca Jr May 30, 2013 at 7:42 pm

Hello Sharon:

How do we listen to your old podcasts on wholesales? And is it necessary to LLC your company in order to close a deal between sellers and buyers?

Thanks,

Al

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Sharon Vornholt August 28, 2013 at 2:19 pm

Hey Al – I’m not sure how this comment was missed but I apologize.

All of those podcasts are here on BiggerPockets. You can find all of them on this page: http://www.biggerpockets.com/renewsblog/category/podcast/

You don’t have to have an LLC to buy and sell real estate.

Sharon

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Henry August 27, 2013 at 10:18 pm

Hello Sharon
Great breakdown if a double closing. My question is do you have to be a RE Agent or Broker to do this type of deal?

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Sharon Vornholt August 28, 2013 at 2:21 pm

Henry –

You do not have to be a Real Estate agent to double close. In fact, most Realtors don’t understand this process unless they are an investor.

The one thing you must have is a closing attorney/ or title company that works with investors and knows how to do this. My closing attorney is also an investor.

Sharon

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Seth Williams January 25, 2014 at 11:16 am

Nice set of posts on double closings Sharon. Do you have any tips for finding an investor-friendly bank? Seems like those don’t exist in my area.

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Sharon Vornholt January 25, 2014 at 12:47 pm

Thanks Seth.

I think they are in almost every area, but it might take some detective work. You might also have to look up to 60-70 miles away. Think small town, small bank. They will always be smaller, local banks that do most of their loans in-house. We have a couple here that are known for working with investors.

I just did a closing with a guy in my area that uses a bank about 1 hour away. This bank works with a lot of investors in Louisville and on a side note, they actually do mostly commercial loans. At my last closing I had a lot of time to talk to the guy while we waited.

Also they almost always do shorter loan terms such as 15-20 years, and they function like cash buyers in that they can close in 7-14 days. These folks actually network at times at our REIA.

Have you asked some of your really active investors in your REIA who they use?

Sharon

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Robert March 3, 2014 at 11:34 am

Hi Sharon…great article! Please forgive me if I missed this as I am new to investing. I think I understand most of the process but what I am confused on is once I have a deal in place with the seller since I have not closed on the house yet and if I am wholesaling a REO and therefore can’t assign the contract, what is my legal agreement between myself and my end buyer? Do I just complete a second contract listing me as the owner with the address of the property I am wholesaling even though I technically do not own it yet? Then send that contract along with any earnest deposit I am asking for from the end buyer to the title company to solidify the deal before the closing date? Thanks for your help!

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Sharon Vornholt March 3, 2014 at 4:20 pm

Robert –

You just write up one contract between you and the seller. That is the A to B.

You then write up a contract between you and your end buyer – the B to C. I get at least $1000 from a buyer that I know, and at least $1500 non-refundable deposit money from my end buyer. No exceptions. My buyer’s never back out, because they don’t want to lose their money.

If I don’t know they buyer, they have to give me a proof of funds letter along with the signed contract. Again, no exceptions.

When I buy a property I buy (and sell) in a land trust. So if I am buying 123 Main, it is the “123 Main Land Trust, S. Vornholt trustee. I will sell in the same name. Don’t worry about not owning it. Once you have the house under contract, you have the legal right to “sell the contract”. That is really what you are doing.

We use closing attorneys here rather than title companies. There are no problems for me doing double closings. But you want to find that title company BEFORE you put a property under contract. Not every one of them will do double closings. I hope this helps.

Sharon

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Peter March 31, 2014 at 11:12 am

Sharon, can you please explain how you close B to C before A to B? You don’t own the property, so how can you sell it to your buyer?

If your method works in California, then there’s no reason for me to pursue using transactional funding.

Thx

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Sharon Vornholt March 31, 2014 at 1:38 pm

Peter –

Everyone is there, they are just in two rooms. The B to C buyer brings certified funds to the closing for his purchase so you know the money is there. We sign those documents, the money is collected, and the buyers wait. Nothing else happens at this point.

Then the closing attorney and I walk into the next room, I buy the property, sign the documents and the attorney leaves to cut the checks.

All the documents are now signed and everyone waits. This is just about all of the documents being signed and the order of when the money is dispersed; nothing more.

He then goes and gets the copies made for everyone, cuts my check and my seller’s check and we are done. It all takes less than 30 minutes. BTW – a lot of my buyers (always an investor) use an investor friendly bank for their cash. None of these banks object, and they are all familiar with the process.

You just have to find an attorney or title company that will do this. There is nothing illegal about it. It’s just paperwork. My attorney is also an investor himself. This is common practice in KY. I have never used transactional funding.

Sharon

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Yonori June 25, 2014 at 10:10 am

Hi Sharon,

Your article has been very helpful seeing as how I am completely new to the business and needed further understanding.

I would like to know, why would a HUD-1 be needed if I am using a cash lender? Is it because it is still a loan?

Also, if it is needed, which would I use Conv. Unins. or Conv. Ins.

Thanks,
Yonori

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Sharon Vornholt June 25, 2014 at 4:06 pm

Yonori –

The HUD 1 is required. It is the paperwork used in the transaction. I don’t understand the last part of the question.

Sharon

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Yonori June 26, 2014 at 7:26 am

Thank you for replying,

Re: Also, if it is needed, which would I use Conv. Unins. or Conv. Ins.

On the Hud 1 – Part B requests for the type of loan. 1. FHA 2. FmHA 3. Conv. Unins 4. VA 5. Conv. Ins.
Which one of these choices would I use if the purchase is being done with a cash buyer?

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Yonori June 26, 2014 at 7:27 am

Thank you for replying,

Re: Also, if it is needed, which would I use Conv. Unins. or Conv. Ins.

On the Hud 1 – Part B requests for the type of loan. 1. FHA 2. FmHA 3. Conv. Unins 4. VA 5. Conv. Ins.
Which one of these choices would I use if the purchase is being done with a cash buyer?

Thanks,
Yonori

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Sharon Vornholt June 26, 2014 at 8:11 am

Yonori –

The HUD 1 is prepared by the closing attorney or the title company; not you. Don’t worry about this.

Sharon

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Jaxsun July 6, 2014 at 1:46 am

Hi Sharon,

From what I understand, one of the advantages of simultaneous closings is that the seller does not know how much you made on the assignment fee. I’m wondering why it’s not possible for the seller to still find out at settlement if the A-B close and the B-C close are being done at the same time? And if the property is under contract, isn’t the seller obligated to exchange title for the agreed amount regardless of whether or not they don’t like that you made “too much” on an assignment fee?

Thanks in advance,
Jaxsun

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Sharon Vornholt July 6, 2014 at 9:54 am

Jaxsun –

When you do a double closing, you are not doing an assignment. They are two distinct closings, and you are in different rooms. With an assignment, there is only one closing between your seller and your end buyer.

With a double closing, the seller has no knowledge of the fact that you just closed the B to C (first) in another room and you are using those funds to close the A to B. All they know is that you are buying their home.

The seller can walk away from the deal at any time; even at the closing. Your only recourse would be to sue them which would cost more than you would be making in most cases. We just don’t do that.

Sharon

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Jaxsun July 7, 2014 at 12:38 pm

Sharon,

Thanks you for clearing up the closing process. So is there anything to stop a seller from walking away from the deal if my buyer (or any buyer) contacts the Seller with a better offer after I get the property under contract?

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Sharon Vornholt July 7, 2014 at 1:23 pm

Jaxsun –

I have never had that happen, but there are some folks that record the contract. If you are dealing with reputable investors (your end buyer as a wholesaler) they won’t do that. They would be off my list (and everyone else’s list) in the blink of an eye for that.

Sharon

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Jaxsun July 8, 2014 at 5:06 am

Got it. Thanks for clearing that up for me Sharon. This post was very helpful for me!

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Sharon Vornholt July 8, 2014 at 1:28 pm

Jaxsun –

It can be confusing in the beginning. Thanks for reading.

Sharon

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Maria July 15, 2014 at 1:31 pm

great article!! it has been very helpful. I am fairly new in this business and i am in the process of gathering all information and document needed before going ahead with finding a buyer and a seller. When finding a buyer or a seller what marketing techniques do you recommend?? also I have decided to work with the lease to own option, but once the term of the lease option is over i will need to do a double closing or an assign contract right?? I have bought and looked at a couple contracts online to do both the lease to own and the closing sale but havent found the right contract. where do you recommend i look for the right contracts to use? and is there any additional information you might have that would be helpful in getting started?

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Sharon Vornholt July 15, 2014 at 3:27 pm

Maria –

There are a number of marketing strategies from direct mail, bandit signs, looking on Craig’s List, websites etc. How much money you have to spend will determine in part which strategy you will use. I have written a lot about marketing here on BP. You can go back and look at all my posts.

You will need forms that are for your state. I would attend your local REIA and look for an attorney in there. You can probably get forms from someone at that meeting that does LO.

I don’t think you are quite ready to buy yet. I would do some more learning before jumping in. Follow the people on this site that do LO. You can also look in the “file place” here on this site and probably find forms

Sharon

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Maria July 15, 2014 at 1:31 pm

great article!! it has been very helpful. I am fairly new in this business and i am in the process of gathering all information and document needed before going ahead with finding a buyer and a seller. When finding a buyer or a seller what marketing techniques do you recommend?? also I have decided to work with the lease to own option, but once the term of the lease option is over i will need to do a double closing or an assign contract right?? I have bought and looked at a couple contracts online to do both the lease to own and the closing sale but havent found the right contract. where do you recommend i look for the right contracts to use? and is there any additional information you might have that would be helpful in getting started?

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Wisly D September 15, 2014 at 8:53 am

Great article, thank you for taking the time to share your expertise.

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Sharon Vornholt September 15, 2014 at 9:08 am

Thanks for reading. I appreciate it!

Sharon

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dave trier October 1, 2014 at 10:17 pm

Sharon,

Thank you for providing all of this information. Can you give me any advice for purchasing a house from a wholesaler to use as my primary residence? I would be the end buyer. I am hoping to save some money in this process rather than paying retail via the MLS. I plan on having the property inspected by both a general contractor and pest inspector, using a title company, and hiring a closing lawyer. Does this sound appropriate to you? Are there any wholes in my plan?

Thanks much,
dave

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Sharon Vornholt October 2, 2014 at 10:35 am

Dave –

You can certainly buy any house this way. I can tell you this, a conventional mortgage company won’t do this. Find a local investor friendly bank to do the deal. They will have a shorter loan term – probably 20 years. Then you can refinance into a longer term if you need to.

Sharon

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