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
{ 21 comments… read them below or add one }
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
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
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
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.
Perfect! I will jump on this. Thanks again!!
Great.
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.
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.
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
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
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.
Coln -
It’s great to hear someone is taking advantage of this awesome strategy.
Sharon
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.
Will – That is interesting to know.
Sharon
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.
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
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.
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?
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.
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
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