In my last post I discussed exactly what a double closing(simultaneous closing) was and how it all works. Today I want to go over some of the other points such as using traditional lenders to fund the closing and whether or not there are any negatives to double closings.
Are There any Negatives to a Double Closing?
Not in my experience. In my area, we use closing attorneys rather than title companies for all of our closings. It only costs me about $300.00 – $350.00 on average for each closing, so in this case I am paying about $350 more than if I assigned the contract. In most cases, I only own the property for about 5 – 10 minutes so I rarely buy title insurance when I am wholesaling properties. If there are any unknowns that come up in the title check, I will be required to buy title insurance in these cases.
Be sure to familiarize yourself with how things are done in your area. I have heard that some title companies won’t do double closings.
Can I Use a Traditional Lender?
Things get trickier if you are wholesaling a house and your buyer wants to use a traditional bank. The 90 day rule has been suspended for now, but in the past you would run into a seasoning issue. Seasoning is a term to describe how long a person has owned the house. Some of the banks wouldn’t fund the deal unless it had been owned by one person for at least 90 days. These rules were originally put into effect to protect homeowners from that small percentage of unscrupulous investors who were out to take advantage of folks. Investor friendly banks will almost always be familiar with double closings.
What if I Want to Just Assign the Contract?
This is a personal decision, but I don’t like doing assignments unless my assignment fee is small and I know the other investor. In my area, there isn’t a single investor that is going to pay me a large assignment fee upfront before the day of closing. So that means we all have to show up at the closing. Once your seller finds out exactly how much you are making on the deal, the probability of the deal blowing up increases dramatically. That sweet deal you negotiated just may go up in smoke. The larger your assignment fee, the higher the probability this will happen.
I always tell my seller from the very beginning, that I am not sure what I will be doing with the property. I let them know that at times I pass on properties to other investors, and they are always clear on the fact that my intention is to make money from this transaction. However, knowing this “intellectually” does not really alleviate the problem when they see just how much you made right there on the HUD1.
So What’s The Answer?
For me, I almost always do double closings; I think it is easier and cleaner. I have only assigned the contract a few times in my real estate career. The advantages of doing simultaneous closings far out weigh the fact that I have to pay a little more in closing costs. My advice is to pick what works best for you.
If you missed last week’s article on Double Closings, here is the link. If you have any questions or comments about this article, please leave it below and let’s talk!
Photo: Kevin DooleyShould I Use A Double Closing? by Sharon Vornholt