Should I Use A Double Closing?

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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 Dooley

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About Author

Sharon has been investing in real estate since 1998. She owned and operated a successful home inspection company for 17 years. In January of 2008 she took the leap of closing her business to become a full time real estate investor.

26 Comments

  1. Brandon Turner

    Thanks for the great info Sharon. I’ve honestly never understood why people use double closings instead of assignments – but it makes much more sense now. Does this same strategy work when buying bank repos – since banks don’t let people do “and/or assigns” on the purchase & sale agreement. If so – I think I’ll start doing more wholesaling like this.

      • Hi Sharon,
        Thanks for a clearly written article.

        We’re wondering what’s in it for a bank to sell you their REOs, esp. if you don’t show proof of being able to fund the purchase? Also, if it’s an investor/cash buyer buying the REO from you, couldn’t they just get the info. on the property from the bank and figure out your profit? The REOs we’ve looked at don’t necessarily appear to be deeply discounted; we doubt that a cash buyer would pay the bank’s asking price for them, let alone our asking price.

        • Ang –

          I know people that do double closings with bank owned properties, but not all banks will allow that. Investor friendly banks are much more likely to do those. REO’s today aren’t necessarily deeply discounted. In fact, many of the are overpriced because they were upside down.

          I don’t work with REO’s. My niches are probates and absentee owners, so I deal directly with sellers which is a whole different ball game and much easier too.

          Before you ever attempt to wholesale a property to your end buyer, you must have the property under contract whether it is with a bank or a motivated seller. They don’t have any way of “stealing” the deal. You have it locked up with a contract.

          Sharon

  2. Excellent points. Lets also discuss the tax ramifications.

    I belive that with double close, uncle Sam will treat it as short term capital gain. where as an assignment with straight fee payment will be treated as regular income? Which is worse probably depends on your marginal tax? I’m just shooting from the hip here. Any pro feedback would be greatly appreciated.

    • Well Daniel you sure opened a can of worms with that question…

      First let me say that you are absolutely right that Uncle Sam will treat a double close as a short-term capital gain since you would actually be taking ownership of the property. All things being equal, though, there is no significant tax difference between the two options since short-term capital gains are taxed at ordinary income tax rates.(That being said, all things are NEVER equal when it comes to taxes….There are of course a gazillion other tax ramifications that should be considered such as self-employment tax on the contract assignments, dealer status which means no capital gains, etc., which should all be discussed with your tax pro.)

      I <3 taxes :)

  3. Sharon, you have seriously got me thinking! I have only been involved in one double closing and I was the “C”. The “B” did not want “A” to know how much money he was making.

    How often do you come across buyers that flub up the close? Do you only use buyers that you have a good rep with? Do you have the cash on hand in case the “B to C’ closing falls through?

    Great article that I think is going to help me with my wholesale deals!

  4. Jason-

    The investors in my REI group have plenty of stories. That is the reason I have always done double closings. My “C” person is always an investor. It doesn’t matter if they know how much I am making so long as they are getting a great deal themselves.

    The problem is, the “A” seller. He will have a huge problem when he finds out you made them a low ball offer that allowed you to make for instance $7-10K. They will automatically think they should have gotten that money.

    I know that a couple of “guru’s” teach to get your end buyer to just write you a check for your assignment fee at the time you write the contract, and then let them the “C” person close the deal.

    My question to you is, “would you ever do that?” I sure wouldn’t. There is no way I am going to pay the investor outside of closing and “hope'” the deal closes with their seller.

    I know my way costs me a few extra dollars, but it is a clean closing with a good paper trail and no angry sellers. “No angry sellers” alone makes me happy.

    • I am actually in favor of double closing as well. If you structure it right, you can have C pay through to A, reducing the need for transactional funding.

      That being said, I have also done a deal where I opened a separate “holding” escrow for the fee. Escrow instructions stated that if the deal closes, I get the money, if not, investor gets his money back. This gave the investor more assurance about the closing.

  5. Sharon, great info on the double closing verses the assignment. I couldn’t agree more. It’s not worth the risk of loosing the deal over a few extra dollars in closing costs. I have also seen where the investor buying the deal can get too hung up on the amount that the assigner/wholesaler is making. They tend to forget that the numbers were working for them just fine before they see the amount being made by the wholesaler, and then it all of a sudden they don’t like the fact that that person is making more than they think should be made by a wholesaler. Therefore the wholesaler may have negotiated a “smoking hot” deal but their investor/buyer just got a bad case of “Greed Glands” and doesn’t want them to realize it.
    I just like to avoid all possibilities of the deal falling apart or going bad and just Keep It Simple.

  6. David –

    You are right about your second point. Someone just told me a story yesterday about a gal that had bought what she thought was a “great deal”. Then when she heard how much the other investor made, she felt “ripped off” and was telling everyone she knew. Go figure. From where I sit, I just don’t want the hassle.

  7. Good write-up Sharon! This is one of the details folks starting out have questions about when it comes to wholesaling. It’s interesting to hear your experience and take on it. I think you’re smart to be more cautious as yes, things can blow up at closing!

    Sellers can definitely get finicky especially when it comes time to close. I’m not sure if I told you this but on my first wholesale deal the seller insisted I chauffeur us all to the closing as the seller decided they didn’t want to drive that day. I did have to put my foot down gently refusing the request. We closed but let me tell you, it was not pleasant!

    Enjoy hearing your stories and experiences, thanks for sharing! :)

    • Rachel –

      I have to say that I have never had anyone ask me to drive them to closing, but I have been asked plenty of other strange things. Oh, the things we do in this business.

      Like you, I love hearing about other people’s experiences. We should all get together and write a book. We could each do a chapter. We call it “Adventures in Real Estate Investing”.

      Have a great Christmas.
      Sharon

  8. Sharon, this is a great article. I am new to this so I have a dumb question. In a simultaneous or double closing, does the B ever have to disclose to C what he purchased the property for from A?

    • They will find out at the closing Ken. It will have the (your) seller’s sale price on the HUD, and then what you bought it for on there too (for the A to B) closing. Then they will transfer the amount you paid for it to the B to C HUD and the amount your seller is paying for it. They will see the amount of the check you receive. (You will be “B” in both cases).

      They can always look it up on the PVA after the sale closes too. Don’t worry about that. They won’t care so long as they get a good deal. What you don’t want is for your original seller to know what you sold it to your buyer for. That’s why I do a double closing rather than an assignment. It’s much cleaner.

      Sharon

      • Sharon, thanks for responding. However I need to clarify this. Are you familiar with commercial property? I understand that a HUD is not needed at the closings. Let me explain this deal. Let’s say me, as the B in this scenario, found a really good deal on a property that the seller (A) needs to get rid of for whatever reason and it is half of what an appraisal would show. I also find a buyer (C) during the same time. The buyer has agreed to purchase the property at appraised value. I decide to do a simultaneous/double close. Since these are 2 separate transactions, during the B to C closing, do I have to disclose to C what I purchased the property for? Also, do I have to disclose to A what I am selling the property for. Thanks for your response.

  9. Quick question if the money you made from the b to c transaction is used for the A to B transaction what’s you profit..taking into consideration closing cost and other fees

    • Sharon Vornholt

      Augie –

      That depends on the deal. I shoot for a certain amount of money (for me) in my negotiations. The closing costs for cash deals is only about $350 per transaction, and sometimes the closing attorney discounts the second closing a little.

      Sharon

      • Ok and in california would I be using an attorney or an escrow company? Also you mentioned that I would need to have A under contract before I do B and C to secure the deal would I do an assignment or since I’m in california would I do the california purchase agreement ? (Don’t know if you are in california as well).

        I’m a newbie tryingt to get as much info as I can thank you

        • Sharon Vornholt

          I don’t know which you use in CA. You will need to ask an investor in your area.

          As a wholesaler you either assign the contract OR you double close. You put the house under contract then you find a buyer to purchase it before you have to close on it.

          Go back and listen to my BP podcast. I think it is around #10 or so. I talk about double closings in that podcast. I also have information on my blog too. You can find the link in my profile.

          Sharon

  10. After reading many blogs and real estate investing pages and even books about double closings for wholesale deals, I still have not read anything about what happens if A-B closes and then a few hours later C does not close. So B, the wholesaler, now owns the property and is stuck with it until they find a new buyer? And what happens if transactional funding is only for that day of closing?

  11. Mike –

    When you do a double closing they happen 5 or 10 minutes apart. Everyone is there at the same time, but in two different rooms.

    Your B to C buyer is almost always another investor. He brings certified funds to the closing so you know the money is there. You close the 2nd deal FIRST so you have the money.

    Then I get up and walk into the other room and close the A to B with MY BUYER’S funds. It all happens in a few minutes.

    A true double close or simultaneous closing is done this way.

    Sharon

  12. Hi Sharon,

    I know you are talking about A to B to C in Wholesaling, but sandwich lease options can be a different animal, especially if you are not greedy.

    Say the seller want $100K, you lease option for $100K,
    You could equity split the deal,
    sell on lease option for new appraisal in a rising market.
    Split the net 60 40.
    Do a reverse assignment, one closing.
    Full disclosure.

    Bill Walton may want to look at that.

    :) always enjoy your posts.

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