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