I am hoping to gain some momentum in the real estate investment game.
I am currently in the process of educating myself to avoid scams.
I have been introduced to a group of investors and I've been told that if I can help to find investors interested in discounted properties and are open to a simultaneous close that I can get my foot into the real estate door.
In essence I would simply introduce the buyers and sellers of the discounted properties.
I am not a license real estate agent ...I simply have a connection with the properties.
My question is -What is a simultaneous close?
Would my role in the transaction be legal?
Help me to avoid any unethical or illegal practices.
A simultaneous close is when you buy at one closing (A to B) and sell in another closing (B to C) on the same day and use the funds from B to C to fund the A to B and keep the rest.
It's perfectly legal, but most title companies will require that you disclose that you are using "pass-through funding" to resell the property and the seller (A) will have to sign-off on the transaction
Its used mostly when you don't want to disclose to A and C how much you are making in the transaction, but because it requires 2 transactions, it is a bit more costly than an assignment.
You may consider an assignment if you are OK with either A or C knowing how much you are making. You can put your assignment fee on the HUD and "blind" the other side. I.E. if your buyer is fine assigning you $10k, you can blind the seller... they only see their side of the HUD, and the buyer can see the assignment fee of $10k on the HUD.
Your local title would be able to go over more details of what they require/expect to do these types of transactions.
What you're being asked to do is "wholesaling". Finding buyers to sell properties to.
With a simultaneous close you will take title to the property as buyer of the A-B transaction and then sell it to the end buyer. That's done to avoid engaging in unlicensed brokerage, even though that is effectively what you're doing.
Its likely you will need a transactional lender to make this work. You borrow money from the transactional lender to make your purchase, then pay that back out of the proceeds of the sale to the end buyer. That's yet another expense in a deal like this.
There is a possibility these property are crummy deals. Its not at all hard to move good deals. Finding buyers is a LOT easier than finding good deals. But finding crummy deals is easy and finding buyers for crummy deals (aka "suckers") is a lot harder than finding buyers for good deals. This contact may be sending you on something of a wild goose chase trying to move a bunch of junk.
Jon Holdman, Flying Phoenix LLC
@Jon Holdman well said. Buyers will be there for a good deal. Please answer me this with a double close and transfer taxes. I have listened to wholesalers on podcasts over and over and never heard this addressed (except once from Sharon V where she has to pay $300 or something). In WA state, we have to pay excise transfer taxes equal to 1.58% to 1.87% for every title transfer, even if it's for 2 seconds. Double-close a $200k deal and we're talking $3740. Twice! Is my state different than every other state? Do 'normal' states only charge a flat fee in transfer tax? I'm thinking so since I haven't yet heard it addressed. In WA I do assignments obviously. Please, experienced double-closers chime in about how you handle excise transfer taxes with double-closings!
I'm sure I can't say what most states do in this regard. But I've bought and sold property in TX, CA, CO, and MO and haven't encountered any transfer taxes. If there was something of this sort, it was small. I do know some of the northeastern states also have transfer taxes.
Transactional lenders typically charge in the range of 1-2%. So with those taxes and the transactional lender fee you could be over 5% in costs before all the title company costs. Need a big spread to cover that.
OTOH, if you're in the middle of a double closing I'd think you would, at most, pay the transfer tax once. Either the seller or buyer would pay the other tax.
Jon Holdman, Flying Phoenix LLC
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