Bethlehem, PA 路 Member since 2017 路 5 posts 路 2 votes
I've had a nagging question regarding double closings as I am just starting out in the wholesaling side of real estate and would like to know something before I start out. As far as double closings are concerned (I am in PA by the way), is it necessary to use a transactional lender to close the deal? I found one in New Jersey that I was talking to who charges a minimum of $2,000 regardless of how small the transaction size or 1.75 percent past a certain transaction amount. In other words, could my end buyer simply bring their money to the title company and I could close the A-B transaction with the funds and cut out the need for transactional funding or do I need to close the A-B first with another source of funds even if the end buyer brings all the money to the table? If anyone understands the rules here in Pennsylvania, that would be great. I understand the higher costs of doing a double closing as opposed to simply assigning a contract and will factor that into my offers but would appreciate the feedback. Thank you :) -Christopher
I believe I know which transactional funding company you are referring to :)
Here is an objective way to look at it (if you don't believe me, you can throw it out):
If you can assign the contract, you don't need to double close. However, if you must double close, you have to have separate good funds for the AB transaction vs. the BC transaction. One cannot use the C buyer's money to purchase the AB transaction. Those days are long gone (8-9 years ago).
You can also confirm everything I said above with PA closing agents.
Please don't feel obligated to use one transactional funder. Google "transactional funding" to come up with a list of companies. Compare and contrast. Read the testimonials if there are any. Verify they are real people on FB or other social media avenues. Contact them. Compare and Contrast. Decide on a company.
Finally, here are some common reasons for double closing:
1. Avoid licensing issues for wholesaling without a license - this issue is gaining popularity accross the U.S. Agents are stating that wholesaling is illegal. Wholesaling is illegal if you are marketing/selling the property. However, wholesaling is actually selling the contract vs. the property. This is a fine distinction, and you don't need a license to sell a contract. Another way to avoid licensing issues is to become a realtor.
2. If you don't want to assign the contract because you don't want the buyer to know how much profit you are making. Let's say you are buying a property for 75K and want to resell it for 105K FMV (30K wholesale fee). Even though 105K is fair market value, the C buyer would be appalled by you making too much money. He would rather offer you 5K-10K which would probably be the normal rate. Otherwise, he would walk away or find a way to circumvent you. If you decide to double close/same-day back-to-back closing with the same closing agent, you can avoid this hassle since the two closings are separate. Your negotiations with A seller and C buyer are separate and distinct. You have control of both transactions, lock it up with an executed contract and arrange for both closing to occur on the same day. Of course, C buyer can always look this up in the county records AFTER it closes. But again, at that point, it won't matter. And would you really want to have that buyer on your buyer's list? The buyer should only be concerned about if the transaction works for him and not be worried about everyone else's profit.
3. This is a Short Sale or REO/Foreclosure or HUD - usually, an offer for a Short Sale or REO/Foreclosure will not be accepted if the Buyer is e.g. John Smith "and/or assigns". With these cases you need to close on the property as an entity and then use transactional funding to close and re-sell it to your buyer the same day at the same title company. Most transactional funding companies do not lend to "John Smith," but will lend to "Your company, LLC" due to laws involving residential properties and other laws.
Best wishes on all your endeavors.
Duane.
PS: @Account Closed
Please check with your local REIA and attorneys and closing agents that are investor-friendly for the laws in New Mexico.
I would first talk to your title company about this question. Setting aside any actual legal requirements, many title companies may object to that kind of arrangement.
I believe I know which transactional funding company you are referring to :)
Here is an objective way to look at it (if you don't believe me, you can throw it out):
If you can assign the contract, you don't need to double close. However, if you must double close, you have to have separate good funds for the AB transaction vs. the BC transaction. One cannot use the C buyer's money to purchase the AB transaction. Those days are long gone (8-9 years ago).
You can also confirm everything I said above with PA closing agents.
Please don't feel obligated to use one transactional funder. Google "transactional funding" to come up with a list of companies. Compare and contrast. Read the testimonials if there are any. Verify they are real people on FB or other social media avenues. Contact them. Compare and Contrast. Decide on a company.
Finally, here are some common reasons for double closing:
1. Avoid licensing issues for wholesaling without a license - this issue is gaining popularity accross the U.S. Agents are stating that wholesaling is illegal. Wholesaling is illegal if you are marketing/selling the property. However, wholesaling is actually selling the contract vs. the property. This is a fine distinction, and you don't need a license to sell a contract. Another way to avoid licensing issues is to become a realtor.
2. If you don't want to assign the contract because you don't want the buyer to know how much profit you are making. Let's say you are buying a property for 75K and want to resell it for 105K FMV (30K wholesale fee). Even though 105K is fair market value, the C buyer would be appalled by you making too much money. He would rather offer you 5K-10K which would probably be the normal rate. Otherwise, he would walk away or find a way to circumvent you. If you decide to double close/same-day back-to-back closing with the same closing agent, you can avoid this hassle since the two closings are separate. Your negotiations with A seller and C buyer are separate and distinct. You have control of both transactions, lock it up with an executed contract and arrange for both closing to occur on the same day. Of course, C buyer can always look this up in the county records AFTER it closes. But again, at that point, it won't matter. And would you really want to have that buyer on your buyer's list? The buyer should only be concerned about if the transaction works for him and not be worried about everyone else's profit.
3. This is a Short Sale or REO/Foreclosure or HUD - usually, an offer for a Short Sale or REO/Foreclosure will not be accepted if the Buyer is e.g. John Smith "and/or assigns". With these cases you need to close on the property as an entity and then use transactional funding to close and re-sell it to your buyer the same day at the same title company. Most transactional funding companies do not lend to "John Smith," but will lend to "Your company, LLC" due to laws involving residential properties and other laws.
Best wishes on all your endeavors.
Duane.
PS: @Account Closed
Please check with your local REIA and attorneys and closing agents that are investor-friendly for the laws in New Mexico.
I actually double close here in CA without using transactional funding. I would call around to a couple title companies and see if they'll double close using the end-buyers cash.
For my title company, as long as both transactions are done on the same day, they can work it so the buyer's cash is used for the A-B transaction first and then B-C. I still have to pay closing costs which is fine with me given the profit I'll make. But if the profit is 10k or less, I'd probably just assign it.