Just wanted to fact check how double closing works

Just wanted to fact check how double closing works

Member since 2020 · 7 posts · 0 votes

If I'm not mistaken, double closing is essentially I enter a contract that includes person A - person B (me) that only involves the rights to the property not the property itself, then once that's complete, I would sell that contract from person B - person C. Usually this process takes about a couple days as well.

But if I were someone starting out with little to no liquid funds, this would mean I would have to approach a hard money lender willing to give me transactional funds to purchase the rights from person A, and once that is complete, I would sell to person C at a higher price that would help me pay back the hard money lender and earn a small profit at the same time.

I also was curious about where do the funds come from to receive a title search, inspection, etc. Does that come from me or the end buyer? or does it vary for each situation.

But what's stopping person C from reaching out to person A directly? 

What exactly makes the middle man (me) desirable?

What is my role as the middle man between the two (other than simply connecting them together)

I'd appreciate any input since I'm still starting out, thanks!

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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    5y

    @Joey Soewargo

    You’re mixing together a number of different concepts.

    In a “double closing” you close on the purchase of a property and almost simultaneously close on the sale of the property to a third party. The hIgher price you sell for minus the price you pay less expenses is your profit. In the good old days you could do this without providing the purchase funds.

    In the last 5 years or so title companies began requiring separate closings, so the “middleman” was required to bring the cash to purchase to closing. So transactional lenders (NOT hard money lenders) came in to provide the short term funding needed, at 2-5% interest on the amount lent.

    When a buyer is successful in obtaining an executed purchase contract on a piece of property, some people believe that he obtains “equitable interest”, not “legal interest” in the property. Technically, this is incorrect. Equitable interest is only obtained when a contract for purchase is completed, as in a contract for deed, where legal title remains with the seller. What the buyer actually obtains is not equitable interest, but contractural interest. Contractural interest can be sold, just like any right, product, or service. So, ones position in a real estate contract can be sold legally, and the buyer steps into the original buyers shoes (unless the purchase contract specifically prohibits it). So if you are successful in negotiating a purchase contract to buy a property worth $100,000 for $50,000, you can probably sell the right to take over the contract for between $1 and $49,999.

    Private Mortgage Financing Partners, LLC
  • Member since 2020 · 7 posts · 0 votes
    5y

    Hi @Don Konipol, thanks for reaching out!

    If I could burden you some more, I was hoping for some more insight. 

    I wouldn't be able to purchase without liquid cash on hand and the transactional lender would not be able to act correct? So how would I close the first deal? And could the interest rate vary depending on my history with lenders (not just because it comes on such short notice)? or does that depend on the buyers history?

    And while the last paragraph was very helpful about clarification on roles, I was a little confused about the last point you made. Correct me if I'm wrong, but that wouldn't give you a net profit, much less give me enough to pay back the transactional lender.

  • Houston, TX · Member since 2025 · 25 posts · 9 votes
    6d
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