Hey there, future real estate mogul! 👋 Are you ready to learn about a cool trick in the real estate world called “double closing”? Don’t worry if that sounds complicated – I’m going to break it down for you step-by-step so you can understand how double closing works, even if you’re new to real estate.
Double closing essentially involves two separate transactions: one between you (the wholesaler) and the seller, and another between you and the end buyer. Let’s walk through the process!
What Is Double Closing in Wholesaling Real Estate?
Think of it like a relay race. You’re the middle runner who takes the baton (the property) from the first runner (the seller) and passes it to the last runner (the end buyer). You never actually keep the baton – you just help it get from one person to another and make some money in the process!
In a double closing:
- Transaction 1: You buy the property from the original seller.
- Transaction 2: You sell that same property to an end buyer, often for a profit.
By following the right steps, double closing can be a powerful tool to scale your wholesaling business without the financial burden of owning the property for an extended time.
For more details on the concept, check out this guide to double closing from FortuneBuilders.
Why is Double Closing Popular in Wholesaling?
Wholesaling is when you find good deals on houses and sell them to other investors.
Double closing is super popular in wholesaling because:
- You don’t need a lot of money to start
- You can make money quickly
- It’s less risky than other real estate deals
To learn more about wholesaling in general, visit the BiggerPockets guide to real estate wholesaling.
Why Use Double Closing?
There are a few reasons why wholesalers might choose to do a double closing:
- It keeps the original purchase price private from the end buyer
- It can be easier to explain to sellers who don’t understand contract assignment
- Some states require wholesalers to close on properties before reselling them
Now let’s walk through the process step-by-step!
Step-by-Step Process for Double Closing
Step 1: Find a Motivated Seller
The first step in any wholesale deal, including a double closing, is finding a motivated seller who wants to sell their property quickly. Look for homeowners who are facing foreclosure, tax issues, or just want to sell fast.
You can find motivated sellers through:
- Driving for dollars (looking for distressed properties)
- Direct mail marketing
- Online marketing
- Cold calling
- Networking with real estate agents
Step 2: Negotiate the Purchase Price
Once you find a good deal, you need to sign a contract with the seller. This contract says you’ll buy the house for a certain price by a certain date. Make sure the contract lets you:
- Back out if you can’t find a buyer
- Sell your right to buy the house to someone else
For more information on real estate contracts, check out this overview from the National Association of Realtors.
Step 3: Find an End Buyer
With the property under contract, it’s time to find an end buyer—someone who is willing to purchase the property from you, ideally at a higher price than you’re paying. End buyers could be investors, house flippers, or even first-time homebuyers looking for a deal.
You can find buyers through:
- Your own buyer’s list (if you have one)
- Real estate investor meetups
- Online forums like BiggerPockets
- Partnering with other wholesalers
Step 4: Execute Two Separate Contracts
Here’s where the “double” part comes in. You’ll need to set up two separate closings:
- The A-B transaction: You buying from the original seller
- The B-C transaction: You selling to the end buyer
These usually happen on the same day, often just minutes apart. You’ll work with a title company or closing attorney to coordinate everything.
Each contract will outline the terms, such as the sale price, closing date, and contingencies. Having a real estate attorney or title company familiar with double closings is crucial to ensure everything runs smoothly.
Step 5: Arrange for Two Closings on the Same Day
The key to a successful double closing is timing. The two transactions typically occur on the same day or within a short window.
- The first closing is when you purchase the property from the seller.
- The second closing happens shortly after, when you sell the property to the end buyer.
This is where having a competent title company or attorney is important—they’ll make sure both closings happen seamlessly, so you don’t have to hold onto the property for long.
Step 6: Fund the Transaction
For a double closing, you’ll need money to buy the property from the seller before you sell it to the end buyer. There are a few ways to do this:
- Use your own cash (if you have it)
- Get a hard money loan
- Use transactional funding (special short-term loans for this exact purpose)
Some title companies offer “dry funding” where they’ll use the end buyer’s money to fund your purchase, but this isn’t available everywhere.
One of the perks of double closing is that you can often use the end buyer’s funds to finance the first transaction (buying from the seller). This is known as “transactional funding,” and it helps you avoid using your own money.
If the end buyer’s funds won’t be available in time for the first transaction, you may need short-term funding. Transactional funding lenders specialize in this type of loan and are often used by wholesalers.
- 1st, Close with the Seller (A-B Transaction)
On closing day, you’ll sign all the paperwork to purchase the property from the original seller. This makes you the legal owner for a very short time.
- 2nd, Close with the End Buyer (B-C Transaction)
Right after closing with the seller, you’ll do another closing to sell the property to your end buyer. This is where you make your profit!
- 3rd, Collect Your Check
After both closings are complete, you’ll receive a check for the difference between what you paid for the property and what you sold it for (minus any closing costs or fees).
Step 7: Complete the Double Closing
Once both contracts are signed, and the money has been wired, the title company will finalize both transactions. You’ll officially buy the property from the seller and sell it to the end buyer. If all goes well, you’ll walk away with a profit without ever holding the property for more than a few hours.
Advantages of Double Closing
- No Need for Your Own Money: You can use the end buyer’s funds to complete the transaction, which means little to no out-of-pocket expenses for you.
- Profit Potential: Double closing allows you to earn more money than assignment fees, especially if the buyer is willing to pay a higher price.
- Confidentiality: Double closing keeps your assignment fee hidden from the end buyer, which can avoid potential conflicts.
Common Pitfalls to Avoid
- Timing Issues: Both transactions must happen closely together. Any delays can disrupt the entire process.
- Transactional Funding: If the end buyer’s funds aren’t available right away, you may need short-term financing, which could add additional costs.
- Title Issues: Ensure the property has clear title before closing to avoid any legal complications.
Common Questions About Double Closing
How much does it cost?
You’ll have closing costs for both transactions, which can include:
- Title insurance
- Attorney fees
- Recording fees
- Transfer taxes
These costs vary by location but can range from 1-3% of the purchase price for each closing.
Do I need proof of funds?
Yes, you’ll need to show you have the money (or access to it) to buy the property from the original seller. This could be a bank statement, a loan pre-approval letter, or proof of transactional funding.
Can I use the end buyer’s money to fund my purchase?
Sometimes, but it depends on your state laws and the policies of your title company or closing attorney. This is called “dry funding” and isn’t allowed everywhere.
What if something goes wrong?
This is why it’s crucial to have good contracts! Make sure you have contingencies that let you back out if your end buyer falls through. Always work with a real estate attorney to protect yourself.
Is Double Closing Right for You?
Double closing can be a great way to wholesale real estate, especially if you’re dealing with larger profits or in states with stricter wholesaling laws. However, it does require more upfront costs and coordination than simple contract assignments.
By following this step-by-step guide, you’ll be well on your way to mastering the double closing strategy in real estate wholesaling. It’s a powerful technique that can help you make profitable deals while minimizing your own financial risk. Keep practicing, building your network, and refining your skills to maximize your success!
Are you excited to start your journey in real estate wholesaling? Don’t wait! Start researching potential deals in your area today. And if you want to learn more about real estate investing, SUBSCRIBE to our blog posts to get tips and tricks delivered straight to your inbox!
Big and Small Properties is a group of real estate Investors who buy houses and land all over the United States. They specialize in buying, wholesaling, and flipping single, multi-family and commercial properties. We are CASH BUYERS creating a quick and easy selling process that moves with ease and efficiency from Offer to Closing. Big and Small Properties also partners with other experienced real estate investors in buying property and can provide you a no-obligation Cash Offer TODAY. Call (877) 260-5566 for your free no-obligation Cash Offer.
Disclaimer: This article provides general information and should not be considered legal or financial advice. It’s essential to consult with professionals for personalized guidance.
