Whether you’re a real estate investor or an agent… you’re going to come across the term “double close”. And if you’re going to be in a real estate career for the long run, it’s best if you understand the ins-n-outs of a double close transaction — and we’ll show you in this article today!
What is a Double Close in real estate?
A double close is a type of real estate closing transaction that involves 2 closings, one between the seller (A) and the middleman (B) (or wholesaler), and a second between the middleman (B) and an end buyer (C). All this takes place on the same day, sometimes the same hour.
(A) sells the property to (B). (B) sells the property to (C).
In this type of transaction, the buyer acts as a middleman or intermediary, and the second buyer is often unaware of the seller’s identity or the original purchase price. The goal of a double close is to make a profit by buying and reselling the property at a higher price. Double closings are legal and commonly used in real estate transactions, but they require careful planning and execution to avoid legal complications or fraudulent activities.
It’s important to get with a real estate attorney for the correct documentation.
Why use a double close?
Double closing essentially allows you to make a real estate transaction, without having your own money, and still make a profit (without ever BUYING the property yourself.
It’s for:
- Wholesalers
- Beginners
- Buy and sell real estate businesses
- If you change your mind about the property
If you have a property under contract, but you don’t intend on holding onto it, or rehabbing it as a flip, but you still want to make a profit… than double closing (or assigning the contract — we’ll talk about this later) is the way to go.
If you’re a wholesaler, then a double close will be a tool in your toolbox you MUST be familiar with.
And it’s also a great option for beginning investors who aren’t interested in delving into traditional financing options like mortgages, yet can still benefit from the buy-and-sell business of investing.
Hiding your profit
Another great reason to double close (rather than assign the contract) is that you can conceal your profit made from both the buyer and the seller. When you assign a contract during the closing your profit will be shown in the HUD statement. This isn’t a big deal typically because sellers won’t really understand it, and buyers won’t care if you’re making $5k-$20k on it.
But if this is a big margin for you (say in the range of $50k+), you’d rather not have the parties involved know about this.
So that’s where 2 separate documents come into play. A closing statement between you and the seller, and a closing statement between you and the buyer: AKA: double close.
It’s a perfect way to conceal your profit if you need/want to.
Cons to Double Closing
There’s really only one con and it’s that it’s a bit more expensive to perform this because you’re doing 2 closings rather than one.
How do perform a double close?
It’s important to work with an escrow/title company (or closing attorney if you’re in an attorney state) that understands what you’re doing and your intent.
So step one: Find a closing company PRIOR to attempting this.
Step two is to have all your documents ready to go. We won’t dive into HOW to create the right documents here, because it depends on your state… but it’s important to talk to a licensed real estate attorney in YOUR state before going to legal zoom thinking you can create one on your own.
Here’s a video that explains how it’s done:
The bottom line in, you don’t really have to do anything except alert the closing company.
Basically the gist of the “steps” go like this:
1. Open escrow: Once you have the property under contract, The first step to performing a double close is to open an escrow account. Send the documents (the purchase and sales agreement to the escrow/closing attorney. Let them know that you’re performing a double close for an all-cash transaction.
2. Find your buyer: Hopefully you have a buyer lined up already, or you’re reverse wholesaling, or you have a prominent cash buyers list you can send the deal to. But once, you open up escrow and inform escrow that it’s a double close, it’s time to fill that “gap” and find your money.
3. Buyer funds account: Once the buyer is ready to move forward, he’ll wire his funds to escrow.
4. Transfer of ownership (A-B): Once the title company has confirmed that the funds have been wired to escrow, and the title of the property is clear, the seller (A) will transfer ownership to the wholesaler (B) and you (the wholesaler) will own the property for a few minutes/hours.
5. Secondary transaction (B-C): Now with the property in your brief possession, the property will transfer ownership from you (B), to the end buyer (C).
NOTE: if there is any money due, the end buyer will have to come up with the rest of the funding before this phase takes place. The initial funding (wire), doesn’t have to be the full amount in most cases but get with your escrow company beforehand and find out.
6. Funds dispersed: Now everyone must get paid. The money that party C wired (the end buyer) will be sent to the seller, and you will get the remaining after all closing costs are accounted for.
Example of a double close:
Let’s look at an example to show you how the numbers work:
1. You market to your area and find motivated sellers... (we have lots of articles on how to find off-market deals from motivated sellers, but usually these types of double close deals happen because you went direct to the seller and stroke a deal with them and agreed to buy a property from them at a discount for all cash.
2. You agree to buy a property for $200,000... (after you did your due diligence and analysis you determine that the ARV (after repair value), is $320,000 and the property has an estimated $30,000 in repairs — if you need a primer on how to estimate repair costs check this article out).
3. You open up escrow for a purchase of $200,000… (letting your escrow know that you’ll be double closing and the end buyer will deposit soon)
4. Your end buyer agrees to buy for $250,000… (you find a buyer that sees this as a good deal. And he’ll be happy to make his deposit and start the transaction to buy the property at $250,000
5. Once the money is wired, start A-B transfer… (once escrow sees that the buyer wired the money, they start the transfer from the seller to you.)
6. Start B-C transfer… (Once the property is in your possession, they then immediately transfer the property from you to the end buyer)
7. Closing costs paid for… (escrow takes the fees due from the end buyers deposit; in this example, it’s $10,000)
8. $200,000 dispersed to the seller… (the seller takes what’s due to him from the buyer’s deposit)
9. $40,000 dispersed to you… (now what’s left over is $40k ($250,000-$200,000-10,000), which is your payday).
Difference between an assignment and a double close?
When it comes to real estate transactions, there are two popular methods of closing deals; the assignment fee and double close.|
An assignment fee allows wholesalers to release their contract for purchase to another party, known as the assignee, with a fee attached for the transfer. This method is cleaner than a double close however the drawback is that what you get paid will show up in the HUD-1 statement for everyone to see. This method is also slighter less expensive than a double close since it’s only 1 closing as opposed to 2.
In a double close… there are 2 contracts and 2 closings (unlike an assignment where it’s one closing).
Although an assignment fee is a simpler, less rigorous procedure compared to double close, it can be risky, given that the assignee has the option to complete or break the contract.
A double close, on the other hand, eliminates that problem by closing the property twice, requiring the first buyer to acquire and resell the property under a new contract.
Although the double closing method is more complicated than an assignment fee, it can offer investment protection, particularly when there is more significant profit at stake.
NOTE: We have an article on how to INCREASE your assignment fee as a wholesaler.
Legal contracts
First off, consult with your real estate attorney in your state before attempting this. We are not real estate attorneys, nor should you take anything we say or show as legal advice…
So, I’ll revert to a video on somone (not affiliated with us and NOT giving you legal advice), and what he uses for his contracts:
How to find a buyer
If you’re doing wholesaling as a career, you’ll need the ability or the network to quickly sell your contracts to your list so that you can easily and effortlessly perform a double close — we also have this article on finding cash buyers!:
So here’s a list of ways to find buyers:
1. Reverse wholesale
2. Go on local cash buyer Facebook groups
3. Post the deal on Craigslist, Zillow, and Facebook (just make sure you abide by the state laws (contact an attorney before doing this).
4. Pull a list from Propstream of all the flippers and cash buyers and contact them.
6. Network at your local REIA group.
Conclusion
Double-close real estate transactions can be a powerful tool for wholesalers everyone should at least know how it’s done.
It can be a great tool to conceal the amount of profit you’re actually gaining but you do need to have the proper docs in place and understand the method in general.
And get with an escrow company (or closing attorney) that understands what you’re doing.
Get with a real estate attorney for the correct contracts.
In conclusion, if executed correctly, your double close will provide you with the opportunity to buy and sell properties quickly for a profit, and it can be a highly valuable tool for your business, granting you optimal financial flexibility.