Double close real estate is a type of transaction used by real estate wholesalers, typically as a strategy to give the wholesaler more freedom to operate. In a double close scenario, the wholesaler actually buys the property at closing, then sells it to a cash buyer at a second closing. The second closing occurs as quickly as possible and can even be completed in the same meeting with the seller of the property.
Double closes are less common than real estate assignment contracts, a strategy that’s used in most wholesale transactions. With assignment contracts, the wholesaler never personally buys the property. Instead, the wholesaler obtains the right to buy the property from the homeowner, then assigns that right to a cash buyer.
Pros and Cons of a Double Closing
There are pros and cons for each of the three parties involved in a double closing . Let’s take a look at each of them from the perspective of the wholesaler, seller, and buyer.
Pros and Cons for The Wholesaler
In some states, the double close strategy is the only way a wholesaler can facilitate transactions without a real estate license. The double closing is legally viewed as two separate transactions, so the wholesaler has the same freedoms as someone who is independently buying and selling a property.
The greatest advantage of this type of closing for a wholesaler is that they are able to keep their profit confidential from the seller and the buyer. Selling a distressed property is an emotional process for the homeowner, and the closing can be an unpleasant process if the seller sees how much money the wholesaler is making from the deal. Similarly, some buyers may take issue with the amount of markup they’re paying.
That said, there are a couple of disadvantages for the wholesaler. First and foremost, they must come up with the capital to buy the property from the seller. If the wholesaler doesn’t have the money to buy the property, they can pursue what’s known as transactional funding.
Transactional funding is designed specifically for this type of transaction. The repayment period is fast, typically no more than two weeks. Wholesalers don’t need to have high credit scores to qualify for this type of financing, but in order to qualify they do need to provide documentation that there is a qualified buyer in place. The fee for transactional funding ranges from 1 to 2.5%, which cuts into the wholesaler’s profits.
In double close real estate, the wholesaler is responsible for paying more fees than in a simple contract assignment. The wholesaler will act as the buyer in one transaction and the seller in the second transaction, and must pay the corresponding fees in both transactions, which adds up for the wholesaler. With double closings, there is also twice as much paperwork involved for the wholesaler.
Pros and Cons for the Seller
A double close is especially advantageous for the seller. It’s not uncommon for the buyer to pull out of the transaction, and the double close reduces the risk of the deal falling through since the wholesaler is required to acquire the property before selling it to the buyer.
The other advantage the seller has is anonymity. If they want to shield their identity from the buyer, they can do so with this type of transaction.
The only con for the seller is that they don’t know how much the wholesaler sold the house for, although that’s hardly a major disadvantage. It’s possible for the seller to find this out in an assignment contract transaction, but by that time the seller can’t renegotiate their price.
Pros and Cons for the Buyer
The double close makes the process less transparent for the buyer, as they aren’t able to see how much the wholesaler is earning from the transaction.
The advantage for the buyer is that their identity is kept confidential if they prefer to remain anonymous.
Legalities of Double Close Real Estate
Wholesalers need to make sure that they work with an experienced title agent who is familiar with double closings and can execute the transaction efficiently. Double closes are less common, so it’s possible that an otherwise experienced title agent will not be well versed in double closes or may have their own misunderstandings about the process.
In some states, you may need to enlist an attorney to handle the double close. Even if your state doesn’t require an attorney for a double closing, it’s important for wholesalers to verify that they have all of the necessary documentation for both transactions that their state requires.
Key Takeaways
If you have the capital to personally buy a distressed property, the double close real estate strategy offers some major advantages for the wholesaler. The biggest advantage is that their profit from the deal remains confidential. They can rest assured that they won’t have to face a disgruntled homeowner or buyer.
Wholesalers need to bear in mind that double closings require more work and can be more expensive than simple contract assignments, especially if the wholesaler needs to secure transactional funding for the deal.
Double close real estate transactions are ideal for a wholesaler who is operating in a state that heavily regulates wholesalers who do not have a license. Many states look at double closings as two independent real estate transactions, so the wholesaler has the same freedoms that a buyer or seller does in a traditional real estate transaction. Be sure to talk to a real estate attorney to understand your state’s laws around double closings.
