Double Closing in Real Estate: How It Works and When to Use It
What a double close is, why investors use it, and how to avoid common mistakes.
Austin Beverigde
Tennessee
, Goliath Teammate
Are you considering a double closing in real estate but unsure how it works? You're not alone. Many investors and home buyers find themselves in situations where traditional buying and selling methods don't quite fit their needs. This article will break down the concept of double closing, how it functions, and when it might be the right choice for you.
Quick Answer
A double closing involves two separate transactions where a property is bought and sold almost simultaneously. Typically, the investor purchases the property from the seller and then sells it to a new buyer, often on the same day. This method is useful for investors looking to profit from properties without holding them long-term, but it requires careful planning and understanding of local laws.
What is Double Closing?
Double closing, also known as a simultaneous closing, is a real estate strategy where two transactions occur back-to-back. The investor first buys the property from the original seller and then sells it to a new buyer. This method allows investors to profit from the difference in sale prices without ever taking possession of the property.
How Double Closing Works
Step-by-Step Process
Find a Property: Identify a property you want to purchase and sell.
Negotiate Purchase: Agree on a purchase price with the seller.
Secure a Buyer: Find a buyer willing to purchase the property at a higher price.
Schedule Closings: Arrange for both transactions to occur on the same day.
Close the Deals: Complete the purchase from the seller and immediately sell to the new buyer.
Example Scenario
Imagine you find a distressed property listed for $100,000. You negotiate with the seller and agree to buy it for that price. Meanwhile, you have a buyer interested in the property for $120,000. On closing day, you purchase the property for $100,000 and immediately sell it for $120,000, pocketing a $20,000 profit without ever taking ownership.
When to Use Double Closing
Double closing can be beneficial in several scenarios:
When you want to flip properties quickly.
If you want to avoid holding costs like taxes and maintenance.
When you have a buyer lined up before purchasing.
If you want to keep your investment strategy discreet.
Costs Involved in Double Closing
While double closing can be profitable, it does come with costs:
Closing costs for both transactions.
Potential financing fees if you take out a loan.
Title insurance and other legal fees.
Checklist for Double Closing
Research local laws regarding double closings.
Ensure you have a reliable buyer lined up.
Calculate all potential costs involved.
Work with a knowledgeable real estate attorney.
Confirm financing options if needed.
Common Mistakes to Avoid
When engaging in double closing, avoid these pitfalls:
Not understanding local regulations, which can lead to legal issues.
Failing to secure a buyer before purchasing, risking financial loss.
Underestimating closing costs, which can eat into profits.
Frequently Asked Questions
1. Is double closing legal?
Yes, double closing is legal in most areas, but regulations can vary by state. Always check local laws to ensure compliance.
2. How long does a double closing take?
The process can typically be completed in one day, but it may take longer if there are complications or if financing is involved.
3. What are the risks of double closing?
Risks include potential financial loss if the buyer backs out or if closing costs exceed expectations.
4. Can I use double closing for any property?
While you can use double closing for many types of properties, it’s most common in investment real estate. Always assess the property’s marketability.
5. Do I need a real estate agent for double closing?
While not required, having a real estate agent or attorney can help navigate the complexities of double closing and ensure all legalities are handled correctly.
