Understanding Double Close Transactions: Funding, Timing, and Title Tips
A full breakdown of how double closes work and how to execute them cleanly.
Austin Beverigde
Tennessee
, Goliath Teammate
Double close transactions can feel overwhelming, especially if you're new to real estate investing. You might be wondering how to secure funding, manage timing, and navigate title issues effectively. This guide will break down the essentials, helping you tackle these challenges with confidence.
Quick Answer
A double close transaction involves two separate closings: one where you buy a property and another where you sell it to an end buyer. To execute this successfully, ensure you have funding lined up for the first purchase, coordinate the timing of both closings, and work with a title company familiar with double closings. Clear communication with all parties involved is key to a smooth process.
What is a Double Close Transaction?
A double close transaction occurs when an investor buys a property and then immediately sells it to another buyer. This is often used by wholesalers who want to profit from the difference between the purchase price and the selling price. The investor never holds the property long-term, making timing and funding crucial.
Steps to Execute a Double Close
1. Secure Funding
Before initiating a double close, it's vital to have funding in place for the initial purchase. This could be through cash, hard money loans, or private investors. Ensure that your funding source understands the nature of the transaction.
2. Coordinate Timing
Timing is critical in a double close. You need to schedule the two closings closely together, often on the same day. This requires clear communication with all parties involved, including the title company, sellers, and buyers.
3. Work with a Title Company
Select a title company experienced in handling double closings. They will help ensure that all documents are in order and that the transaction complies with local laws. They can also facilitate the transfer of funds between the two closings.
Costs Involved in Double Closing
Double closing can incur several costs, including:
Title insurance fees
Closing costs for both transactions
Transfer taxes
Potential funding fees if using hard money
Be sure to account for these costs when calculating your potential profits.
Realistic Example of a Double Close
Consider a scenario where you find a distressed property listed for $100,000. You negotiate a purchase price of $90,000 and secure a buyer willing to pay $110,000. You arrange for a double closing:
First Closing: You buy the property for $90,000.
Second Closing: You sell the property to your buyer for $110,000.
After closing costs, you could net a profit of around $15,000, provided all goes smoothly.
Checklist for Successful Double Closing
Have funding secured before the first closing.
Choose an experienced title company.
Coordinate the timing of both closings.
Communicate clearly with all parties involved.
Understand and budget for all associated costs.
Common Mistakes to Avoid
Here are some pitfalls to watch out for when conducting double close transactions:
Not securing funding in advance can lead to delays or failure to close.
Failing to communicate with the title company can result in missed documents or deadlines.
Underestimating closing costs can eat into your profits.
Not coordinating timing properly can cause complications with buyers and sellers.
Frequently Asked Questions
What is the difference between a double close and an assignment?
A double close involves two separate transactions where the investor buys and then sells the property, while an assignment allows the investor to sell their contract rights to another buyer without purchasing the property first.
Can I use hard money for a double close?
Yes, many investors use hard money loans for double closings, as they can provide quick funding. However, be aware of the associated costs and ensure you have a buyer lined up to cover these expenses.
How long does a double close take?
The time frame for a double close can vary, but it typically occurs within a few hours on the same day, provided all parties are prepared and documents are ready.
Are there any legal issues with double closing?
Double closings are legal, but it's essential to comply with local laws and regulations. Working with a knowledgeable title company can help ensure you meet all legal requirements.
What happens if the second buyer backs out?
If the second buyer backs out, you may be stuck with the property and responsible for any costs incurred. It's crucial to have a solid buyer lined up and possibly include contingencies in your agreements.
