Welcome to another informative session where we delve deeper into the intriguing world of real estate investing. Today, we will unfold the concept of "double closing" and shed light on the pros and cons associated with this strategy in wholesale real estate.
Understanding Double Closing
Double closing, often referred to as "simultaneous closing", is a frequent term used in the real estate industry. It embodies two separate transactions involving four parties: the original seller, the first buyer (also the wholesaler), the second buyer (often a cash buyer), and the closing agent.
The Bright Side: Pros of Double Closing
In its concept, double closing emerges as a potentially profitable strategy for real estate wholesalers. One such benefit is the possibility of simultaneous transactions. As no money is added to the deal by the wholesaler, the transactions occur concurrently, thereby smooth sailing the process. Let's delve into more advantages.
Potential Profitability
Double closing in wholesale real estate often leads to higher profitability. Once the wholesaler adds his fee to the property's purchase price, he stands as the middleman, selling the property at a higher price to the second buyer (cash buyers). This wholesale deal results in a significant profit.
No Need for Transactional Funding
In some cases, the first transaction is funded by the money from the second transaction — this eliminates the need for external transactional funding. Hence, it lessens the financial burden of the estate wholesalers and facilitates a more streamlined process.
The Flip Side: Cons of Double Closing
While double closing has its perks, it's not devoid of challenges. Real estate transactions can become complex, involving diverse legal aspects and risks that could impact the success of the deal.
Transaction Complications
As the deal involves separate transactions with the original seller and the cash buyers, complexities might arise, leading to delays or failure of the deal. This occurs when the original seller discovers the margin involved and backs out or if the end buyer backs out, knowing the property's original cost.
Higher Closing Costs
Often, double closing leads to higher closing costs as you are closing two separate deals. Each closing dictates a set of fees including, but not limited to, title insurance, taxes, attorney fees, and escrow fees. Consequently, it can eat into the wholesale deal profits.
Legal Considerations
Double closing in wholesale real estate involves intricate legal considerations. Variations in state laws pertaining to the real estate market can make the process tedious and demanding. It is essential to consult with a legal attorney before engaging in such transactions to avoid potential legal pitfalls.
Double Closing: A Good Idea?
Given the pros and cons mentioned above, it becomes crystal clear that double closing in wholesale real estate would benefit in certain scenarios but not all. For instance, if the property holds significant equity potential where the wholesaler's fee is quite substantial, using this strategy could help avert the end buyer's backlash over the high assignment fee.
Furthermore, if the original seller is hesitant about an assignment, doing a double close will ensure that all parties stay in their comfort zone, ensuring a smoother transaction. But remember, each situation demands its evaluation, and what might work for one deal may not work for another.
In Conclusion
Double closing in the real estate market can act as a double-edged sword. It comes with its set of upsides, like the possibility of higher profits and simultaneous transactions, and downsides like legal complications and extra closing costs. As a wholesale real estate professional, understanding this concept will help gauge the situation better and ensure the minimum risk with maximum output.
Remember to keep yourself updated with market trends, understand the legalities around each deal, and always keep the communication lines open with the seller and buyer. Happy wholesaling!
About Benjy Nichols
Benjy has been a media specialist at DealMachine for the last 2.5 years. He produces, writes, shoots, and edits our media content for our member's DealMachine and Real Estate education.