Real estate wholesale transactions can be tricky, especially when dealing with the seller and your buyer. One way to simplify the process is double closing. This approach allows investors to close deals separately, helping keep profits discreet and reducing the need for significant personal capital. This guide will walk you through the essentials of wholesale real estate double closings and how to master this strategy for real estate success.
Double Closing Vs. Wholesale Contracting
Not all wholesale real estate deals require a double closing. Some are managed through a wholesale contract. Here’s how each approach works:
Wholesale Contract: You negotiate a price with the seller and then sell to a buyer. Your profit is the difference between what you negotiated and what the buyer agreed to pay for the property. In a wholesale, you don’t own the property. Instead, you get “equitable conversion,” which will allow you to find the buyer; the seller gets to hold the legal title.
Double Closing: Here, you purchase the property directly from the seller and sell it to the end buyer. This method requires more money upfront but keeps the seller and the buyer from knowing your profit margin. This option is more discreet.
When to Use Double Closing
Double closing can be an effective strategy in specific scenarios, such as:
High Profit Potential: If your expected profit is large enough to raise an eyebrow with the seller or the buyer, then double closing provides a more private smoother approach.
Capital Availability: If you can afford the up-front costs, double closing will give you a way to secure your relationships and maintain control over the entire transaction.
Challenges of Double Closing
Although double closing has its multiple advantages, it is also coupled with a number of drawbacks:
Timing and Coordination: You will be closing two transactions in a row, so precise timing is essential to prevent delays that could affect the second closing.
Securing Short-Term Financing: It might be challenging to access short-term financing for this real estate purchase.
Higher Transaction Costs: Since you will have two closings, costs are also higher, which means cutting into profits. However, the potential gains often make up for the added costs.
Legal Nuances: Navigating the legal landscape of double closings requires diligence to ensure contracts are airtight and each step is correctly executed.
Avoiding Common Double Closing Mistakes
To get the best results from double closing, avoid these common pitfalls:
- Verify Buyers: Ensure your buyer has creditworthiness and a reasonable probability of closing the transaction.
- Proper Appraisal: Getting an appraisal will ensure you are not overpaying and that you are maintaining a healthy profit margin.
- Documentation Readiness: Prepare contracts and other paperwork to their fullest so that legal binding is given to avert any issue at the last minute.
- Ensure Good Communication: Remember you are coordinating with both seller and buyer. Effective communication keeps everyone aligned and on the same page, thereby decreasing confusion.
Final Thoughts
Real estate wholesaling can open up more valuable deals if you understand the concept of double closings. Do you need the best transactional funding for your real estate deal? DoubleClose.com is here to help real estate wholesalers who need quick, hassle-free financing. DoubleClose.com is on standby to support your business whether you need small-scale capital or funding for bigger projects. Contact us today to make your next big deal a success!