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Real Estate Wholesaling Explained: How a Double Closing Works - YouTube
Channel: REtipster
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if you're familiar with the concept of
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real estate wholesaling you probably
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know the most common method for doing
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deals is through assignments this is
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where a wholesaler enters into a
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purchase agreement with a seller on a
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property and then assigns their rights
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in that contract to a buyer for an
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assignment fee assigning contracts may
[21]
sound like a great idea because the real
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estate wholesaler can act as a middleman
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and can profit from a transaction
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without investing any money of their own
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the problem though is that it's not
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legal in every market some states have
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laws against this type of transaction
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because it looks like the wholesaler is
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trying to sell real estate without a
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license not to mention when you're
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assigning the contract the closing
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process requires you to disclose how
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much of the buyers funds is being paid
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to the seller and to the wholesaler and
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if the seller has any qualms about how
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much they're paying the wholesaler it
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could jeopardize the transaction but did
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you know there's another way to
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wholesale real estate without assigning
[57]
contracts and without using any of your
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own money in this video we're going to
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explain a method of wholesaling called
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the double closed which allows a
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wholesaler to make virtually any amount
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of profit without disclosing these
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numbers to the end buyer when we talk
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about wholesaling through a double
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closed it's very similar to the process
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of closing through an assignment but it
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has a couple of pretty powerful
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advantages with a double Clos you as the
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wholesaler find a great deal from a
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motivated seller and get it under
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contract then you immediately turn
[84]
around and sell this property to an end
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buyer but here's the key all of the
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money required to pay for the
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transaction between you and the original
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seller actually comes from the end buyer
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this is called single source funding let
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me give you an example say you have a
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motivated seller who wants to sell you
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their property for twenty five thousand
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dollars you agree and you both enter
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into a purchase agreement at this price
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we'll call this our a to B transaction
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after the paperwork is signed you then
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send out this same property to your
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buyers list asking for a slightly higher
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price of thirty thousand dollars and you
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find an interested party who agrees now
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you enter into a second purchase
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agreement between yourself as the seller
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and this new buyer we'll call this our
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b2c transaction next you're going to
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send both purchase agreements from the A
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to B transaction and the B to C
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transaction to an investor friendly
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title company informing them that you'd
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like to do a double
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if they're familiar with this type of
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transaction and comfortable doing it
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they'll be happy to service the closing
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for you on the surface this may sound
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like a fairly straightforward process
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but there are some important things to
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understand if you're trying to wholesale
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through a double closed for starters not
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all title companies are investor
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friendly a double closing is a bit more
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sophisticated and complex than your
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typical one-off purchase of a
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single-family home because these
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transactions aren't the norm for most
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title companies you may find that some
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closing agents will simply say it can't
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be done the truth is they can be done
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but not every title company is up to the
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task when you're trying to find one of
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these investor friendly title companies
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one that is able to handle these types
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of transactions start the conversation
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by asking them are you able to perform a
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double closing with single source
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funding you may have to explain that
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there will be three parties involved the
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original seller you and the end buyer
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and you may have to clarify that the end
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buyers funds will be used to cover both
[194]
transactions and that both closings will
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happen on the same day back-to-back but
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in the end if you're dealing with a
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competent title company that knows how
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these transactions work they should be
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able to answer this relatively quickly
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and if not just keep shopping you'll
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find one soon another common
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misconception you may hear from the
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title companies who are not investor
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friendly or well-educated for that
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matter is that somehow double closings
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are illegal double closings are not
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illegal nor are they unethical they
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happen every day in a way that is honest
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professional and profitable however
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something that is illegal is loan fraud
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which has unfortunately been
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misidentified by some as double closings
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loan fraud happens when an investor
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appraiser and mortgage broker work
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together to prepare fraudulent loan
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documents in a bogus appraisal which the
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bank then uses to provide funding for
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the deal the end result is that the end
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buyer over pays for a property and the
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lenders collateral isn't worth nearly
[248]
what they thought it was for this reason
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double closings are much easier to do
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when the end buyer is paying for the
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property with cash no bank financing
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involved this will allow you to sidestep
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all of the red tape involved with a bank
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finance deal and the title company will
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have a much easier time with the
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logistics and paperwork as well as we
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previously mentioned if you're working
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with a competent title come
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they are going to schedule both closings
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to occur back-to-back on the same day
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going back to our example when you
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wholesale through a double closed on
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closing day you are actually going to
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conduct the b2c transaction first
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between you and the buyer for $30,000
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this is when the in buyers funds are
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deposited in escrow
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soon after you're going to conduct the A
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to B transaction between you and the
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original seller for $25,000 and the
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title company is going to use the
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$30,000 in escrow
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from the an buyer to pay the $25,000 to
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the original seller to cover all closing
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costs and then the difference will be
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paid to you as the wholesaler pretty
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cool right
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not just to make this abundantly clear
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there are two different transactions
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taking place almost at the same time
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purchase agreement number one is between
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the original seller and you for $25,000
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this is the A to B transaction purchase
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agreement number two is between you and
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the in buyer for $30,000 this is the b2c
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transaction the process starts when you
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send both fully executed purchase
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agreements to the title company and if
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the title company is investor friendly
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and comfortable doing this type of
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closing they'll conduct the transaction
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using the funds from the in buyer to pay
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off the seller and then send the
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difference to you now if you're planning
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to wholesale properties through a double
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closed it's important that you openly
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communicate to all parties involved you
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can even have the end buyer sign a
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disclosure form giving their
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acknowledgement and consent to the title
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company to use their funds to cover both
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transactions if the in buyer is getting
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a great deal it's likely they won't mind
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this at all just as long as everything
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is explained to them in a way that
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doesn't cause confusion the worst thing
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you can do as a professional is to come
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across as though you're trying to hide
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something so honesty and transparency is
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key also it's worth noting again that
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with the double closed a wholesaler is
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never required to disclose how much they
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purchase the property for which is a
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huge benefit that wholesaling through a
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double Clos has over assignments none of
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the information in this video should be
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interpreted as legal or financial advice
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and we
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encourage you to seek legal counsel
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before attempting to do a double close
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on your own for more tips tricks and
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real-world guidance on how to crush it
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as a real estate investor come and join
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us over at our a tipster com
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