How to Double Close a Wholesale Deal
Understand the structured process of a real estate double close. Navigate the distinct stages from initial acquisition to immediate resale and profit.
A real estate double close involves two distinct, sequential transactions where an investor acquires a property and immediately resells it to an end buyer. This method allows the wholesaler to temporarily take ownership, facilitating a quick resale while often maintaining privacy regarding their profit margin. It differs from an assignment of contract, where an investor transfers contractual rights without taking title.
The Two Transaction Structure
A double close involves two separate real estate transactions. The initial agreement, Transaction 1 (the A-B leg), occurs between the original property owner (Seller A) and the wholesaler (Buyer B). In this first transaction, the wholesaler formally purchases the property.
Immediately following, or concurrently, Transaction 2 (the B-C leg) takes place between the wholesaler (now Seller B) and the end buyer (Buyer C). The wholesaler resells the property to the end buyer for a higher price, realizing a profit. These two closings are typically completed back-to-back or simultaneously.
The wholesaler briefly holds legal title to the property, a distinguishing feature from an assignment where title never transfers. A neutral third party, such as a title company or an attorney, facilitates both transactions, ensuring all documents are properly executed and funds are disbursed correctly.
Preparing for the Double Close
Preparation for a double close begins with securing a purchase agreement with the original seller (Seller A). This A-B contract should clearly define the purchase price, include necessary contingencies, and establish a realistic timeframe for closing, typically 30 to 60 days for a financed deal, or 7 to 14 days for cash transactions. Common contingencies include inspection periods, allowing the wholesaler to assess the property’s condition, and financing contingencies, which protect the wholesaler if funding for the A-B transaction cannot be secured.
Concurrently, a comprehensive title search must be ordered early in the process. This search, conducted by the closing agent, identifies any potential encumbrances, liens, outstanding mortgages, or other issues that could affect clear title to the property. Addressing these title issues proactively is essential to prevent delays or complications on closing day. Selecting an experienced escrow company or closing attorney knowledgeable in double closings is also important, as they will coordinate the complex, simultaneous transactions. The closing agent will require detailed information, including property specifics and all parties’ contact and legal details, to prepare the necessary closing documents.
Funding the A-B transaction is a key preparatory step. Wholesalers aim to use the end buyer’s funds for this purchase, but a direct transfer of funds from the end buyer to the original seller is not permitted. Therefore, the wholesaler must secure short-term financing to acquire the property from Seller A. Common funding options include transactional funding, hard money loans, private money loans, or personal cash.
Transactional funding, also known as flash or same-day funding, is designed for double closings, providing 100% of the required capital for the A-B purchase. These loans are for a very short duration, typically repaid within 1 to 14 days, and incur fees ranging from 1% to 2.5% of the loan amount. Hard money and private money loans also offer quick capital, often relying on the property’s value and deal viability more than the borrower’s credit history.
Simultaneously, the wholesaler must market the property to find an end buyer (Buyer C), showcasing its potential to investors or cash buyers. The B-C contract with Buyer C must be executed, detailing the resale price and an earnest money deposit held in escrow. Aligning the B-C closing timeframe with the A-B transaction is essential for a seamless, back-to-back closing. Effective communication and coordination among all parties, especially with the closing agent, are important to manage timelines and prepare documentation for both transactions.
Executing the Closing Day
On the closing day, ownership and funds transfer through two distinct, back-to-back transactions. The initial A-B transaction involves Seller A conveying the property to the wholesaler (Buyer B). Seller A signs the deed transferring ownership, and the wholesaler (B) signs all pertinent closing documents, including promissory notes and deeds of trust if financing is involved. Funds for this purchase, sourced from the wholesaler’s lender or personal capital, are then disbursed to Seller A via the closing agent.
Immediately following, the B-C transaction occurs. In this closing, the wholesaler (now Seller B) signs a new deed, transferring the property to the end buyer (Buyer C). Buyer C signs their closing documents, including mortgage documents if financing. Funds from Buyer C, encompassing purchase price and closing costs, are disbursed through the closing agent.
The transactional funding for the A-B leg is repaid using proceeds from the B-C transaction, along with any associated fees. The remaining balance, representing the wholesaler’s profit (after all closing costs and funding fees), is disbursed to them by the closing agent. The closing agent ensures both deeds are recorded with the county recorder’s office, updating property records. All parties receive their final closing statements.