What Is a Double Close and How Does It Work?

A double close in real estate involves two separate property transfers that occur concurrently or back-to-back. This method enables an investor to acquire a property from an original seller and then immediately resell it to a different, pre-arranged end buyer. The purpose of this approach is to facilitate a real estate deal where the investor acts as an intermediary, completing both purchase and sale within a very short timeframe. This process allows for the rapid movement of property without the investor holding the asset for an extended period.

How a Double Close Operates

A double close transaction unfolds through a sequence of events involving two distinct purchase and sale agreements. The initial phase involves the investor contracting to purchase a property from the original seller, referred to as Transaction A. Simultaneously, or shortly thereafter, the investor secures a second contract to sell the same property to an end buyer, known as Transaction B. These two transactions are aligned to close on the same day or within a few days of each other.

The title company or closing attorney plays a role in facilitating these concurrent closings. They act as a neutral third party, managing all necessary documents, funds, and legal transfers for both Transaction A and Transaction B. On the closing day, funds from the end buyer’s purchase (Transaction B) are routed through the title company to cover the investor’s acquisition costs in Transaction A. Once Transaction A is completed, the property’s deed is immediately transferred from the original seller to the investor.

Immediately following, or even simultaneously, the property’s deed is then transferred from the investor to the end buyer in Transaction B. This rapid transfer of ownership is central to the double close strategy. The investor’s profit is realized from the difference between the sale price in Transaction B and the purchase price in Transaction A, after accounting for all associated costs and fees from both transactions. This process minimizes the investor’s direct financial exposure and holding time.

Key Participants

Multiple parties contribute to the execution of a double close transaction, each with specific responsibilities. The original seller initiates the process by agreeing to sell their property, seeking a swift and uncomplicated sale. The investor or wholesaler serves as the central figure, acting as the buyer in the first transaction and the seller in the second. This individual or entity assumes temporary ownership to facilitate the immediate resale.

The end buyer is the ultimate purchaser of the property, providing the funds that drive the process. Their willingness to acquire the property at a specific price makes the double close feasible for the investor. A title company or closing attorney is essential to the transaction, handling escrow, performing title searches, preparing closing documents, and ensuring the legal transfer of ownership and funds for both transactions. Their role ensures regulatory compliance and the proper recordation of deeds.

Lenders may also participate, particularly for the end buyer who relies on traditional mortgage financing to complete their purchase. While the investor’s role is structured to minimize their own capital outlay, the end buyer’s financing is a component that allows them to acquire the property. Each participant’s involvement is coordinated to ensure a timely progression of the two interdependent closings.

Financial Aspects

The financial structure of a double close centers on funding Transaction A and realizing profit from Transaction B. Investors utilize specialized short-term financing options to cover the initial purchase in Transaction A. Common methods include transactional funding, a short-term loan sometimes repaid within the same day or a few days, ranging from 1% to 4% of the loan amount. Hard money loans are another option, providing asset-backed financing with higher interest rates, between 8% and 15% annually, for terms spanning 6 to 36 months. Private money from individual lenders or cash can also fund Transaction A, minimizing traditional lending complexities.

The investor’s profit is the result of the price differential between their purchase price from the original seller and their sale price to the end buyer. For example, if an investor acquires a property for $150,000 and sells it for $180,000, the gross profit before costs is $30,000. However, both Transaction A and Transaction B incur their own sets of closing costs. Buyers pay between 2% and 5% of the purchase price in closing costs, while sellers might pay between 5% and 6%, including real estate commissions.

These costs can include title insurance, escrow fees, recording fees, and potentially loan origination charges if financing is involved. The flow of funds is important: the capital from the end buyer’s purchase in Transaction B is used by the title company to simultaneously pay off the investor’s acquisition in Transaction A, including any transactional funding or hard money loan, with the remaining balance disbursed to the investor as their net profit. This synchronized financial movement allows the investor to leverage the end buyer’s funds without extensive personal capital investment for an extended period.

Common Scenarios for a Double Close

A double close strategy is employed in specific real estate circumstances where its structure provides advantages. It is used with distressed properties, which are real estate assets under financial or physical strain due to factors like foreclosure, tax default, or disrepair. Sellers of such properties are motivated by a need for a quick sale, making them amenable to an investor’s rapid closing process. This method provides a swift exit for sellers who might otherwise face lengthy or complicated traditional sales.

Another scenario involves off-market deals, where properties are not publicly listed on traditional platforms such as the Multiple Listing Service (MLS). These transactions occur through private networks or direct outreach, allowing investors to secure properties with less competition. Double closes are also suitable when an investor has identified an end buyer for a property before or immediately after putting it under contract with the original seller. This pre-arranged sale mitigates risk for the investor by ensuring a buyer is in place.

This approach can be utilized when an investor aims to keep their acquisition price confidential from the end buyer, or vice versa, maintaining discretion around the transaction’s financial details. The back-to-back nature of the closings helps achieve this separation. The double close is a tool for rapid asset turnover, effective in situations demanding speed and privacy in the real estate market.