Wholesaling 101: What Is A Double Close In Wholesale Real Estate?

Introduction to Double Closing in Wholesale Real Estate in Texas

The Texas real estate market offers numerous opportunities for real estate investors and wholesalers alike. Among the different methods employed in this fast moving niche of real estate is a double close. Double closing stands out as a valuable tool that benefits not just the property wholesalers but also the motivated sellers that need quick cash and the end buyers hungry for deal flow.

If you’ve ever wondered what is a double close in wholesale real estate in Texas, and how it impacts you as an investor, potential buyer, or wholesaler, this guide is for you.

Understanding The Mechanics Of How A Double Close Works

Double closing, also known as a double close or back-to-back closing, involves two separate real estate transactions occurring almost simultaneously. This process is common in the real estate wholesaling business, where off-market deals on distressed properties are often bought and sold quickly to capitalize on investment opportunities.

Understanding how double closing works can enhance your real estate investing deal flow, ensuring you gain access to the largest number of possible deals to make informed and profitable decisions on your investment strategy.

In a double close, there are two key transactions:

• First Transaction (B Transaction): The wholesaler purchases the property from the original seller in the first closing.
• Second Transaction (B to C Transaction): In the second closing, the wholesaler then sells the property to the end buyer, which could be you.

These transactions are separate but coordinated to occur in quick succession, often with same day funding.

Here’s how the wholesaling process unfolds:

1. Wholesaler Finds a Property: The wholesaler identifies a property owner, often in a distressed house from a motivated seller, and secures it under a wholesale real estate contract or purchase and sale agreement.
2. Wholesaler Secures Funding: They obtain transactional funding or a hard money loan for the initial purchase, usually avoiding the use of their own funds.
3. End Buyer Steps In: The wholesaler will contact his cash buyers list and show the offering. If interested and meets your buy box criteria, you enter into a purchase contract with the wholesaler to buy the property at an agreed purchase price which is normally at a higher price. In our experience in over 2700 real estate transactions, we see the average range of assignment fees from $5,000 to $20,000.
4. Closings Occur: Both the B and C transactions have a near simultaneous closing with the help of a closing agent or real estate attorney, ensuring all legal and financial aspects are handled appropriately.

The Role of the End Buyer in Double Closings

The end buyer plays a pivotal role in the double closing process. Their participation ensures that the wholesaler can proceed with the next step and close deals seamlessly. Here’s what you need to know if you are the end buyer real estate investor:

• Equitable Interest: By entering into a contract assignment with the wholesaler, you gain an equitable interest in the real property.
• Due Diligence: It’s essential to perform due diligence on the property to assess its market value, condition, and potential as an investment property or rental property.
• Funding: You’ll need to arrange financing or have funds available to complete the purchase during the second closing.

Benefits of A Double Close for Investors

Engaging in a double closing can be advantageous an end buyer:

• Access to Wholesale Properties: Double closings open up opportunities to purchase wholesale distressed properties that may not be available through traditional on-market channels like MLS, Zillow, or Redfin.
• Potential for Equity: Purchasing properties below market value allows for immediate equity gains, enhancing your profit margin.
• Streamlined Transactions: Working with experienced real estate professionals in the wholesaling business can simplify the closing process, making it faster and more efficient.
• Legal and Ethical Transactions: When conducted properly, double closings are legal and ethical, providing transparency and security for all parties involved.

Legal Considerations and Ethical Aspects

Understanding the legalities of double closings in Texas is paramount:

• State Laws Compliance: Double closings must comply with state laws, including the Texas Occupations Code and real estate law regulations.
• Licensed Professionals: Working with a licensed real estate agent or real estate attorney ensures adherence to legal requirements and provides legal advice when needed for a successful real estate transaction.
• Ownership of the Property: The wholesaler temporarily takes ownership of the property before transferring it to you, which is a standard part of the process.
• Transparency: Ethical real estate wholesalers disclose all necessary information, ensuring you are fully informed about the property and the terms of the transaction.

Financing and Funding in Double Closings

Funding is a critical component for both the wholesaler and you as the end buyer:

• Wholesaler’s Funding: They typically use transactional funding, hard money loans, or day funding to facilitate the first transaction without tying up their own capital.
• End Buyer’s Funding: You may finance the purchase through traditional means, cash, or investment funds. Having your financing in place expedites the process.
• Hard Money Lenders: If needed, connecting with a hard money lender can provide quick financing based on the property’s value rather than credit history.

Comparing Double Closing and Assignment Contracts

Understanding the difference between double closing and assignment contracts helps you make informed decisions:

• Double Closing: Involves two separate transactions, providing a clear chain of title and potentially protecting the wholesaler’s profit margin.
• Assignment of Contract: The wholesaler assigns their rights in the contract to you for an assignment fee, and you directly purchase from the original seller.
• Pros and Cons: Double closings offer more transparency and can be preferable when dealing with properties requiring quick transactions or when the wholesaling real estate process necessitates separate transactions.

Insider Tips for Real Estate Investors Participating in A Double Close

To ensure a successful experience:

• Work with Experienced Wholesalers: An experienced wholesaler understands the nuances of the process, reducing potential transactional and legal issues.
• Perform Thorough Due Diligence: Investigate the property’s condition, title status, and any legal issues.
• Secure Reliable Funding: Have your financing arranged ahead of time to prevent delays.
• Understand the Process: Familiarize yourself with the steps involved, including the closing process and any associated costs.
• Consult Professionals: Engage a real estate attorney or licensed real estate agent for guidance.

How To Reduce Potential Risks In A Double Close

While double closings are generally beneficial, be aware of potential risks:

• Legal Issues: Non-compliance with Texas state laws can lead to complications. Mitigate this by ensuring all parties adhere to legal requirements.
• Market Fluctuations: Changes in the real estate market could affect the property’s value. Stay informed and consider market trends.
• Financing Delays: Delays in funding can derail the transaction. Ensure your financing is secured and ready.
• Property Condition: Unanticipated issues with the property can arise. Conduct inspections and consider commercial real estate assessments if applicable.

Embrace Double Closings To Grow Your Deal Flow

Double closing is a legitimate and effective real estate strategy within the real estate industry, especially in the state of Texas. As an end buyer, participating in a double closing allows you to access valuable investment opportunities, often acquiring properties below market value.

By understanding how double closing works, recognizing the benefits, and taking the necessary precautions, you can confidently engage in these transactions. Working with reputable real estate wholesalers and real estate professionals, performing due diligence, and ensuring compliance with legal requirements are the best ways to secure successful deals.

Embrace double closings as part of your real estate investing strategy to expand your portfolio, increase your profit margin, and achieve your investment goals in the thriving Texas real estate market.

*** This article is for informational purposes only and should not be considered real estate legal, financial, or real estate advice. Always consult with a licensed real estate agent, attorney, or financial advisor before engaging in real estate transactions. The information provided here reflects general practices and may not apply to all jurisdictions or individual circumstances.