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