Real Estate Wholesaling Explained: How a Double Closing Works

Real Estate Wholesaling Explained: How a Double Closing Works

– [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

5 thoughts on “Real Estate Wholesaling Explained: How a Double Closing Works

  1. Thanks, Jaren! Thank you, Seth, you two are the "Dream Team" of RE investing. Thank you both for all you do!

    ~Daniel F. Harb, ARRT, RT(R)

  2. Amazing explanation! Subscribed.

  3. Quick how would you require the purchase agreement contract in A and B for $X without having the money already from then end buyer? Is there a waiting period between A and B or what? Dope content by the way

  4. Well done. Your amazing at explaining !

  5. Do I have to be a real estate licensee to do wholesaling?

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