Although the concept of flipping houses without spending your own money seems like a myth, the double close provides a viable way to do so. A double close is a type of back-to-back transaction where you first buy a house from a seller and then sell it to another buyer on the very same day. The second buyer will bring the money needed to pay off the first sale. Unlike an assignment contract, a double close allows you to be the owner of record of the property temporarily; however, you still get to retain some flexibility due to the added layer of process.
Here is a step-by-step example of how a double close works:
- Find a Deal
Find a distressed or undervalued property and negotiate with the seller to agree to terms for purchasing the property (also referred to as the A-to-B transaction).
- Secure an Investor/End Buyer
Market the property to potential investors, rehabbers, and/or landlords, and once a buyer is secured, secure them by signing a second purchase agreement with that buyer (also referred to as the B-to-C transaction).
- Coordinate Both Transactions
Coordinate the closing of both transactions on the exact same day and through the same title company (if at all possible). Schedule the B-to-C closing first, although the B-to-C closing does not occur until after the A-to-B closing.
- Have the End Buyer Fund the First Closing
When closing occurs, the funds provided by your end buyer will fund the initial closing (A-to-B), which means that there is no need to provide your own capital to complete the first transaction.
- Profit From the Deal
Once both closings have occurred, your profit comes from the spread between what you originally purchased the property for (A-to-B) and what your buyer paid you for the property (B-to-C). After both transactions have closed, you will receive your profit from the spread.
Who Participates?
You (wholesaler): You orchestrate the dual transaction.
Seller (original seller): The seller is typically a motivated homeowner or lender.
Buyer (end buyer): Typically a cash buyer or investor.
Title Company: The title company coordinates the closings and manages the flow of information and funds between each party. The title company typically uses an escrow account to hold the funds of the buyer until both closings have been completed.
Timing is Everything
A double close relies heavily on timing. Each party must have executed their respective contracts prior to closing, and each party must be ready to close at the exact same time. It is also important to note that your buyer will need to wire their funds to the title company before the closing can occur. Any delays can result in the failure of the entire transaction.
Using local transactional funding can assist in helping you meet this critical deadline. If the title company refuses to allow the end-buyer funds to be used to close the first transaction, a short-term loan can provide a solution. Local transactional funding companies provide same-day loans with minimum requirements that only need to fill the financing gap between the two closings.
Why Do Wholesalers Use Double Closes?
Wholesalers use this strategy when the seller will not allow an assignment contract, when the wholesaler wants to maintain their profit margins private, or when the wholesaler needs to look like the actual buyer. The double close is also a good option for wholesalers working in competitive markets where having control over the contract can literally make or break the deal.
In summary, the double close is a valuable tool for any real estate investor who wants to flip houses, generate income, and expand their business – all without requiring their own money.