Double Closings: A Valuable Tool for Real Estate Investors
October 26, 2022
Most of us are familiar with Contract Assignments wherein the original buyer on the Purchase and Sale Agreement “assigns” his interest to a third party, but what is a Double Closing and why is it considered a valuable tool?
A Double Closing is the simultaneous closing of two separate Purchase and Sale Agreements involving three parties – a seller, a real estate investor, and an end buyer. The sale of the property to a third-party investor is referred to as the Acquisition Escrow. The investor then sells the property to the end buyer; this transaction is referred to as the Resale Escrow. Both contracts will include language stating that closing is contingent on the simultaneous closing of the other.
Advantages of a Double Closing
Sellers working with investors are often sellers in dire circumstances. They want to close their home quickly but aren’t thrilled about the idea of entering a contract with one buyer who then assigns their interest to someone else who could then come back and start trying to renegotiate the terms. Utilizing a Double Closing allows the investor to remain in control of both transactions until closing occurs and keeps the seller content.
Investors completing a Double Closing do not have to disclose the amount of profit they are making to their end buyer like they do on an assignment. Because they are completing two closings, the sales price on the Acquisition Escrow is not disclosed to the buyer on the Resale Escrow nor is the sales price on the Resale Escrow disclosed to the seller of the Acquisition Escrow.
Funding for Double Closing
- Transactional Financing
Oftentimes investors will secure a very short-term loan referred to as a Transactional Loan or Flash Cash Loan. This type of financing is normally only secured for a few days and is paid back when both transactions close.
- Single-Source Funding
Using the proceeds from the Resale Escrow to complete the Acquisition Escrow closing is referred to as Single Source Funding. Although this type of closing was more common before the 2008 housing crisis, this type of funding can still be done today. The investor/seller of the Resale Escrow must disclose to the buyer that sellers’ proceeds are being used to purchase the property subject property.
Disadvantages of a Double Closing
The biggest disadvantage of a Double Closing is timing and the reliance of three parties to perform rather than just two. If the buyer or original seller backs out list minute, it affects both transactions.
Trying to record and fund on both transactions on the same day can be a challenge especially if the end buyer has a conventional lender.
