Wholesale Real Estate Investing: Simultaneous Closing
When you are involved in real estate investing buying your houses from motivated sellers, you sometimes find that you cannot manage all the properties yourself. In such cases, you have to wholesale these properties to other real estate investors.
This is called wholesale real estate investing.
Simultaneous closing, also called double closing, occurs when you buy a property from the seller and sell it to your buyer at the same closing table. Your profit is the difference between your selling price and buying price minus any closing costs.
So when do you do a simultaneous closing?
If you stand to make a sizable amount from the deal, you do not want the seller or your buyer to know. It is not unusual for them to get uncomfortable and walk away from the deal.
To prevent this, a simultaneous closing is the best option.
How does it work?
1) Sign the contract to buy
Once you identify the property, sign the contract to buy the house from the seller. Fax this to your title company or closing attorney to do title work.
2) Sign contract to sell
Usually your buyer will be a real estate investor, who will probably do repairs and so on. Put it under contract with you as the seller and they as the buyer.
We are assuming that your selling price is higher than your buying price.
You fax the contract to the closing company. You must make sure you collect earnest money when you sign the contract.
3) Close the deals
The title company will then prepare two closing statements one for each transaction.
This means you will have two sets of closing fees. Usually, your buyer brings money to the title company, which is also used to close the first transaction where you buy.
If the second transaction is being funded by a lender, the lender must agree to have their money used to fund the first transaction. You walk away with the difference between the price you sell it for and the price you buy it for less your closing costs.
Notice that the buyer or seller cannot know how much you make in the transaction.
Advantages and disadvantages of simultaneous closing
In simultaneous closing, there are two sets of closing costs, one when buying the house, one when selling it.
Sometimes, the lender for the second transaction refuses to allow their funds to be used to fund the first transaction. This means you must find a way to finance the first transaction.
Unless you have cash to do it, you might need to get transactional funding, usually from hard money lenders. Transactional funding never leaves the closing table and just allows you to close the first transaction.
This is a cost you need to account for in your profits.
If the second transaction is being funded from a conventional mortgage, the lender might require that you own the property for at least 90 days. Such a buyer cannot support a wholesale deal.
When all is said and done, simultaneous closing is a great way to wholesale properties and walk home with big pay days.
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Great Article. Can''t wait for the second addition.