When should I use a double closing to flip a house?By Jon
Double closings are the hottest selling silver bullet for investors interested in flipping houses. They allow you to:
Get around financing requirements by quickly moving money from one account to another
Keep your purchase price secret by never exposing your contract
Work with less liquid buyers because the "assignment fee" is financed
Sounds perfect, doesn’t it? When a double closing works out correctly, it’s a beautiful thing for the seller, the buyer, and you, the intermediary. The only problem is they almost never work out correctly. Before trying to arrange a double closing, consider the following problems:
Finding a Closing Attorney That Does Double Closings
You’d think that someone that deals with closings all day would understand how to do a double closing. But it’s not the case. Because double closings are so exceptionally rare, few attorneys have performed them. I’ve even spoken to a several attorneys that have never heard of one. So, your first obstacle is finding an attorney that is competent to perform a double closing.
Out of those attorneys, you’ll have to find one that is willing to perform a double closing. Like most service professionals, closing attorneys prefer to deal with easy clients — people with lots of money and their paperwork in order. The simple fact that you need to do a double closing probably disqualifies you from that category. If the closing attorney is successful in his or her practice, they may politely reject your business.
Convincing Your Buyer to Go along with a Double Closing
Once you’ve found an attorney that is competent and willing to perform the double closing for you, you’ll have to convince your buyer to go along with your double closing. Since they’re the perfect tool for real estate investors, any investor should be happy to agree, right? Unfortunately, it doesn’t work that way.
Experienced real estate investors know that double closings are nearly impossible to schedule. They’ll also know that you are a beginner because you are asking them to perform one. Both are good reasons to turn you down and go on to the next opportunity.
If you find a real estate investor who is happy to go along with your plan, I would be suspicious. They’re probably a beginner, meaning they’ve never done a double closing before and they’re likely to mess the process up. Be careful.
Successfully Scheduling the Double Closing
Normal closings involving two people are hard enough to schedule; closings involving three people are next to impossible. If you’ve been in real estate investing for long, you know that something always goes wrong a day or two before the closing — the lender requests additional documentation, something pops up on the title, or the buyer or seller has to reschedule. It’s quite possibly the biggest headache in real estate investing.
When you add another person into the mix, the problems increase exponentially. Sure, it’s possible to pull it off, but think about the risks. You might have to delay closing for several weeks, causing your contract to expire and you to lose your binder, not to mention the credibility you lose for reneging on a contract. If you can, I recommend structuring your contract to allow for such delays. It’ll take some of the pressure off come closing time.
Is It Worth It?
Given all of the problems associated with double closing, you have to ask yourself, "Is it worth it?" For me, the answer is no. I recognize that double closings provide some advantages, but the difficulties in finding a competent closing attorney, increased pressure, and decreased pool of buyers. Most other successful real estate investors feel the same way.
Double closings are the hottest selling silver bullet for investors interested in flipping houses. They allow you to:
Get around financing requirements by quickly moving money from one account to another
Keep your purchase price secret by never exposing your contract
Work with less liquid buyers because the "assignment fee" is financed
Sounds perfect, doesn’t it? When a double closing works out correctly, it’s a beautiful thing for the seller, the buyer, and you, the intermediary. The only problem is they almost never work out correctly. Before trying to arrange a double closing, consider the following problems:
Finding a Closing Attorney That Does Double Closings
You’d think that someone that deals with closings all day would understand how to do a double closing. But it’s not the case. Because double closings are so exceptionally rare, few attorneys have performed them. I’ve even spoken to a several attorneys that have never heard of one. So, your first obstacle is finding an attorney that is competent to perform a double closing.
Out of those attorneys, you’ll have to find one that is willing to perform a double closing. Like most service professionals, closing attorneys prefer to deal with easy clients — people with lots of money and their paperwork in order. The simple fact that you need to do a double closing probably disqualifies you from that category. If the closing attorney is successful in his or her practice, they may politely reject your business.
Convincing Your Buyer to Go along with a Double Closing
Once you’ve found an attorney that is competent and willing to perform the double closing for you, you’ll have to convince your buyer to go along with your double closing. Since they’re the perfect tool for real estate investors, any investor should be happy to agree, right? Unfortunately, it doesn’t work that way.
Experienced real estate investors know that double closings are nearly impossible to schedule. They’ll also know that you are a beginner because you are asking them to perform one. Both are good reasons to turn you down and go on to the next opportunity.
If you find a real estate investor who is happy to go along with your plan, I would be suspicious. They’re probably a beginner, meaning they’ve never done a double closing before and they’re likely to mess the process up. Be careful.
Successfully Scheduling the Double Closing
Normal closings involving two people are hard enough to schedule; closings involving three people are next to impossible. If you’ve been in real estate investing for long, you know that something always goes wrong a day or two before the closing — the lender requests additional documentation, something pops up on the title, or the buyer or seller has to reschedule. It’s quite possibly the biggest headache in real estate investing.
When you add another person into the mix, the problems increase exponentially. Sure, it’s possible to pull it off, but think about the risks. You might have to delay closing for several weeks, causing your contract to expire and you to lose your binder, not to mention the credibility you lose for reneging on a contract. If you can, I recommend structuring your contract to allow for such delays. It’ll take some of the pressure off come closing time.
Is It Worth It?
Given all of the problems associated with double closing, you have to ask yourself, "Is it worth it?" For me, the answer is no. I recognize that double closings provide some advantages, but the difficulties in finding a competent closing attorney, increased pressure, and decreased pool of buyers. Most other successful real estate investors feel the same way.
~Jon~
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