Zero Down Double Closing?

Question

Hi Everyone,

I keep reading places that you can do a double closing, using only your buyers (the person you are wholesaling to) funds, making it a no cash required transaction. However it seems to me that to make this happen you would need someone to sign a contract with no proof of funds/pre-approval or have a buyer already in place when you make your offer to show proof of funds.

Is it really plausible in today's market to be able to do a double closing with little or nothing out of pocket? Or is there some trick I am unaware of? Just looking for a clarification, any feedback would help.

Thanks!

Justin

Account Closed · Answer

Ann Bellamy "Back in the day" we called using end buyer's money to fund purchase of the property, with "wholesaler" in the middle a "simul close". It was one escrow with three parties and I know people who got it done in CA. I however, never managed to find any escrow officer who would do it and so, for a few years I did lots of true double closes. Two escrows, two fees, two title policies, etc. Disclosures were required to all parties by my title/escrow companies, so the seller knew the closing was contingent upon the end buyer's funds. Talk about hoping for the stars to align! I never want to do that again. I started using hard money in about 2004-5 and it changed everything. I was so happy to pay points and fees to close and own the property. It gave me time (and clarity) to sell for the most money, sometimes enhance value. Hard money definitely has it's place. I was such a convert I forced an investor friend who was wholesaling at the time to let me loan her enough to close on a wholesale prop just one time to see what it was like. It was the difference between her making 3K or 10K. I charged 1 point. Obviously, I wouldn't make a good HML.

Bill Gulley · Answer

The brakes were put on these transactions through ALTA (American Land Title Association) requirements. The issue was that the initial sale (A-B) was not a bonifided sale as the buyer was not financially capable to facilitate the sale (without selling it) before selling the property in their name. Stuff changes in RE everyday and you will have to keep up with changes, that's why a good relationship with your title company, attorney and banker/mortgage source is important, an investor/operator can't do it all by themselves. The is bad information out there, it may have not been bad when it was mentioned, but if it's dated you should double check any old materials to make sure it is still doable and current! I probably have old posts on here concerning double closings but it's hard to go through 5000 posts and you can't edit them. I have done alot of these in the past, usually to save on title work and closing expenses doing flips. Many were done with seller financing as well and that still works. You could simply explain: Mr. A Seller, I will be setting this property into an LLC with investors who know me. They want all properties I do to come from me as that ensures a chain of title they are comfortable with. In order to do that I buy with a balloon note at our first settlement and immediately pay it off with the funds from the LLC. This is simple a papaer work shuffel and the title company closer is aware that you are paid in full at settlement. So you will receive a certified funds from the title company at closing and we will mark the note paid in full. Doing it this way keeps us all in complaince with new regulations. Ya know, we have to do everything legal!

Eric M. · Answer

Justin Joseph I am curious where you "keep reading" this info. This is very old info. While there is generally very little that is truly new in real estate investing (basic techniques are same), the lending rules and regulations change like the wind. Even the 1-day transactional methods (back to back closings) that people are recommending as an alternative to the old simultaneous closings are now largely out of date in 2012 and very difficult to pull off. If you happen to be flipping REO's to cash investors this can still work but that is pretty tough to do.

Account Closed · Answer

Eric Michaels I think you'd be surprised (and/or horrified) at how much outdated and unrealistic info is out there for people who are just getting started. Many sites, this one included, have posts and articles from people selling their ideas. It's hard to sell to the no-money no-credit crowd if you don't put it out there that it can be easily done with no-money and no-credit. A lot of the people suggesting assignments and double closes, etc. haven't done one in a long time, if ever. REI education is full of blow hards and it's not like they go around updating all the articles and posts they've made. Be thankful you are not starting out today with no money and no credit. :)

Account Closed · Answer

Justin: transactional funders, and most lenders actually, don't charge you up front. It will come out of your proceeds. If you find a great deal, get a contract and get it into escrow. Find a buyer asap and get that contract into escrow too....same escrow company, obviously.:) Transactional lenders don't fund until they see prelims and escrow docs AND are certain that both escrows will close. I don't recommend trying to double close short sale props or REOS, at least not while you are starting out. But find any other great deal with enough spread, the points and fees of transactional funding or hard money should easily be accommodated.

Ann Bellamy · Answer

Your buying the property is the A-B transaction. Seller is A, you are B. Then you sell the property, this is the B-C transaction. You must already have the C end buyer in place to do a double closing. And they must be cash or have a clear to close from their finance company. Most title companies will not allow you to use C's funds for you to buy the property from A. You must have your own funds. Thus the term, transactional funding, because you borrow all the money to buy from A, and then sell immediately to C, thereby paying off your transactional lender. I have heard of the occasional attorney still conducting double closings without the B buyer having his own transactional funding, but I suspect if his title company knew this was the case, they would not insure title.

Demetrus Gibson · Answer

@ Justin Depends on the title co. My Title Co. performs simultaneously closing with a smile. 0 dollars out of pocket It's nice!!! Good Luck

Justin Joseph · Answer

Also, another quick questions, points you pay to the transactional funder, is that upfront or upon closing? I understand that many charge a flat fee, but the points that they charge come out of the proceeds from the transaction correct?

Justin Joseph · Answer

Thanks for such a quick response! I pretty much figured that this was a practice that would be difficult to accomplish. I appreciate the insight/confirmation.

J Scott · Answer

Most title companies won't insure these types of closings anymore, though there are some people here on BP who have gotten them done recently (though they are few and far between). So, while it may be possible, you may have trouble finding a closing firm to do it. In addition, you may find it difficult to get a seller to accept your terms, but then again, if your seller is motivated, you should be able to convince them. My suggestion would be to stick with hard money or transactional funding to fund the first closing, and then repay the loan with the second closing.