Double Closing eating up profit?

Question

It seems that most people favor double closings so that your end buyer does not know what your profit is.

My question is say you purchased a 150,000 house and double closed on the property at 160,000 wouldn't this eat up a good chunk of your profit? Also, do you still have to get financing for this property even though you will be owning it for a mere number of hours if that? And what if the buyer walks away on the last day?

Thanks
-Terry

Sorry for so many questions in one paragraph.

Ryan Webber · Answer

I think the number as to when you are making too much money is relative to your market.  If you are dealing with 100K or 200K houses then a $10,000 profit really shouldn't be a big deal to anyone.  Now I deal mostly with 20K-50K houses where the profit for the rehabber is normally $10,000.  I usually set my wholesale profit margins at $5,000 a house, and I have had people get very discontented from seeing my profits.  Normally what will happen is that they get very motivated to haggle tremendously with me, and about half the time they either walk away from the deal or on the next one they come back with a vengeance and end up walking away from that one.

Now should it matter, no, but does it matter to many investors, yes.  What I've found in my market is that investors are okay if I'm making a thousand or two, but if its over $5,000 they get butt hurt.  Again I would think that a $10,000 profit on a $200,000 house or even a $100,000 house wouldn't be as big a deal, but from my experience a $10,000 profit on a $20,000 house can leave a bad taste in an investors mouth.

As for financing for one day for a double closing, that would be up to your closing agent or closing attorney.  I'm not sure if its different state by state, but I've NEVER had to do that with any of my double closings, and I've done about 50 of them.  Now I knew an experienced investor in Georgia who said his closing attorney required him to do it, but really the best thing to do is to find an investor friendly title agent/attorney in your state and check with them.

Now I would recommend that you have financing set up just in case the deal with your buyer falls through.  Normally having a hard money lender set up for this works great.

Jason Cummins · Answer

Flip_Coach took the words right out of my mouth.  What should it matter what you are making as long as you are giving the end user a great deal?

Just dont let them push you around.  if it's truely a great deal and they walk because of what you are assigning the property for, you will find another buyer, and they are LAME for walking for that reason.  Most would not walk, they may try to haggle, but just stick to your guns.  AS long as your selling price is a good one.

Andrew Massaro · Answer

I've never understood how a buyer can get upset at a wholesaler's profit, regardless of what it is.  So, the deal was a good one, but now that I know you're making $20k, it's not now?  Doesn't make any sense.

I assign everything.  I could care less what a rehabber says at the closing table.  If he complains about my profit margin, he can go find another deal.  He's getting it at $.50 - $.65 on the dollar anyway.  In reality, he should be happy that I'm making money.  That's what this game is all about anyway, right?  Everyone should be making money.

A jealous rehabber is a schmuck.  Don't do business with him...

Lou Castillo · Answer

I keep hearing that wholesalers want to do double closings to hide their profit. There is no need for that if you are leaving a decent profit in there for the rehabber - especially when you're only making $10k. Sure, when I make $40,000 or more I do a double closing, but not on the smaller numbers. And very seldom do I have someone question my profit. When they do I remind them that they were happy with the profit they were making a minute ago - so why would you begrudge me a profit that I derived from great marketing and negotiating with sellers?

In fact my Assignment form even lists my profit right up front - that way if there is going to be a problem I know right up front and I can find someone else. When you have a great deal, rehabbers won't want to pass it up simply because they feel you made too much.

To answer your other questions, yes you need to come up with financing even for a few hours. There are still a few closing agents that will allow you to "sell" the property first and use the proceeds to "buy" the house (in other words, do the transaction in reverse order), but most find this to be unethical.

You could talk to the seller and get seller financing for just 1 day - that will satisfy the closing agent and make it an ethical deal.

If you close on the property, you will incur expenses. Be sure that you include Title Insurance in your list of expenses. Even if you own the property for 1 hour, you are liable for what happened before you.

If your buyer backs out at the last minute, then yes, you have a house and are liable for any loans you took out. See why just assigning the contract is so much better?