Assignment or double close?

Question

If I’m looking to do a double close would I use 2 purchase and sale agreement contracts for both seller and buyer?? Or would I use 1 “purchase and sale agreement” for the seller and 1 “assignment of contract” for the end buyer??

Shari Peterson · Answer

As a general rule, if your profit margin is higher than 10% or $10,000, you may do better to do a double close rather than the assignment. The reasoning is as follows:

Let's say you can get a property under contract for $100k. Its AS IS value is about $140k. Any rehabber would be happy to buy it for $140k in a BC transaction because they know they can put $40k into it and sell it for $250k. The rehabber stands to make $70k on this deal, and you will profit $40k in a double close.

AB Transaction: Buy for $100k

BC Transaction: Sell for $140k

HOWEVER -- if you ask for a $40k assignment fee, the rehabber will likely tell you to take a hike or demand you lower the assignment fee to $10k or $15k or he will walk away from the deal.

If you double close, he won't know you paid $100k for the deal and he is happy with the good deal HE got for $140k because he will make a nice profit.

On the other hand, you want to Assign the contract if the reasonable profit margin is only $10k-$15k, meaning the AS IS value of the property is only $110k-$115k. Don't waste your money paying for funding.

Dan Barli · Answer

As everyone said, the answers are there about the contracts. If you're asking about which method is better @Chris Montalvo, I think that would depend on the profit you are looking to gain. With a double closing, the end "C" buyer would not see your fee. With an assignment of contract, the fee is disclosed and both "A" and "C" will see it.

Shari Peterson · Answer

You need to explain that you will be buying the property before it is sold to C. This will be proven by the title insurance commitment, which states that you are the B Seller and they are the C Buyer. Have the title company or closing attorney provide them with the title insurance commitment which will show this.

This is one of the many reasons that both the AB and the BC transaction must close with the same closing agent. That closing agent can provide the title insurance for both the AB and the BC because they know they will be recording AB and then BC in the proper order, and be able to confidently provide the title insurance commitment that indeed you ARE the owner of record at the time the BC transaction closes.

If the C Buyer says that they want to buy it directly from A, tell them that would be impossible because you are already under contract to close on it. Explain that your function in the real estate investment cycle is to spend a lot of time and energy to market to potential sellers, weed through the valid prospects, successfully negotiate the price, and market to find an end C Buyer. All of this saves time for the C Buyer because they don't have to spend all of that time and do all of that work to find a good property for them to renovate and sell. You provide the valuable service of delivering to them this property that they can profit from. And for all of that, you make a small fee (which you don't have to reveal to them).

Stephen Bonanno · Answer

Any experience with the buyer in the B-C transaction asking why A is the owner of the property and not B?  In other words, is it a problem/how do you explain to C that they are making a contract with B and not A in a double close scenario?

Timothy W. · Answer

The buyer usually brings in the money as escrow before you close deal with the seller. You use this to close the sale with the seller and then finish the deal with the buyer. Good luck!

Shari Peterson · Answer

You must close FIRST with the seller. You use transactional funding to pay off the seller. Then, immediately after, on the same day at the same title company, you close with the buyer. On that second closing, you pay back the transactional funding and whatever is left over is your PROFIT. :-)

Mesha R. · Answer

@Shari Peterson, @Dan Barli. Really good information!

I'm a new wholesaler. Haven't gotten my first deal yet.

If you guys don't mind, I have what may be a stupid question: On a double closing, how are you able to close w/the seller if you haven't sold it to the buyer yet? How/When does the seller get paid? Thanks for your help!

Isaac Barrow · Answer

Two separate purchase agreements. One is the "AB" agreement between you and seller, one is "BC" between you and end buyer

Wayne Brooks · Answer

An assignment deal has a contract with the seller which gets assigned to the buyer.

In a double close, yes you have a separate purchase contract with both the seller and the buyer.

Grant Rothenburger · Answer

@Chris Montalvo

@Garth Kukla How do you typically handle your double closings?

Assignment or double close?

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