All Forum Posts by: Sharon Vornholt

What Is A Double Closing?

A double closing or simultaneous closing as it is sometimes called is when you (the buyer) actually take title to the property just before you sell it. This means that your name or the name of your company will go on the chain of title whether you sell the property the same day (which is typical for a double closing) or 30-60 days or more down the road. The main advantage to doing this type of closing is that you do not need to bring any of your own funds to the closing.

How Does A Double Closing Work?

The first part of the transaction which is typically called the A to B transaction is between you and your seller. The second transaction where you sell the property to your end buyer is called the B to C transaction. As a wholesaler, I am almost always funding the A to B transaction (my original purchase) with the funds from the B to C transaction. Simply put, my end buyer is bringing all of the money to the closing for both transactions.

There are two settlement statements created for the closing. One settlement statement or HUD-1 is between you and the seller which reflects the amount that you paid for the property. The second settlement statement is the transaction between you and your end buyer and reflects the amount you sold the property for.

What If I Am Not Working With A Cash Buyer?

Now this whole process probably seems very strange to folks that unfamiliar with double closings. However, I can assure you that they are quite common. This process works because the majority of the time I am selling my properties to other investors that are cash buyers. On the occasions when I am not working with a cash buyer, they will be using some type of financing such as hard money, a private lender or an investor friendly bank. If my buyer happens to be a rehabber, then it is quite common to get a “construction†type of loan from one of the local banks which will cover not only the purchase of the property but some if not all of the repairs. In all of these instances, the lender is familiar with simultaneous closings and you will find that they don’t have a problem with doing them.

How Does This All Work?

The key point to remember is that the certified funds are already in the hands of the attorney at the time of the closing for the B to C transaction, so there is a certainty that the first transaction (the A to B transaction) will close. As soon as the sale to the end buyer is completed, the A to B transaction takes place. The funds that I just “made†on sale of my property are actually used for my original purchase (the A to B transaction). I just love this process!

What Are the Negatives of A Double Closing?

In my part of the country, there just really aren’t any. We use closing attorneys rather than title companies for all of our closings. It only costs me about $300.00 - $350.00 on average for each closing. That comes to about $600.00 - $700.00 for both closings which I think is pretty cheap. Folks in my area are pretty much evenly split on whether or not they buy title insurance on the property. In most cases, I only own the property for about 5 – 10 minutes so I rarely buy title insurance when I am wholesaling properties.

Be sure to familiarize yourself with how things are done in your area. I have heard that some title companies won’t do double closings.

Can You Use A Traditional Lender?

If you are wholesaling a house and your buyer wants to use a traditional bank, you will most likely run into a seasoning issue. Seasoning is a term to describe how long a person has owned the house. The majority of banks will not fund the deal unless the title has been held by one person for at least 90 days. Some banks require you to own the property even longer. These rules were put into effect to protect homeowners from that small percentage of unscrupulous investors who were out to take advantage of folks.

Why Not Just Assign the Contract?

How you close your deals is a personal decision. I personally don’t like doing assignments unless my assignment fee is small. In my opinion the probability of the deal blowing up increases when you assign the contract. Your seller and your buyer see exactly how much you are making just for being a “transaction coordinatorâ€. And in most cases, they are not going to be happy with what they see. The larger your assignment fee, the higher the probability this will happen.

I always tell my seller from the very beginning, that I am not sure what I will be doing with the property. I let them know that at times I pass on properties to other investors, and they are always clear on the fact that my intention is to make money from this transaction. However, knowing this “intellectually†does not really alleviate the problem when they see just how much you made right there on the HUD-1.

So What’s the Answer?

For me, I almost always do double closings. I have only assigned the contract a few times in my real estate career. The advantages of doing simultaneous closings far out weigh the fact that I have to pay a little more in closing costs. Pick what works best for you, and you have made the right decision.

I have a few to add to the list -

-Any type of real estate auction - not only commissioner's sales are good for finding other investors.

-Hard money lenders. You can find these in your local REIA group.

-Your closing attorney (or title company), insurance agent or other folks that work with other investor buyers.

-We have a local bank that does a lot of investor deals. They know which investors they are loaning money to. They won't give you a list, but they will pass along your contact info. They may also be an investor themselves.

-Social Media - Especially Facebook. Always put your deals on Facebook. If they don't buy that particular house, you can still add them to your buyer's list for future deals.

-Make up a "hand made" corrugated sign with your phone number that says something like "Must sell - Cheap- Cash" when you have a house to sell. Put it up in the area where the house is located. I can promise you, you will get calls.

-Finally- I do a lot of direct mail to absentee owners. Think about putting something at the bottom of your regular letter to indicate that if they don't want to sell but might be interested in acquiring additional properties they can also contact you.

Hi Don -

Working with sellers of single family homes, is definitely more of a challenge than commercial real estate. You hit the nail right on the head. They are emotional. Very emotional! But when all is said and done, I do love it inspite of all the frustation.

I looked at a house a couple of days ago that was a probate situation. The 92 year old seller had walked out the front door and just died on the sidewalk. After looking at the house, I decided she walked out the door (to die) so that she wouldn't risk never being found in that mess.

The attorney told me that the house would be a "complete gut". There had been no updates in 50-60 years, no repairs done in many years, and they had already removed 4 jumbo dumpsters of junk, clothes and trash. She was like one of those hoarders on TV. There were still piles of stuff about 4 feet high. We had to "rake" the clothes off the stairs so that we could get to the second floor.

By my estimation there were at least 4-5 dumpsters of stuff still left in the house. The attorney also told me the seller had a cat, but it was never found. Yuck!

In spite of the condition of the house, it was in a good neighborhood. I submitted an offer to him that included finishing the clean out of the house. Suddenly he got all emotionial just lke he was the seller. He was very quick to tell me that he would present the offer, but he was sure the seller wouldn't accept that offer. This is the guy that told me it was going to cost a fortune to fix the house.

I thanked him for his time and recapped all of the repairs needed. I told him to call me if they reconsidered.

@financexaminer - Don't they just have some excuses! Your answer is just exactly what I really want to say to them (but can't of course).

@Ryan - So true. You need to know what they really want.

After making an offer where the seller seems to have some reservations, at times I have simply asked them what would make the deal work for them. Surprisingly it is often less than you might think.

I might be thinking they just want a higher price (thousands more) and they may say, "I want $1000 to move" or "I owe $850.00 in back taxes". Sometimes it is as simple as paying their closing costs which only amount to a few hundred dollars. It definitely pays to dig deep and know what they really need out of the deal.

Partner approval is also one that I use and I think it is one of the best. You can always put in an inspection clause.

There is one clause that my closing attorney gave me that I use at times that will get you out of any contract. It says, "Property must meet buyers intended purpose".

At times I will put a house under contract that I know I won't be buying (such as a house in a bad area). I know I will be wholesaling it and I tell the seller upfront I will be finding him a buyer. I always use this clause in this case and have not had any problems with anyone when I put it in. I don't know if you are doing REO's if they would accept it however.

Making Offers. What If My Seller Isn’t A Motivated Seller?

Sellers; now they’re a funny bunch of folks.

Like most real estate investors, I talk to a lot of sellers as a result of my marketing. And, they always have a story to tell. One of the first things you learn as a real estate investor is that you need to pull up a chair, grab your coffee and prepare to listen without interrupting. Now I am the first to admit, that this can be tough to do at times. Some folks want to enlighten you on the family history for the last 100 years. But at some point, they will tell you how much they need to sell the house.

When you ask them what repairs need to be done on the house, they will give you a list of things. However, when you ask them “What repairs and upgrades would you do if you were going to live in the house� Well, then they will give you a much longer list. It is just part of the process. It’s actually kind of funny that the kitchen and bath didn’t need to be upgraded until they were going to have to live in the house.

At some point in the conversation I will usually ask the seller if they have considered doing the necessary repairs before selling the property. I remind them that they would probably be able to sell the house for a lot more money. They always tell me that it just costs too much for them to do the work. Usually they will also admit that they just don’t want to do that much work. The sellers already know that it is going to be very costly and time consuming to renovate the house; that is until you give them a low offer to buy the house “as isâ€. It is at that moment, that everything takes less time and costs less to repair or renovate.

So what do we do? Part of what I do is let them absorb the information while I continue the conversation. I listen to their objections; I listen to their stories. Even though they understand intellectually what you are saying, their emotions take over. We all want as much for our properties as we can get out of them. These folks are no different. As a real estate investor, most days I feel like I am half investor and half counselor. When the conversation is no longer going forward, I usually tell them to take some time and think about my offer, and I let them know when they can expect me to check in with them.

One thing you need to remember is that just because they aren’t a motivated seller today, that doesn’t mean they won’t become a motivated seller in the future. Circumstances change for everyone over time. I used to take these folks off my mailing list when they wanted too much for the house, but I don’t do that any more. It may be that they need to hear this same “low offer†from a couple of real estate investors before it really sinks in. Or, maybe a little time just needs to pass before they become a truly motivated seller. It really doesn’t matter. What does matter is that if you are the only person that follows up with them in periodically it’s likely that you will be the one that ends up with the house.

Sure, they may find someone that will pay them more for the house. That’s always a risk. But if you are a savvy real estate investor, that’s OK. Hopefully part of what you have learned is when to walk away from what would become a “marginal deal†if you raised your offer.

@ Elisha - I had another business until about 2 1/2 years ago. It is more challenging. But, if you take the time to set up systems for your mailings you can do it. Once you get the mailings out then all you have to do is look at houses and make offers in the evenings or on the weekends.

It seems very daunting until you get a system set up for doing the mailings. That should be your first project.

@ Edwin. Well said.

We all have those days when we wonder if we can get up one more time, but we do. With every setback you need to remember that it is only a "season in your life". This too shall pass".

Adura -

The thing you have to remember about probates is that there is a process involved. Don't get caught up in the statistics.

These folks are at different stages of the process when they are put into the newspaper. Some people are recently deceased and for some it may have been a year or more. Everyone begins working on settling the estate at a different pace.

Folks that file immediatey after the death of a loved one, may not actually be ready to deal with selling the property. Also, they may still need permission from the court to sell the house. There are many variables.

I usually send my first letter about 3-4 weeks after it appears in the newspaper. The response from my first letter or two may not be great. But as time progresses, it will get better, More folks will be ready to sell the property as time goes by.

I actually get a lot of calls at about the 1 year mark. I mail to probates for about 18 months on the average, some folks a little longer.

You need to look through each of your lists ideally at least twice a year. It really should be more but I can't seem to get it done. Some of these houses will be listed and sold. Others may be sold to another investor.

By continuing only to send letters to those left, you will cut your mailing costs. And, you will probably be the only one left that is marketing to them when they finally decide to sell. I have found that some of these folks will decide to keep the property for a rental. After that first tenant has left and has trashed the house, they will become a very motivated seller. So, just hang in there. Keep the letters going.

I look through the PVA and determine whether or not I will put them in the database. The house has to meet my criteria ie not too expensive for us to buy etc.Condo's are hard to wholesale in my area so I take a lot of them out. If you are retailing and you can get them for a wholesale price, then I would say to keep the condo's. Going through this process, I will weed out some of the folks on the probate list.

From there I mail the entire list (what is left) about every 4-6 weeks. I do not call them. It is a difficult time for most of them dealing with the estate and I don't want to add to their stress. I am very careful how I handle probates.

That is pretty much how I do it. After sending out thousands of letters, I have only had two people (who were upset) call me and ask to be taken off the list. I apologized to them and that was the end of that.

I use an Act databse (Office Depot has it) that has mail merge functions. I have had it a couple of years now. I can update the file on each person as needed and send out letters to my list on my schedule. For instance, I will pick my list of absentee owners from California (or whatever state I need to mail) and merge up those letters as a group and hit print. It's very simple. I have all of my "groups" in Act such as absentte owners, probates etc.

When I enter probates each month they are in a folder for that month. So the main folder would be 2010 Probates. Under that would be all of the individual months ie Jan., Feb etc. If I need to mail one half of the list this month and not the rest, I can do that.

I am looking into using a particular company to do my mailings at this time. Their sign up fee has come down considerably in the last couple of years.The main advantage to using this service is that they keep your list clean and updated. Also, you can omit certain groups of people such as those that don't have much equity to name just one. I believe I will end up with less but better quality names on my list. I will continue to do the probates myself either way, because I would have to send them the list that I compiled each month. I may as well go ahead and mail those folks. When your list is in the thousands, it makes sense to think about using a service. I am only really considering one company. I believe I can actually spend about the same amount of money using them as I do now because their lists are continually updated. I will certainly post my results if I go down that path.

We have been doing the mailings for almost 3 years and even though we can do them, it is very cumbersome to send out all the letters. We hand address and stamp them all so they don't look mass produced. It would be a relief to have the work done for me especially if I end up buying more houses in the process.