You’ve found a great deal and you’re ready to wholesale it, but how does your buyer really approach your seller?
Well, there are two ways to do it: assignment or double closing. In this article, I will discuss each one.
First, let’s see how a task might work. He finds the deal and puts it under contract to buy from his seller. In the purchase contract, you negotiate the right to assign your contract. Then, once you find your investor buyer, fill out a contract assignment form and help facilitate the closing of the deal with your seller and buyer. Often, but not always, you are paid an allocation fee at closing. It is sometimes classified as a fee to clear the title.
Some of the advantages of this are that you are not closing the property yourself when you assign it. You don’t need to get a loan or have cash to buy the property. Also, if your seller and buyer agree and cooperate, it can be a very simple transaction. Since you are not closing the property yourself, you can save yourself some transaction fees. And another great benefit is that you never appear on the title or in public records as the owner of the property.
What are some of the downsides? In many cases, both the buyer and the seller know how much they made from wholesaling. For some people, this can be a problem, especially if the amount you are earning as a wholesale fee is considered large. Of course, you can try working with your title company to have separate HUD statements. Some can do this while others cannot.
Now, let’s see how a double closure might work. In this case, you do the same as in the first example, except instead of assigning the contract to your buyer, you get a purchase contract from your buyer that depends on you having a clear title to sell the property to them (in other words as long as you can close the deal yourself first). You then go ahead and buy the property, and usually later that day, you sell the property to your investor buyer. The mechanics of exactly how this works can vary quite a bit, particularly in the details of how financing works. Some people try to do it with their buyer’s funds. Some insist that it must be financed with your own cash or loan and then you can get it back hours later when you sell it to your buyer.
Whichever way you look at it, there are additional expenses to doing it this way and you, or the entity you are using, appear in the title. So why would you want to consider doing it this way? Sometimes it is the only way to get paid. If the buyer is restricted by their lender on paying assignment fees or fees to release the title, they may need to double close for the deal to work. Another very common reason is that you don’t want the seller or buyer to know that you are charging a very high wholesale fee on the offer.
In general, if possible, I prefer to assign contracts to double closings, but there are times when a double closure makes sense and should be used. Of course, you may want to consult with your legal advisor to discuss issues specific to your situation and local real estate laws.