Pros and Cons of Double Closings in Real Estate Wholesaling
Savvy wholesalers often use various strategies to maximize their profits. A common tactic is the double closing, also known as “simultaneous closing” or “back-to-back closing.” Double closing involves two separate real estate transactions happening almost simultaneously.
In the first transaction, you buy the property from the seller. In the second one, you sell the property to your end buyer. This strategy is typically used when the deal’s profit potential is substantial and privacy is a priority. In this blog post, we’ll explore the pros and cons of double closings so you can make informed decisions.
Pros of Double Closings
Profit Potential
One of the significant advantages of double closing in wholesaling real estate is the potential for higher profits. Since the end buyer doesn’t know what you paid for the property, you can mark up the price significantly.
Flexibility
Double closings provide a high degree of flexibility in real estate transactions. This strategy allows you to secure a contract with the seller without requiring immediate funds. This is particularly beneficial when dealing with expensive properties or when your liquidity is tied up.
Privacy
Double closings can provide an excellent solution if privacy is a top concern. With this approach, the original seller and the end buyer remain unaware of each other’s identities, ensuring confidentiality in business transactions.
Access to More Deals
With double closings, you can access more deals. Some sellers and buyers prefer this method, and being open to it means you can work with a broader range of clients.
Cons of Double Closings
Costs
Double closings can be more expensive due to the additional costs involved. In addition to the standard closing costs, such as transactional lending fees, title searches, and insurance, other expenses may need to be considered. These could include fees for legal services, document preparation, and any necessary inspections.
Complexity
Unlike a typical wholesale deal, where you assign the contract to the end buyer, double closing requires you to go through two sets of paperwork and coordinate with multiple parties.
This includes ensuring that the funds from the end buyer are available for the second closing, as well as managing any potential legal and financial risks associated with the transaction.
Risk
If the end buyer unexpectedly backs out after you’ve purchased the property, you’re left holding the bag, bearing the financial burden and potential loss. Without a new buyer, you may face challenges in recouping your investment and finding a suitable solution.
Reputation
Excessive use of double closings, where wholesalers profit excessively, can significantly impact your reputation in the industry. Many people view this practice negatively as a means to exploit the system and make unfair gains.
Finding the Right Balance in Wholesaling Real Estate
When looking for off-market properties, you want to be in a position where you can maximize your profits while minimizing risks. However, the complexity and potential downsides of double closing can make you feel uneasy. You deserve a stress-free wholesaling experience, not one fraught with uncertainty and risk.
At Wholesalers Transactional Funding, we understand that while double closings can be a valuable tool, they come with their challenges. As a reliable nationwide company, we have extensive experience working with real estate wholesalers and closing deals efficiently.