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In this episode, David Dodge and Michael Slane teaches us what are the Specifics of double close and how to do a double close. What are Title Companies and Closing Attorneys and how they would affect a deal? Other aspects that would affect deals like leans and mortgage, what is an AB contract, and BC contract.
Things that will cover in this episode:
- How Double Closing Works
- Title Companies
- Closing Attorney
- AB Contract = Motivated Seller & Wholesaler
- BC Contract = Wholesaler & Buyer
SERVICES MENTIONED IN THIS EPISODE:
David: Alright guys, welcome back. Dave and Mike are here to talk about how to do double closings. We get questions a lot actually from people that send us messages and they say hey this wholesaling thing sounds awesome, how does the double closing work? or how are you guys able to double close? So, this is actually the strategy and the method in which we’re able to flip properties with little to none of our own money. So, how is it possible for me to go buy a house for two hundred grand or in this case, lock it up with a contract and then sell this property with maybe only $10 or $50 or $100 of my money, right? In some cases, none of my own money, right?
Mike: It’s cool.
David: Very cool.
Mike: It’s a really cool thing to do. This is the thing that I guess before I learned it, I just always remember like hearing about this on the late-night infomercials being like oh that’s so fake like nobody does this.
David: Yeah, hahaha. That’s such a good point.
Mike: That’s such BS like, you can’t buy a house without any money. Well, you can and we do it all the time.
David: You can, actually.
Mike: Yeah, I mean we got so many cool ways that we buy houses without using our own money. It’s just- it’s just fun. The double closing is one strategy, now, this is really implemented in our wholesale business, double closings, right? because we’re not actually going to own that property long-term, but we are going to flip it, right?
David: Yeah, we just control it, we control it.
Mike: Right, so what is a double closing Dave? Let’s just described it real quickly.
Mike: And then we can talk more about specifics of how to do it, how to line it up, all that stuff.
David: Got it. So, the double closing is typically facilitated by a title company or closing attorney, and what happens is you line up your A to B contract with your B to C contracts. So, I’m going to dive into that and explain that a little bit more here, but essentially you go out and find a motivated seller. You’re a wholesaler, right? Put yourself into our shoes, you know, you’re a wholesaler, so you go out and you find a great deal on a property and you get a contract on it so now you have control, okay? You then market that contract to purchase that property, right? Some people will say well, you gotta market that property, that’s fine but really you’re marketing that purchase contract and you maybe, let’s say that you find a buyer and they’re willing to buy it from you, right?
Mike: Let’s put it- let’s make it real.
David: Do it.
Mike: Okay, so you listener found me, and I am a motivated seller.
David: I love it.
Mike: Okay, so I am A and you are B, okay? So you as the wholesaler are B and I am the seller A, so you get that A to B contract. We now have a contract in place where I’m selling to you at a great price because I say I just need to get rid of it, I don’t have the money to fix this house.
David: And I relocated for my job, I’m moving next week, I gotta sell it.
Mike: I need to get rid of this today.
Mike: Today. Can you buy it today? No sir, I’m gonna have to go through a title company.
David: But I can do it in a week or two.
Mike: It’s gonna take me about a week, alright, so you say awesome. We lock up this hundred-thousand-dollar house or you do with me for $50,000 because shoot me in the roof shot, it needs a new bathroom, everything needs updating but again, it’s you know, structurally sound. You got this property at a great price $50,000, so that’s our AB contract, that’s your AB contract.
David: Okay, now you tell Mike that you’re going to close on, I’m just gonna throw a random date out, March 23rd.
Mike: Okay, so I say great, March 23rd is perfect.
David: That’s in a week or two from now.
Mike: I’m gonna be busting on out of here because I got a new job, I got to go, all right? Now you as the wholesaler, you B as the wholesaler, then you start marketing this property, you find Dave. All right Dave, what do you do?
David: What was the price $50,000?
Mike: I’ve got it for 50- well, he’s got it for 50.
David: Yeah, the- our listener. Our listener has it for 50, so they market it for 60, 65 grand. I come in I say hey, this has still got a lot of meat on the bone at 60 grand, right? I’m going to pay essentially 10,000 over what you’re willing to pay and you say okay great, send me a contract. So now, I’m going to send you, the listener, a contract for 60. You, the listener, already have a contract to purchase this property from Mike at 50, right? You then take both of those contracts to a title company or a closing attorney, you line them up, right? You have the closing dates on the exact same day in the future, right? What’d we say March 23rd?
Mike: March 23rd, sure, lets use it.
David: That’s the date we’re going to be closing, so as long as I’m okay closing on March 23rd with you, the
listener, and you, the listener, have talked to Mike, the seller, who’s willing to close on March 23rd, great we’ve aligned those up. March 23rd comes around, I show up to the title company to buy this property and I bring in $60,000 in cash or a cashier’s check most likely or wire, and you are going to do a double close. So, you’re going to purchase this property with my money essentially and then you’re going to sell it to me. You’re going to use my money, some areas, some states, some title companies, some attorneys may require transactional funding. Where we live, we don’t have to deal with that. We can actually use the end buyers money, so look in your own area to determine what the rules are, but essentially that’s a double close. Now, you’re going to be closing twice hence double close, therefore you are going to have double the costs, so that’s one of the advantages of using an assignment which is another way to do a wholesale deal.
Mike: Well here Dave, before we get into that.
David: Go ahead.
Mike: Let’s talk more about the double close and the specifics of the double close and how to do a double close because I know you out there as the B wholesaler are wondering well wait a minute, what if the buyer and the seller meet? Aren’t they going to be mad? Like, pissed off at the title company, we’re all sitting around joking and they say hey I’m paying 65 grand and I’m sitting there only getting 50 grand. Aren’t they gonna be pissed off?
Mike: No, here’s why.
David: Because the double close typically doesn’t happen right at the exact same time. They happen an hour later, 2 hours later from each other. I mean essentially, sometimes we’ll even have the buyer and the seller come in but they’ll sit in different rooms, so we can do a simultaneous close, but they don’t know. Like, what’s on the first sale agreement is between me and that person, and what’s on the second sale agreement where I’m buying it is between me and you as the listener here, right? So, they don’t- that’s a great point Mike, they don’t ever know until you know, maybe later they will but it doesn’t matter cuz you’re solving problems, you’re creating a win-win and that’s what matters.
Mike: Right, so they don’t have to.
David: They don’t have to.
Mike: Well, wait a minute, but do I have to schedule all this? Do I have to coordinate all this? Do I have to do- no. So you as a wholesaler, what Dave was talking about was lining up those contract dates, that’s important. It’s important that everyone is on the same page, kind of around the same closing date, but then you bring it to the title company and you tell the title company here’s what I’m doing: I’m buying this property and I’m flipping it on the same day, can you help me facilitate this? And if it’s an investor-friendly title company, a company that’s dealt with wholesaling real estate in the past, they’re going to know what to do. So, you want to find a good title company that’s done this before, listen to other guys in your area who are wholesaling, talk to other wholesalers, find out where they’re closing deals because that title company’s going to know what’s going on. Not all of them do it, not all closing attorneys do it. They just aren’t familiar with the process so you don’t want to be educating the title company, you want to find a title-
David: Yeah, find one that knows this.
Mike: That can help you do this, especially when you’re new to it.
David: That’s such a good point, yeah.
Mike: When you’ve done it a hundred times, then sure you can probably work with any title company, they’ll figure it out, you could help them too.
David: Help them do it, but in the beginning, let them help you.
Mike: Exactly, and they will help you and that’s the whole point, you don’t have to talk. Again, you should be in communication with your seller and your buyer, and you should be kind of figuring out who’s closing when. Typically speaking, it’s going to make things easier because your seller, the motivated seller, they usually want to check. They usually want that money when they’re signing, they want it right away, so it’s going to make it easier if you try to get those funds to the title company prior, meaning you want your end buyer to close first. So again, that’s going to make it a little bit easier on you.
David: Cuz then the seller can leave with the money.
David: Otherwise they’re going to have to get- come back and pick up a check or wait for a wire or get it in the mail. Again, not the end of the world, I mean, typically we try to sell- hey, our seller, hey we’re going to close on or around this date, that way if it doesn’t happen on that exact day, they’re not coming back with us being like hey what the hell’s going on? Instead, we just say hey, we’re going to shoot for this day but if our buyer needs another day or two or three, that way we’re not you know, being transparent helps a lot and that’s really I think the point that I’m trying to make, but the question that we get over and over is how do you double close? or how do these double closings work? And really the simple answer is you get two contracts: one to purchase the property and then one to sell the property. Or another way to look at it is you have one contract that gives you the ability to control it and then another contract that gives you the ability to sell that control and that’s it. That’s really what it is, and then you take those to a title company or a closing attorney, and it’s really their job to schedule these things and make calls to the seller or the buyer, whoever and make sure that they have all the paperwork that they need which is typically just some information, social security number, maybe some LLC docs or an EIN number, but they are going to help coordinate. They may reach out and ask you for some information so you want to be there to assist them, but just understand that you are paying them to facilitate and close this transaction so really it’s their job to do so, they may need your help contacting a seller or buyer, or getting an address or an email but that’s about it. Typically what happens is they take over and they make those calls and they schedule those times for them to come in. What am I missing?
Mike: Well in a lot of times, I’m just gonna keep with that thought process, it’s not your business. If the property is owned in an LLC, they’re not going to ask you for the LLC operating agreement document. It’s not your business how that buyer or seller has their stuff set up.
David: And how they settle it, right.
Mike: You’ve got a contract to buy and sell, so the title company then gets that information, that’s their job. You’re paying the title company to do this. Their job is not just again facilitating this close, it’s figuring out all these legal things that have to happen in the background to make sure that again, you’ve got a clean title transferred and money transferred. Their an escrow agent essentially, so they’re making sure that everything is transferred, recorded correctly for you, for your seller, for your buyer. It’s one of the reasons we use title companies, in addition to the fact we’re able to do some of these double closes a little bit more creatively.
David: Absolutely, so Mike, I mean questions are coming to mind already from just what we’ve said and put out.
David: I’m already thinking about the people that are going to respond back with questions so I’m going to put myself in the shoes of our audience and I’m going to just ask you questions, right.
Mike: Just always man, always.
David: So okay, cool. Hey Mike and Dave, that sounds great, what about the liens on the property?
Mike: Exactly and that’s what we were just touching on is that’s why we use a title company.
David: Who pays the liens?
Mike: So, liens are recorded against the property or the owner of the property and they’re cleared at closing. What does that mean cleared of closing? It means they come out of the seller’s proceeds. So, in our previous example, if I had a $2,000 tax lien that was on this property and a $1,000 sewer lien on this property, the title company should find those things.
David: That’s their job.
Mike: That is their job. So, when they see those liens recorded, I have to pay them but I don’t have to come out of pocket, it’s going to come out of the closing proceeds.
David: You, as the seller in this scenario.
Mike: So again, there’s documents involved in this, so the the document on that- on my side is going to say well I sold it for fifty thousand but I have to pay a $2,000 sewer lien and I have to pay $1,000 MST lien.
David: So your net-
Mike: So my net comes down to 47.
David: Minus the cost of the title company.
Mike: So Dave, as the buyer in that example, he didn’t have to come up from his 60 or 65, whatever number we used, it stays the same. That’s what Dave is paying for the property. The wholesaler, their spread isn’t affected either because it comes out of the sellers side. So, the leans are cleared on the original-
David: The title company finds them and then they add them in to be paid at settlement, right? So, next question comes to mind Mike, well what happens if your offer is less than what they owe?
Mike: Well, that can be a problem.
David: But it’s not though.
Mike: It can be.
David: It can be, right, and we do this all the time.
Mike: This comes up a lot when people are like: well shoot, this person owes 70,000 and I can only pay 60,000 for the property, this will never work. Okay great, then don’t make your offer cuz I’ll tell you what, Dave and I are going to come and we’re going to offer 60, we’re gonna clean up on these deals. It doesn’t happen every time, it will not happen every time but often times-
David: But sometimes.
Mike: The seller- so let’s go back to our example.
David: You owe 55.
Mike: I owed, yeah.
David: And you, the listener, offered 50.
Mike: And we already agreed to it.
David: And you’re like I can’t come up any, this is it. 50 grand is the most I can pay.
Mike: So, the title company sends me-
David: But if Mike really wants to sell-
Mike: They send me my settlement statement and it says that Mr. Seller, to sell this house, you have to bring us a check for 5 grand. What?
David: Cuz you have to pay off the lien, the mortgage that’s there and if that number is greater than or equal to, really greater than, it’s never equal to, ever. If it’s greater than, then the seller has to bring those proceeds to the table. Now, this happens actually quite a bit, right?
Mike: We had two back to back one week.
David: We had two in one week that they each brought like 40 thousand, 38 thousand and 42 thousand, something like that.
Mike: It’s crazy.
David: To the table to sell us a property. So, this does happen actually quite frequently, right? So, question number one I had was what about the debts? Question number two was what if those debts are higher than your offer? The next question would be does it matter if it’s a title company or a closing attorney?
David: I like that question. No, the reason is because each state’s a little different guys. Some states require an attorney, other states have title companies, other states have both. Typically title companies are owned or affiliated with an attorney.
Mike: They all have attorney’s.
David: Not always but most of the time, they’re owned by attorneys so they’re involved in the case. Mike and I are located in Missouri and in our state there’s both closing attorneys and title companies. We’ve used both however, 99% of time we use a title company and the title company facilitates the entire transaction. So, next question that comes to mind: why is it so important to use a title company and I’m going to help you with this answer, but it has to do with a policy.
Mike: Okay, so my-
David: Why- so, let me rephrase it. Why is it required for Mike and I? We will never buy a property outside of a title company. We may sell one but we will never ever ever ever buy a property outside of a title company or a closing attorney.
Mike: It’s even simpler than that David, over the- and I’ll get to what you’re talkin about with the policy. Because of the liens, I’d say is the most simple question why we will never purchase a property outside a title company, we want someone to research the chain of title, research that property and find out if there’s liens attached to it. If we buy a property for $20,000 and we pay up an individual $20,000 outside of a title company and then we find out there’s a 3 million dollar lien against the property, well guess what? We don’t own that property, that person with the lien does cuz we ain’t get- we aren’t coming up with 3 million.
David: Yeah, a title can’t transfer.
Mike: It’s not a clean title.
David: Properly cleanly and whenever you have a title transfer that was done incorrectly or wrong, it’s going to slow down the buying or the selling of that property down the road and whenever you go through a title company and often closing attorneys may offer this as well, but they actually offer an insurance policy called titles insurance, right? And that insurance policy protects you of any unfound encumbrances or liens which is really just like mortgages or debts, could be judgments even, that are on that property, so when you go through a title company, not only are they insuring that all the previous debts are going to be paid off and that the name on the record of that ownership transfers from them to you or you to someone else but also they give you an insurance policy against that so if anything was missed, unfound, overlooked, so on so forth, you are covered to be able to sell that property and it’s the title company or closing attorney’s job at that point to go clear those things that may be- that may have been forgotten. Now, it’s pretty rare that stuff happens, that a title insurance policy is needed but just like any insurance policy guys, this is an investment because if you get stuck with the property that you can’t sell then you’re sitting on a massive- massive liability right there. Money is going out, you can’t sell it, maybe you can’t even rent it, who knows? but, you know having the title insurance is very very very important. So, the question that we have in mind here is how do double closings work? And how are the contracts set up? I think we’ve done a pretty good job of answering. You have an A to B contract and a B to C contract. You’re in the middle, you line those up. That’s how it works. Don’t think that you need to know any more than that because again, if you hire a title company or a closing attorney and you have those two contracts, just bring them to them and they will help you get to the finish line, that is their job. Literally, you don’t need to know anything else than what we’ve just talked about in the last 17 minutes in terms to double closing.
David: Go find these people in your area.
Mike: I was gonna say I think the most important part that we skipped over when we start getting into the details here of double closings and how you close is finding the deal. That’s the most important part of wholesaling.
David: That’s it.
Mike: Finding those deals guys, get out there and find the deals, figure out the details on your way to the finish line.
David: I think the point you’re trying to make here is guys, this is a great question to ask but it’s irrelevant if you don’t have an A to B contract or a property under contract. You can’t sell what you don’t have. You can’t markup what you don’t have. So, this is a great point Mike, so many times we get people questioning- sending over questions and we encourage it so if you’re listening, send them over to us. Email, text, go over to Anchor you can even do a voice message that will play on this podcast, right? But the question often is where do I start and what if I don’t know how to do this, this, this, this, this? Well that’s great, we want to teach you all those and those are things that you need to learn but none of that matters if you don’t have a deal, and the best way to find a deal is to go market to motivated sellers. That’s the number one thing. You don’t even need to focus your time and energy on learning how to estimate repairs or even make offers if you don’t have anybody to make an offer to or a property to try to determine those repairs. So, start with marketing and then from there you can learn how to do the double closes down the road. It’s a great question, I’m glad we talked about this but I really want to take it back guys. This is the marketing business, do not forget that. In order to do anything in this business, you have to find a motivated seller and then everything else will fall into place. Thanks for listening guys, signing off.
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