What is the Double Close Strategy in Real Estate?

The double close strategy, also known as "simultaneous closing" or "back-to-back closing," is a creative real estate transaction approach that involves two separate but consecutive closings. This strategy is often used in wholesale real estate transactions where an investor acts as a middleman between the seller and the end buyer. Let's explore the intricacies of the double close strategy:

Definition of Double Close Strategy:

1. Primary Objective:

• The double close strategy is employed to facilitate the sale of a property without the initial investor having to use their own funds. It allows the investor to act as a facilitator, connecting the seller with the end buyer and earning a profit in the process.

2. Two Consecutive Closings:

• In a double close, there are two separate closing transactions. The first closing involves the purchase of the property from the original seller by the investor. The second closing occurs immediately after, where the investor sells the property to the end buyer.

3. Limited Use of Investor's Funds:

• One of the key advantages of the double close strategy is that it enables the investor to complete the transaction without having significant funds of their own. The investor's funds are used only during the brief interim period between the two closings.

How the Double Close Strategy Works:

1. Under Contract with the Seller:

• The investor initially enters into a purchase contract with the property seller. This contract gives the investor the right to purchase the property.

2. Investor Finds an End Buyer:

• The investor then identifies an end buyer who is interested in purchasing the property. This buyer is often unaware of the original purchase price between the investor and the seller.

3. First Closing - Purchase from the Seller:

• The first closing involves the investor purchasing the property from the original seller. This transaction is funded by the investor's funds or funds from a temporary source, such as transactional funding.

4. Second Closing - Sale to the End Buyer:

• Immediately following the first closing, the investor proceeds to the second closing. In this transaction, the investor sells the property to the end buyer at a higher price, thereby making a profit.

5. Minimal Investor's Funds Used:

• The goal is for the investor to use minimal or no personal funds during the double close. Transactional funding or other short-term financing sources may be utilized to facilitate the process.

Considerations and Risks:

1. Legal and Regulatory Compliance:

• Investors employing the double close strategy must ensure compliance with local laws and regulations governing real estate transactions.

2. Transparency with Parties:

• Clear communication is essential to maintain trust between all parties involved. The end buyer may not be aware of the original purchase price, but transparency within legal bounds is crucial.

3. Financing Arrangements:

• Investors need to secure reliable sources of short-term financing to cover the initial purchase from the seller. Transactional funding or hard money loans are common options.

4. Contractual Agreements:

• The contractual agreements with both the seller and the end buyer must be carefully drafted to avoid any legal complications.

Conclusion

The double close strategy is a dynamic approach in the realm of real estate transactions, allowing investors to facilitate property deals without significant upfront capital. While it presents opportunities for profit, investors should navigate the process with a thorough understanding of legal requirements, transparency, and financing arrangements. As with any real estate strategy, due diligence and compliance are paramount for success when employing the double close strategy.