Wholesaling: Understanding Double Closing vs. Assignment Closing

In the realm of real estate wholesaling, investors commonly utilize two primary strategies to facilitate transactions: double closing and assignment closing. Understanding each method is crucial for selecting the most suitable approach for your investment objectives.​

What is a Wholesaling Assignment Closing?

Assignment closing involves the wholesaler entering into a purchase agreement with the seller and subsequently assigning this contract to an end buyer. The wholesaler profits by charging an assignment fee, which is disclosed to all parties involved.​

Pros:

• Simplicity: The process is straightforward, involving minimal paperwork and typically only one closing.​

• Cost-Effective: Since the wholesaler doesn't take ownership of the property, they avoid paying closing costs associated with a traditional purchase.​ These costs are passed along to the end buyer.

  
  

  

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Cons:

• Profit Transparency: The assignment fee is visible to both the seller and the end buyer, which may lead to potential disputes if the fee is perceived as excessive.​

• Limited Applicability: Not all contracts are assignable, and some sellers may be hesitant to agree to an assignment clause.​ It is important to include an assignment clause in your contracts to avoid this.

What is Double Closing?

Double closing, also known as a simultaneous or back-to-back closing, entails two separate transactions. First, the wholesaler purchases the property from the seller. Immediately thereafter, the wholesaler sells the property to the end buyer, often on the same day.​ Some wholesalers use this method to avoid state rules in wholesaling (not recommended). Always check wholesaling rules and regulations for your specific state.

Pros:

• Profit Confidentiality: The end buyer is unaware of the wholesaler's profit margin, as the two transactions are independent.​

• Broader Acceptance: This method is often more acceptable to sellers and buyers who may be uncomfortable with assignment contracts.​

Cons:

• Increased Costs: Double closing incurs two sets of closing costs, which can decrease the wholesalers profitability.​

• Complexity: Coordinating two closings requires careful planning and may involve securing short-term financing.​

• You may end up Owning the Property longer: There is a possibility that the end buyer may change their mind in purchasing the property. This leaves you stuck with the property.

Choosing Between Assignment Closing and Double Closing

The decision between assignment closing and double closing depends on various factors, including the size of the anticipated profit, the preferences of the parties involved, and the specific circumstances of the deal. For instance, if maintaining profit confidentiality is a priority, double closing may be preferable. Conversely, for straightforward deals with modest profits, assignment closing might be more efficient.​

Conclusion

Both assignment closings and double closings are effective strategies in wholesaling, each offering its own benefits and challenges. By gaining a deep understanding of these methods, you can make well-informed decisions that align with your investment objectives and the specifics of each individual deal.

The information in this article are of the opinion and experience of the author. Due diligence should always be done before investing in real estate.