Hi Tony,
First Off, I'm new to this forum but am impressed by the activity and level of intelligent discussions.
I agree with others that there are a few issues with the concept of double closings, but in some cases it makes sense. If you do decide to go this route here are a few things to consider.
1) They are fairly expensive and much of the hard-earned equity that you have negotiated gets paid out to people who are not directly involved. For example, this requires two separate closings which add an extra set of closing fees including an extra Title Policy (which adds 3%+ to the expense of the closing). Unless you have cash on hand for the first closing, you will need to pay for transactional funding which will cost at least 2% of the purchase price. This takes a 70% deal (on a $100k house) up to 73% - 75%. However... maybe this is ok if you have found a 60% deal (minus repairs) and have a buyer willing to pay 70% (minus repairs).
2) I would suggest using a separate title company for the second transaction (your preferred title company). Note... please work this arrangement out with your title company before going down this path. The reason is this... remember that Banks almost always chose the title company for the first close and often times that title company is not willing to start working on the second closing until the first closing is complete. This means that instead of closing the second transaction (to the buyer) on the same day, you may be looking at a week or so between closings. This makes your transactional funding very expensive. There are a few title companies who are willing to start title work on the second transaction even before the first transaction closes allowing you to execute both closings in the same day. If you need a title company referral please email me a jburks@txreipartners.com.
3) As others have mentioned, you need to be careful when putting REOs under contract if you're not certain that you can/will close. The worst thing you can do is back out of deals with REO agents. This is the quickest way to get "Black Listed" and not be taken seriously in the future.
With all of this said, I sometimes use this technique considering that my business model is different from most. I work closely with my clients, I control the private funding, property mgt, rehab and property management and have a very high level of confidence that the transaction will close and if not, I purchase the property myself.
Another method to consider is this: You could purchase the property yourself (using private money/hard money) and as long as your lender is ok with this, you could sell it to your investor on a wrap note which would eliminate the need for a second title policy, reduce closing fees and ensure that the transaction closes.
I hope this helps,
Johnnny Burks
Jburks@txreipartners.com
