My recent emails have been covering topics related to real estate closings. I’ve shared the following before, but it bears repeating and is applicable to what I want to share with you today.
In the summer of 1961, legendary football coach Vince Lombardi arrived at training camp for the Green Bay Packers, who just months before had lost the NFL championship. Coach Lombardi surprised everyone by holding a football in the air and saying, “Gentlemen, this is a football.” With that statement, he let it be known that he was taking nothing for granted when it came to their knowledge of the game. They were going to be focusing on the fundamentals to improve their game.
For some of you, this review of the basics may show you things you thought you knew about closings but really didn’t. If there is one aspect of real estate closings that is so confusing and so often misinterpreted, it is a double closing. First of all, there is different terminology that may or may not mean the same thing, such as “back-to-back closings”, “simultaneous closings”, “double closings”, “dry closings”, “wet funding”, and probably several more that aren’t coming to mind right now.
A double closing is when a real estate investor purchases a property and then quickly resells it. How quickly? Well, it could be the same day, the same week, or the same month. In all three contexts, you should have two, separate, independent, fully-funded, stand-alone real estate closings. When people hear me mention those requirements, I get many questions. “What if I did it this way, or what if I did it that way?”
The four large, national title insurance underwriters that govern our industry have pretty much dictated that the simultaneous, dry closings of the past (which some “gurus” still include in their pitches and presentations) are long gone. The abuse, fraud and cost has gotten to the point that these title insurance underwriters have written instructions and bulletins to their agents describing how various real estate transactions must be handled and closed.
In our current day, beginning investors seem to have a common concern:
“But, Jeff, I don’t have access to the funds for 30 days to hold the property in order to resell it.”
My response: “It sounds like you need to build relationships with private lenders.”
“But, Jeff, my deal isn’t profitable enough to support the cost of hard money for 30 days.”
“I’m sorry, you must have misunderstood me. I was talking about private lenders, not hard money lenders. There is a difference, you know.”
With that said, let me set the stage for my next email. When it comes to arranging for a successful double closing, it requires very good, clear communication and extremely good documentation and follow-up. That good communication needs to start at the very beginning of the first deal when you are getting the property under contract and are working with the title agent and escrow officer. You need to be clear about what the transaction looks like, that you will be taking title to the property and then reselling it within the next 30 days, and you need to know what information the title company needs. Once you know how the title company is willing to proceed, you will know how to move forward relative to your funding, when and how the closing will take place, and when and how you will market the property or contract to line up your buyer for the second transaction.