What is the general community consensus on double closings and option contracts? While I’d prefer using a funder and splitting the profits, there just wouldn’t be enough meat on the bones after closing. My seller would rather have his price than a quick close and I’m pretty confident I can find a buyer with good marketing and exposure and a 90 day term is already on the table.
Option contracts and double closings are kind of an apples-to-oranges comparison. An option is the tool you use to secure control of a property. It gives you the right to buy at a set price within a set timeframe without obligating you to actually purchase it.
A double closing is how the transaction gets closed at the finish line.
They’re solving different problems, which means they can actually work together depending on how you structure the deal. You could get a property under contract with an option, and then execute it with a double closing.
A better comparison for your situation is really between an assignment and a double closing, since both of those describe how you exit the deal.
With an assignment, you’re transferring your contract rights to the end buyer. It’s simpler and cheaper, but your end buyer will be able to see the original price you negotiated with the seller. Most experienced investors don’t care about this because they understand how the business works. But if your buyer is newer or more sensitive to seeing that spread, it can occasionally create friction or even derail a deal.
A double closing keeps both sides of the transaction private. Your seller only sees their side, your end buyer only sees theirs, and the spread you’re capturing in the middle stays between you and your accountant. The tradeoff is that you’re paying two sets of closing costs.
Here’s an infographic that might help:
For your situation, I’d think through two questions.
-
How is your end buyer likely to react when they see what you’re making? If they’re seasoned, an assignment is probably fine. If there’s any doubt, a double closing buys you peace of mind.
-
How big is the spread? If you’re north of $10K, the extra closing costs are usually easy to justify. Below that, the simpler assignment often makes more sense.
With a 90-day term already on the table, you’ve got good flexibility. Just match the exit strategy to your buyer and your numbers.
3 Likes
I really can’t top the reply from Seth (lots of good info there!).
When I’m stuck in this situation, I’ve found seller finance to be helpful. The seller gets their price, and not only do you get your timeline (prob can ask for longer) your secure with being on title.
This option is great if you feel good about the deal and your due diligence.
It’s also great for when you need to do value add (subdivides, clearing, adding driveways ect). Spending capital is a little risky if you’re not on title.
I usually position it something like this:
• $1,200 cash down payment at closing
• Balloon payment due in 90 days (may be prepaid at any time with no penalty)
• Secured by a Promissory Note and Deed of Trust, prepared and recorded by a licensed closing attorney
I also will add a one time 30 or 60 day extension clause in there also (just in case you need more time).
Seller finance can be whatever terms you and the seller agree to, which is why I love it! It’s super flexible. Just fine tune it to your sellers needs.
Often times, sellers are concerned with you holding up their property and not closing (they usually rarely care about the timeline in my experience, it’s more about trusting you’ll close). The down payment (I find) helps greatly with that hurdle…. Some I’ve only put down $1200 and others I’ve put down $30k. Just depends on the deal.
If you have financial partners you’ve worked with before, they might be okay funding the down payment and all the value add - they just have to be okay being in 2nd position behind the seller.
Paying a % of interests on a down payment is way better than paying interest on an entire purchase price (typically private money will be open to this structure, not the typical JV folks).
2 Likes
Thanks for the great insights @retipsterseth and @Kay-Walker! Nice to see two very experienced individuals provide their insights.
This particular parcel is almost ready to build with a new driveway and a spread of about $17K. The seller is a builder in Florida who does not have the time to build out of state. To answer Seth’s questions, I don’t think the seller would be overly concerned with the assignment fee since he should be somewhat familiar with the process, since the end buyer is unknown they might be concerned. Given that I’m north of the $10K, the sellers background, and I’ve already informed the seller that I would provide a non-refundable deposit of which an amount was not stated, going with a double close seems ideal here.
What other tips or items should I look out for? I have not used transactional funding in the past and would be open to this strategy if it makes sense, or I run into unforeseen issues. My initial out of pocket funds are limited, what things I should consider when looking for funding?
I have a really great resource for transactional funding, not sure i provide contact info here or not.. if you send me a DM I’ll connect you both! The owner is amazing and he’s happy to walk through the deal and provide suggestions/tips https://capitaltoclose.com/
1 Like