January 2020 – REIA of Oakland

How Much Experience Do You Have With Remodels?

Though there is some overlap, remodeling is a niche and is distinctly different from working on new construction. It’s hard to tell what setbacks you’re bound to run-up against, so if the crew has multiple skillsets, it will be cheaper for you. For instance, getting the same person to hang drywall, handle some minor electrical and later lay carpeting is less expensive than subcontracting specialists.

Are You Licensed AND Insured?

Any serious contractor will be licensed to work in the area and have proper insurance coverage. Don’t hesitate to ask to see copies of both. This will (hopefully) ensure that the work will be done to meet proper code requirements and that their insurance policy provides enough coverage should you need it.

How Many Other Jobs Are You Currently Juggling?

You don’t want your remodel to take longer than needed — time is money. This will also give you a sense how large the company is and how your project will be managed. Many qualified contractors will be doing several jobs at once, that’s not necessarily a problem, as long as your rehab doesn’t experience unreasonable delays. If the other jobs are at different stages, then there shouldn’t be a crew shortage that would require hiring additional subcontractors that would throw you off your timeline.

Can You Ensure Completion By (insert date)?

If you’re satisfied with the answers to previous questions, get the contractor to commit to a guaranteed timeline for completion. People don’t like to pass on work and will tell “little white lies” to get the contract.Have your agreement drafted by a professional to make sure all of your requirements are correctly detailed. Rehabs rarely run as smoothly as the contractor would have you believe, there will always be unexpected snags which jeopardize your completion date. To help guarantee the agreed-upon timeline, consider including incentives for early completion and, likewise, penalties for any unreasonable delays.

To be a successful property wholesaler, you need to find a property, get control of it, and move it as quickly as possible. One of the biggest challenges a wholesaler faces is handling a buyer or seller that wants to cancel a deal when they find out what the wholesaler is making. That’s why it’s wise to be familiar with the double-close, where the seller and buyer close separate transactions and never meet.

What is a Double-Close?

Often a wholesaler puts a property under contract, as a buyer, but then assigns the contract to another buyer at a higher price. With a double close, the wholesaler actually purchases and takes legal possession of the property, then has a separate closing to sell the property to their buyer. Though the double-close does add an extra step and expense, it doesn’t necessarily delay the whole process; many closings are still completed almost simultaneously. Also, if you’re tired answering the question, “Is what you do even legal?” The double close removes any whisper of impropriety or illegality.

Benefits of Doing a Double Close

Financial Confidentiality: When assigning the purchase contract for a deal, your original seller and end buyer will eventually know your contract price, the final contract price, and can do the math to figure out what you’re making on the deal. Either one of them can feel jilted and try to force you to renegotiate, taking money out of your pocket. Theoretically, you could sue either or both for nonperformance of their contract, but that may take a while, and a judge may not look favorably on the transaction.

Using a double-close avoids all this.

How To Perform a Double-Close

Since you, as the wholesaler, legally take ownership of the property, there are two closings, hence the name, to complete the deal. The first transaction is between you and the seller, where you are buying the property. In the second closing, you are the seller, so your buyer is purchasing the property from you. The two transactions can even occur in the same office on the same day.

Double-Close Challenges

Let’s be realistic, if it was easy, most wholesale transactions would use a double-close over a contract assignment. So, let’s look at why many wholesalers avoid using a double-close.

Purchase Funds: It’s much easier to get a property under a wholesale contract you plan to assign, then coming up with the funds to actually buy the property yourself. Lack of funds is why many investors are initially attracted to wholesaling to begin with.

Solution: Use your network to look for sources willing to do Transaction Funding. Transaction Funding is what it says – it’s a very short-term loan to facilitate a transaction. Most of these types of loans are for less than a week. Because the lender can’t make much profit on interest for only a week, expect fees and high-interest rates. If you do the math though, you’ll find the actual cost is reasonable.

Costs: Two closings result in two sets of closing costs – even if you’re closing on the same day. One for the transaction where you buy the property and one for when you sell it.

Solution: There’s no way to get rid of costs like title insurance and recording fees, but if you establish a relationship with a closing company/agent, they may be willing to waive or reduce some of their specific fees.

Finding Closing Company: Years ago, the double-close got a bad reputation because wholesalers were doing closings where they used the end-buyer’s money, to fund their purchase from the seller. This is pretty much no longer allowed, hence the need for Transaction Funding. Still, many closing companies/agents won’t do a double-close (with Transaction Funding) or require a minimum amount of days between the two closings.

Solution: Use your network to find a closing company/agent that understands the double-close and will work with you.

Many wholesalers were trained to simply assign contracts and view the double-close as illegal, and too complicated, and so not worth the hassle. As we’ve outline though, the double-close may be something to consider. The extra steps and costs may help you close more deals, while also protecting the spread in those deals.

Photo by Andrea Piacquadio

How Much Experience Do You Have With Remodels?

Are You Licensed AND Insured?

How Many People Are In Your Crew?

How Many Other Jobs Are You Currently Juggling?

Can You Ensure Completion By (insert date)?

What is a Double-Close?

Benefits of Doing a Double Close

How To Perform a Double-Close

Double-Close Challenges