How To Wholesale Real Estate Using The "Double Close” Method.
How To Wholesale Real Estate (Part 2)
On August 26th, 2012 I promised you that I would share how to wholesale real estate using the “Double Close” method. Wholesaling real estate is one of my favorite “no money down” investing strategies, and once I cracked the code on how to do it... I was able to generate large chunks of sweet CA$HOLA in a very short period of time. Go here and read part one if you need to get caught up!
Before I begin my case study, I want to remind you that you are the director of your own movie. You get to decide what the camera see’s and the meaning of it all. So many times I meet new investors that have the wrong mindset. They hang around “naysayers” who claim you “can’t do it that way” or “it’s not possible to do that”. I know that if you are reading this, you desperately want to break out of the constraints that life has surrounded you with. A few years from now you will realize that this time in your life was a pivotal moment... where you made the decision to just go for it... and because you did, you changed your destiny!
I believe in you, and with the right tools and guidance you will become a successful real estate investor.
CASE STUDY - 531 E. Alameda Drive Tempe, AZ 85282
On August 7th I was on my way into my office. It was about 10:30 A.M (I spend most mornings hanging with my kids until I feel like going to work) and I decided to take a new route that I have never driven before. I do this because one of my acquisition strategies is a method called “driving for dollars”. Basically this is where I drive around looking for distressed, abandoned, or odd looking properties. When I spot one... I write down the address and whip out my camera and snap a photo of the front of the house. I also grab a bandit sign from my trunk and throw it up in the front yard. My sign normally says “I PAY CA$H FOR HOUSES” along with my phone number.
About two blocks away from my office I spotted a house that had a crew of people throwing all the furniture and belongings away in a giant dumpster. I pulled over, snapped a quick photo, and wrote down the address.
Once I got into the office I checked the tax records to see if the taxable mailing address was different than the physical property address. This is a great indicator that the property is owned by someone that does not live in the property. I could also tell that the property was not owned by a bank... but by an individual (actually it was owned by the Dorothea B. Zimmerman Revocable Trust).
At this point I mail merged the picture of the front of the property to a simple flyer I use that grabs the owners attention by asking “IS THIS YOUR PROPERTY because I want to pay cash for it”? I then mailed out the flyer and waited for the call.
Real World Advice From The Clever Investor - One of two things typically happens at this point. Either the owner sees my sign in the front of their yard and calls me “pissed off” and asks me why I have my sign in their yard (at which point I explain that I am truly sorry for being a little aggressive, but I was trying to get their attention. Or they will get my flyer and give me a call if they want to sell.
Anyways... back to my story. Turns out that the daughter-in-law received my flyer and gave me a call informing me that the property is owned by her husband’s mother who has stage 3 Alzheimer’s, and just moved into a long term care facility. She also let me know that the mom was a hoarder and had 10 cats. The daughter-in-law and her husband lived over 3 hours away and did not want to deal with this problem property.
They owned the property “free and clear” and had a Power Of Attorney over the mothers estate. I asked her what they wanted to sell the house for if I made her an all cash offer, and she said she wanted around $100,000 cash. She also told me that the property needed a full remodel.
I spent a couple of minutes gathering some more information then let her know that I would call her right back after I comped her property and did some online research.
My research indicated that the property was worth around $200,000 if it was fully remodeled and since it was right around the corner I drove over to the property to do a quick visual inspection. The house was a mess... there was junk everywhere, and it smelled horrible (like dead cats). I believed a full remodel on a 1700+ square foot house would cost around $30,000 so I started creating an offer in my head then called to say the most I could pay was $85,500 and that we would have to split the closing costs. She countered and said that the lowest they could take was $90,000. I told them I would be willing to pay $89,000 and cover all the closing costs... they agreed.
I immediately emailed them a Purchase and Sale Agreement which they signed and sent right back.
I NOW CONTROLLED THE PROPERTY!
Real World Advice From The Clever Investor - In every real estate transaction that I get into, I ALWAYS make sure that the seller benefits in the transaction. In this case, the daughter-in-law and son were extremely happy to get rid of this problem property and focus on helping his mother adjust to moving into the long term care facility. Because they sold to an investor, and not through traditional channels, they enjoyed a hassle-free sale and received the cash they needed to afford caring for their ill family member.
As soon as I received the contract back, Josiah (my intern) added the property to our wholesaling website and blasted it out to our cash buyer database for $121,000 using my Mobile Marketing Machine software. At the same time we faxed the contract over to my investor friendly closing agent to open escrow (think of this as the A-B side of the transaction). I let her know that I planned on doing a double close because I was going to be making a lot of money on this one and I did not want everyone involved in my transaction to know what I was making.
Within minutes of sending out the property via text message I got a call from a guy named Jeremy that said he would take the deal if we would sell it to him for $118,800. I agreed and I sent him over the Sales Contract to sign. I informed him that he needed to take the signed agreement to my investor friendly closing agent along with his earnest deposit and open escrow (think of this as the B-C side of the transaction).
At this point I just sat back and waited for the deal to close. A couple of days later a mobile notary showed up at my beach house (I spend the last three weeks of August every year in Coronado, California renting an amazing 5 million dollar beach house ;-)) to sign the closing documents.
A few days later we closed both escrows (part of the funds from the B-C escrow floated over to fund the A-B escrow and the remaining balance in the B-C escrow was paid out to me as my profit).
Here is a copy of my real estate wholesaler “double escrow” check --->
So as a quick review by doing a “double close” instead of an assignment I:
- Had to open two escrows with the same closing agent (escrow #1 was the A-B escrow where I purchased the property from the motivated seller) and (escrow #2 was the B-C escrow where I flipped the property to my cash back-end investor).
- Had 2 sets of closing costs that I had to deal with (I paid for all of the closing costs when I purchase from the motivated seller, but through negotiations my cash back-end investor paid for all of the closing costs for the second escrow).
- Was able to keep everyone in the transaction from seeing what I was making (actually now-a-days when doing a double escrow the back-end cash buyer has to sign some “Supplemental Escrow Instructions” that disclose that a double close is taking place).
Here is the actual wording in the “Supplemental Escrow Instructions”:
The closing of this escrow is subject to and contingent upon the concurrent closing wherein seller is acquiring the property that seller is currently selling to buyer. Buyer is aware that all or a portion of the proceeds from this transaction are the source of all or a portion of the purchase price in the escrow wherein seller is acquiring the property. Escrow agent is authorized and instructed to transfer funds from seller’s proceeds in this escrow to the escrow wherein seller is purchasing the property in an amount sufficient to allow seller to close escrow and purchase the property. With full knowledge of the existence of this double escrow, seller and buyer authorize and instruct escrow agent to proceed with the closing of this escrow as instructed. Seller and buyer further agree that escrow agent will have no liability for and will be held harmless from any matter resulting from escrow agent’s compliance with these instructions.
That was another detailed and long post. Thanks for hanging in there. Pumping out the best real estate investing education around is my goal and I hope that this post inspired and motivates you to get out there, learn how to wholesale real estate, and start closing some deals!
P.S. Every few months I take on a limited number of coaching students. Go here to get on the waiting list and see if you can qualify ---> https://www.cleverinvestor.com/real-estate-coaching...