What Wholesale Investors Needs To Know About Assignment Vs. Double Closings
For Wholesale Investors operating in South Florida’s vast and lucrative real estate market, timing is the key element of success. You must sell your property as quickly as possible while ensuring the transaction is risk-free and profitable.
Assignment ClosingsCompared to a double closing, an assignment closing is cheaper and simpler. After executing a contract to purchase a property, you then contractually “assign” your right to buy the property to a third party in exchange for an assignment fee. In essence, the buyer is paying you to help find a real estate opportunity, with the fee serving as your profit.
For example, if you find a property owner looking to sell their distressed property quickly, you can contract to buy it for $50,000 and then locate someone else that wants the same property for the same price—plus your assignment fee. If the third-party buyer agrees, you must execute an Assignment of Contract that stipulates that you are giving up all rights to purchase the property to the buyer in exchange for the assignment fee, which will be paid when the deal closes. Your only cost is the initial purchase of the property: the assignee covers the subsequent closing cost.
The main drawback of an assignment closing is the lack of privacy: all the parties involved will see how much money you will make on the deal. The original buyer may think that you are making a lot of money without taking on the comparable risk, while the seller might wonder why they do not just sell the property for an amount equal to your purchase plus the assignment fee.
Consequently, assignment closings are used very selectively, usually with buyers who have an existing working relationship.
Double ClosingsAlso called an “A-B and B-C closing”, this method also requires you to find a third-party buyer for a distressed property you have purchased, with one key difference: instead of assigning the purchase contract to someone else, you buy the property and resell it to them.
Many wholesale investors like double closing because they offer a certain degree of privacy: unlike in an assignment closing, the original deal remains initially private.
On the other hand, as the name makes clear, you must also manage two different transactions, and cover the costs of each. This is particularly important if you are relying on a transactional loan, which usually comes with the condition that you close with the third-party buyer by a tight deadline, usually as early as 24 hours after the first closing.
We Help Wholesale Investors Make Informed DecisionsChoosing the right closing method can be aided with prudent and trustworthy counsel from experienced real estate attorneys. Jurado & Farshchian, P.L. has helped close deals under both methods, in addition to drafting the necessary contracts and serving as escrow agent. No matter what method you choose, we will be equipped to offer the speed, efficiency, and liability protection you need to maximize your investment.