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Double Closing Real Estate

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Double closing real estate is defined as the purchase and sale of a real estate or property at the same time. This process is actually a three party transaction, the initial vendor or seller, the real estate investor otherwise known as the middleman and the purchaser. There are varying reasons for double closing real estate. The most fundamental reason for double closing real estate is to allow the investor to utilize the purchaser’s money to purchase the property from the initial vendor. Double closing real estate transaction also allows the vendor some level of anonymity. The vendor uses the investor to mask his identity. The process involves the real estate investor entering into a sales contract with the initial vendor to purchase a property and then subsequently (before closing the purchase) enters into a simultaneous contract to sell the property to the final purchaser at a higher price. The investor or middle man then utilizes the double closing real estate transaction to close both transactions at the same time. There are different methods of double closing real estate; this depends specifically on the method of purchase and the type of vendor and type of purchaser. Primarily a purchaser would hand over the money to the investor who in turn would acquire the property but at that time a HUD-1 or settlement statement would be signed between the investor and purchaser, who would then have to wait until the transaction was closed to take possession of the property. In most instances the investor instructs the vendor to deed the real estate directly to final buyer.

There are of course several disadvantages of this double closing real estate transaction. There may be a problem in transfer tax collection where the initial vendor is not listed on the final closing document. Most mortgage lenders object to transactions between middlemen as they conduct their own real estate closings. The initial vendor might disapprove of the end profit made by the investor and cancel the transaction. Closing agents would require payment twice for conducting two transactions for one sale. Real estate agents will object to getting a lower price for the initial vendor and ultimately a lower commission. What is paramount in a double closing real estate transaction is that the closing agent is accommodating. This makes the process of keeping the anonymity of the purchaser and vendor and that the closings can take place at different locations. One of the easiest ways that we recommend to complete double closings is to create only one (1) settlement statement (HUD-1) between the vendor and the final purchaser, then include his profit margin as a clause or line item in the statement. This can be titled as a purchasers cost making the transaction less tax weary on the vendor and easily dealt with as an assignment or finders fee. Though the investor may be subject to a higher tax rate other than the on going capital gains tax, if it is run through a business then taxes can be reduced depending on how the business is set up. In these transactions the vendor might see only the disadvantages of double closing. This means that not only may the seller get a possibly lower final sale price but still have sales taxes on the final price; this is a definite annoyance to most sellers.

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