At the end of last Tuesday’s post, I promised you that I would soon share how to wholesale real estate using the “Double Close” method.
I look forward to keeping that promise today, because 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.
Click here to read Part One if you need to get caught up on the basics, including a conceptual overview of wholesaling as a general investment strategy, as well as a case study for wholesaling with the “Assignment” method.
But before I begin today’s case study on wholesaling with the “Double Close” method, I want to remind you that you of something very important…
Important Reminder: You are the director of your own movie. It is you who gets to decide what the camera sees, and the meaning of it all.
You see, I frequently meet new investors who have a totally misguided mindset. They hang around pessimistic naysayers who like to claim “You can’t do it that way” or “It’s not possible to do that”. (And if you are reading this, then it is likely that you too may be longing to break out of the constraints of such a suffocating environment.) A few years from now you will realize that this time in your life was a pivotal moment – where you made the decision to reject those critics and just “go for it” – thereby changing your entire investing destiny!
I believe in you, dear reader – whoever you may be. My own personal story proves that the pessimistic naysayers can be proven wrong, and with the right tools and guidance, you too will become a successful real estate investor.
The Saga of 531 Alameda Dr. (A Case Study for “Double Close” Wholesaling)
It was August 7th, and I was on my way into the office at about 10:30am…
…because I now get to spend most mornings hanging-out with my kids, until I feel like going to work.
I had decided to take a new route – one that I had never driven before – because one of my acquisition strategies involves an activity called “Driving for Dollars”. Basically, this strategy is all about driving around town and looking for distressed, abandoned, or odd-looking houses.
(Whenever I spot such a house, I write down the address and snap a curbside photo of the property’s exterior. 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.)
Approximately two blocks away from my office, I spotted a house that was surrounded by a crew of people discarding all its contents (furniture and personal belongings) into a giant dumpster. As usual, I pulled over, snapped a quick photo, and wrote down the address.
Once I arrived at my office, I checked the property’s tax records online, to see if its taxable mailing address was different than the physical property address. The addresses were indeed different, which provided a great indicator that the owner of the property I saw lives elsewhere. Of additional note, I could also tell that the property was owned by an individual (the Dorothea B. Zimmerman Revocable Trust) and not owned by a bank.
At this point, I mail merged my curbside photo of the property into a simple flyer template, designed to grab the owner’s attention by asking as simple question: “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… The owner may be so “pissed off” upon seeing my sign in his front yard that he decides to call me, asking why I placed my sign in front of his property. When this occurs, I politely explain that I am “truly sorry” for being “too aggressive” for his taste, but I was “only trying to get his attention” (which I succeeded in doing). Or the owner may get my flyer in his mailbox and be inspired to give me a call in that way, if he truly wants to sell.
Anyways… Back to my story…
The flyer I mailed found its way into the hands of the property owner’s daughter-in-law, who called me to say that the elderly owner had just moved into a long-term care facility, due to stage three Alzheimer’s disease. The owner’s daughter-in-law also let me know that the property I spotted had recently been occupied by “a hoarder with ten cats”. Most importantly, I learned that the owner’s daughter-in-law (and her husband) lived over three hours away – and neither of them wanted to deal with this “problem” property.
They owned the property “free and clear”, and they had a Power Of Attorney over the mother’s estate. I asked the daughter-in-law what they might want to sell the house for, if I was willing to pay 100% cash, and she said she wanted around $100,000.
She also told me that the property needed a full remodel.
So I spent a few minutes gathering some more information from the daughter-in-law (contact info, etc.), and then let her know that I would call her “within a couple of hours”. Then I immediately comped her property and did some online research.
My research indicated that the property would be worth around $200,000 if it was fully remodeled. And since it was right around the corner, I immediately drove back the property to conduct a quick visual inspection.
As expected, the house was a mess – there was junk everywhere, and it smelled horrible (like dead cats). I estimated that a full remodel on this 1,700 square foot property would cost around $30,000.
So I began to create an offer in my head, after which I kept my promise to call the owner’s daughter-in-law.
I told her the most I could pay was $85,500, and that we would need to split the closing costs. She countered by telling me that she and her husband could not accept any offer lower than $90,000. So I told them I would be willing to pay $89,000, in addition to covering all the closing costs – and they agreed.
Using email, I immediately sent them a Purchase & Sale Agreement, which they promptly signed and sent right back.
I NOW CONTROLLED THE PROPERTY!
Real World Advice From The Clever Investor: In every one of my real estate transactions, I always make sure that the seller benefits in the transaction. In this case, the daughter-in-law and son were extremely happy to rid themselves of their “problem” property, in order to focus better on helping the sick owner adjust to a long-term care facility. Because they sold their property to an investor, and not through traditional channels, they enjoyed a “hassle-free” sale and received the cash they needed to care 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 database of cash buyers, using my Mobile Marketing Machine software to advertise a $121,000 asking price. Simultaneously, 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 discussed in last Tuesday’s post).
I let my closing agent know that I planned to use the Double Close method, 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 how much I was making.
Within minutes of advertising the property via text message, I got a call from a guy named Jeremy who said he would take the deal if we would sell it to him for $118,800. I agreed and emailed the Sales Contract for him to sign. I informed Jeremy 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 I discussed in last Tuesday’s post).
Then I just sat back and waited for the deal to close. After a few days, a mobile notary showed up at my beach house to sign the closing documents. (Each year, I spend the last three weeks of August renting an amazing 5 million dollar beach house in Coronado, California.)
A few days later, we closed both escrows, which means that 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 here is a quick review of how I executed this very lucrative (and very standard) “Double Close” wholesaling transaction:
- Open Two Escrow Accounts. I opened two escrows with the same closing agent. Escrow #1 was the A-B escrow, where I purchased the property from my motivated seller. Escrow #2 was the B-C escrow, where I flipped the property to my cash buyer.
- Arrange to Pay Two Sets of Closing Costs. I arranged for the payment of two sets of closing costs. Specifically, I paid for all of the closing costs when I purchased from my motivated seller, and I negotiated with my cash buyer so that he paid all the closing costs for the second escrow.
- Ruffle No Feathers. I was able to prevent everyone in the transaction from seeing what I was making. (Actually, nowadays, when doing a double escrow, the cash buyer must sign some “Supplemental Escrow Instructions”, which disclose that a Double Close transaction is taking place…but that’s it!)
For your reference, 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.
This was another detailed (and long-winded?) post. Thanks for hanging in there!
As previously discussed, my goal with this new blog is to pump-out some of the best real estate investing education around – and I hope that these last two posts have succeeded in achieving this goal for anybody who is interested in wholesaling.
More importantly, I hope that this stuff inspires and motivates you to get out there and “go for it”!
Don’t let the pessimistic naysayers win!
Instead, learn how to wholesale real estate, and start closing some deals!
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