Simultaneous closings, by definition, are a somewhat complicated real estate financing technique involving multiple parties where you have consecutive transactions that may occur, quite literally, one after the other. It is a powerful tool that offers a great deal of flexibility and facilitate closings when more conventional financing alternatives are simply neither practical nor available. This financing technique is called a simultaneous closing, a double closing, or even a back to back closing.
It is worthy of note that each state has different laws when performing or structuring one of these closings. Some states are far more flexible in permitting this, where others simply do not. You will be best served by being familiar and understanding what is and under what circumstances you may be creative this way in conformance with the laws of the state where the subject real estate is located. Many title companies may or may not recognize this financing tool and may or may not even allow this to even take place except under very limited circumstances or not at all. Likewise, many lenders will balk at being involved in such a maneuver and that alone can be particularly problematic. Finally, you will be well served by consulting with an experienced and local real estate attorney at the outset.
It will also serve your very best interests to be due diligent and make certain you partner with a title company or attorney who is knowledgeable, familiar, comfortable, and willing to handle this unique and creative financing tool. It should go without saying that only those professionals knowledgeable, familiar, and willing to assist you in such a closing, making certain the closing is performed according to applicable state law and permissible procedure, will do.
This technique has been utilized for many years, so do not be deterred or dismayed if most title companies or even attorneys you consult with advise it cannot be done this way. You need to be patient, focused, and imaginative to partner with the right escrow agent. Such a partnership is absolutely golden for your real estate investing to be sure.
Many folks will advise you that simultaneous closings either do not work or are simply put, illegal, but they do work and are legal if you do them correctly. That being said, a simultaneous closing can be illegal if you fail to be completely transparent and fully disclose what you are doing to all the appropriate parties or if you use the proceeds from one escrow to pay for the consecutive and following escrow. You are not permitted to use the money of the last buyer in these multiple transactions to fund the earlier closing.
Let us take a quick look at how this technique works:
So the first closing happens on the left side, which is commonly called the A-B closing. On the A-B closing, you can negotiate a short sale and you buy the property from the seller. Assume the property is worth $200,000.00 and you can purchase it for $160,000.00 from a highly motivated seller. The second closing is commonly referred to as the B-C transaction and simultaneously closes behind the first transaction as you are immediately reselling the property to an end buyer. With this example, you have resold the property for the retail value of $200,000.00 netting a $40,000.00 profit to you.
Now there are advantages and disadvantages to this creative closing that will be detailed in a future article and the implementation of this tool in conformance with applicable law makes all the difference in the world. Just make certain you have this tool in your toolbox for your real estate investing success.
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