Double Closing vs. Pure Assignment: Pros and Cons
Real estate transactions are complex processes that often require creative solutions to meet the needs of buyers, sellers, and investors. Two popular strategies in the real estate investment community are double closing and pure assignment. Both methods have their own advantages and drawbacks, and understanding them can help you decide which is best for your situation.
What is Double Closing?
Double closing, also known as a simultaneous or concurrent closing, involves two separate transactions happening almost concurrently. In the first transaction, the investor buys the property from the original seller. In the second transaction, the investor sells the property to the end buyer. These two transactions typically occur on the same day, often within minutes of each other.
Pros of Double Closing
Privacy of Profit: The end buyer does not see the investor's profit margin, as the two transactions are separate. This can help in negotiations and maintaining goodwill.
Clean Title Transfer: Since the investor takes temporary ownership of the property, any title issues can be addressed, ensuring a clean transfer to the end buyer.
Flexibility in Financing: Double closing allows the investor to use various financing options for the initial purchase, which might be beneficial if the end buyer has specific funding requirements.
Negotiation Leverage: Having temporary ownership gives the investor more control over negotiations with both the seller and the end buyer, potentially leading to better deals.
Greater Marketability: Investors can make improvements or repairs during their brief ownership, potentially increasing the property’s value and attractiveness to the end buyer.
Ability to Close Quickly: Double closing can sometimes facilitate a faster overall transaction, especially if the end buyer is ready to close and the investor can quickly obtain the necessary funds for the initial purchase.
Cons of Double Closing
Higher Costs: Double closing involves paying closing costs twice, which can include title insurance, escrow fees, and other related expenses.
Increased Risk: There is a short period where the investor owns the property, exposing them to potential risks such as market fluctuations or legal issues.
Complex Process: Coordinating two transactions simultaneously can be challenging and requires careful planning and execution.
What is Pure Assignment?
In a pure assignment, the investor assigns their contractual rights to purchase the property to a third party, known as the end buyer. The investor never actually takes ownership of the property. Instead, they sell their right to buy the property to the end buyer for a fee.
Pros of Pure Assignment
Lower Costs: Since there is only one closing, the investor avoids double closing costs, making this method more cost-effective.
Reduced Risk: The investor never takes ownership of the property, minimizing their exposure to potential risks associated with holding the property.
Simplicity: The process is generally simpler than double closing, involving fewer parties and less paperwork.
Cons of Pure Assignment
Profit Visibility: The end buyer sees the investor’s profit, which can sometimes lead to negotiation challenges or dissatisfaction.
Dependence on Contract Terms: Not all purchase contracts are assignable. The original contract must allow for assignment, which can limit the use of this strategy.
Potential for Seller Resistance: Some sellers may be wary of assignment deals, preferring to sell directly to the end buyer.
Market Perception: Assignments can sometimes be viewed negatively by sellers and buyers who may perceive them as less professional or less secure.
Limited Control: Since the investor never takes ownership, they have limited control over the transaction and any potential issues that may arise during the closing process.
Buyer Reliability: The success of an assignment depends heavily on the reliability and financial capability of the end buyer. If the end buyer backs out or fails to secure financing, the deal can fall through.
Choosing the Right Strategy
The decision between double closing and pure assignment depends on various factors, including:
Transaction Complexity: Double closing may be more suitable for complex transactions where title issues need to be resolved or when the end buyer has specific financing requirements.
Cost Sensitivity: If minimizing costs is a priority, pure assignment may be the better option.
Profit Transparency: Consider whether it is advantageous for the end buyer to know your profit margin. If not, double closing might be preferable.
Contract Terms: Ensure that the original purchase contract allows for assignment if you choose that route.
Conclusion
Both double closing and pure assignment offer unique benefits and challenges. Understanding these methods and carefully evaluating the specifics of each transaction will help you make an informed decision that aligns with your investment goals. For personalized advice and to navigate the complexities of these strategies, consult with Invicta Legal. As an experienced real estate attorney, I am here to help you achieve your real estate investment goals with confidence and clarity.
For more detailed guidance on real estate transactions and to explore how these strategies can work for you, contact me, Paul Hess, at paul@hessquire.com. Let’s work together to ensure your real estate ventures are successful and legally sound.