Double closing, a common real estate investing strategy, involves two back-to-back transactions. To ensure success, it’s important to understand the various fees involved. This guide will break down the costs associated with double closings, provide examples, and offer tips for managing them effectively. Additionally, we’ll touch on how transactional funding plays a role in covering these fees.
Key Fees in Double Closings
Closing Costs Closing costs are incurred in both transactions of a double closing. These costs include title insurance, escrow fees, notary fees, and recording fees. Since there are two closings, these expenses can add up quickly.
Example:
- Initial Purchase: $1,500
- Subsequent Sale: $1,500
- Total Closing Costs: $3,000
Title Insurance Title insurance protects both the buyer and lender from any potential title defects. This fee is typically paid once during the initial purchase, but it’s crucial to confirm the title is clear for both transactions.
Example:
- Title Insurance Fee: $800
Escrow Fees Escrow fees are paid to the escrow company managing the transaction. The escrow service ensures that funds and documents are properly handled. These fees are paid twice, once for each closing.
Example:
- Initial Purchase: $500
- Subsequent Sale: $500
- Total Escrow Fees: $1,000
Attorney Fees Legal representation is often necessary to review contracts and ensure compliance with state laws. Attorney fees can vary depending on the complexity of the transaction and the attorney’s experience.
Example:
- Attorney Fees: $1,000 per closing
- Total Attorney Fees: $2,000
Transfer Taxes Transfer taxes are levied by the state or local government whenever property changes ownership. This tax must be paid for both the initial purchase and the subsequent sale.
Example:
- Transfer Tax: $300 per transaction
- Total Transfer Taxes: $600
Recording Fees Recording fees are paid to the local government to officially record the change of ownership. This fee is also incurred twice in a double closing.
Example:
- Recording Fee: $100 per transaction
- Total Recording Fees: $200
Loan Fees If financing is involved, loan origination fees and other associated costs must be considered. These fees can include appraisal fees, credit report fees, and loan processing fees.
Example:
- Loan Origination Fee: $1,000
- Appraisal Fee: $500
- Credit Report Fee: $50
- Total Loan Fees: $1,550
Managing Double Closing Fees
Negotiate with Service Providers Many service providers, such as title companies and attorneys, may be willing to negotiate their fees, especially if they know there will be two transactions. It’s worth asking for a discount.
Example: Negotiating a 10% discount on attorney fees could save $200.
Bundling Services Some companies offer bundled services for double closings. Bundling can save money and streamline the process by reducing the number of separate fees.
Understand State Laws Real estate laws and fees vary by state. Familiarize yourself with local regulations to avoid surprises and ensure compliance.
Budgeting for Fees Create a detailed budget that includes all potential fees. This will help you plan your finances and ensure you have sufficient funds to cover all expenses.
Example:
- Total Estimated Fees: $9,150
- Ensure that your budget accommodates all these costs.
The Role of Transactional Funding
Transactional funding can be an effective solution for covering the costs associated with double closings. This type of short-term financing provides the necessary funds to complete the initial purchase before immediately reselling the property. By using transactional funding, you can cover the fees without having to invest significant amounts of your own capital.
Conclusion
Double closings can be a lucrative strategy for real estate investors, but understanding the fees involved is crucial for success. By being aware of the costs and implementing strategies to manage them, you can maximize your profits and minimize potential financial pitfalls. Preparation and knowledge are key to navigating the complexities of double closings effectively.
For an in-depth understanding of double closings, Investopedia is an excellent source of information that we recommend to visit, and to learn more about minimizing transactional funding fees, explore sources like The Balance.