Double Escrow -
Using Simultaneous Closing
Using Simultaneous Closing
"Dear Sirs, I purchased your program many years ago (mid to late
1990s I think) and have had success with your program. I have used the double escrow many times
and the rolling option made me a bunch of money on some lake front property. I have flipped
contracts, rehabbed and sold, and have a duplex rented for top dollar that I bought and rehabbed
as well. Thanks Bill and Chuck."
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PLEASE NOTE: The following strategy should not be attempted without the specialized contracts and an experienced mentor like those that come with "The Simple Man's Guide to Real Estate" .
There has been a lot of misinformation going around about the Double Escrow, aka the simultaneous closing. Many misinformed people - among them a lot of Realtors - and even some attorneys - who should know better have come to believe the double escrow, or simultaneous closing, has been made illegal.
TOTALLY UNTRUE! So, the first thing this article will do is provide a little background.
Then we will look at how the double escrow can be used.
The Simultaneous Close, aka the "double escrow" is the perfect no down payment strategy for investors because no down payment is required, nor any bank financing at all. It is 100% legal everywhere - for a dissertation on the "facts vs fiction" of the double escrow, see my article on "flipping". First, the HUD policy is only a policy of HUD, not a law. HUD cannot make law. Second, HUD can only require that it be applied to properties being purchased via a government insured program such as HUD, FHA or VA. And third, waivers are available as long as you can show the property is worth what you are selling it for. So, the double escrow is far from being illegal. But why, then, did HUD pass such a policy that prevents banks from granting mortgages on HUD/VA/FHA insured mortgages for properties that have not been owned for at least 6 months?
It seems that some unscrupulous investors, working with unscrupulous appraisers and even a few crooked bankers were perpetrating fraud when they used the double escrow. The investor would make a fair offer on a house, then get an appraiser to over-value the property so the investor could sell it for more than it was worth. In some instances, even banks were involved in this fraud. To put an end to this sort of thing, HUD passed a policy that prevents any bank from issuing a government insured mortgage unless the owner of record has owned the property for awhile. In other words, the only thing HUD made illegal is the fraud that some banks, appraisers and investors participated in.
The double escrow is a powerful "no down payment" strategy - the same one used by the homeless man cited in the courthouse documents we have posted. The heart of the "double" lies in the law - that both transactions occur simultaneously (hence the name, "simultaneous closing") - neither is first. So you can use your buyer's money to buy the property from your seller. The deed is turned over to your buyer and you get the profits. Not a dime of your own cash would be used - a true "no down payment" transaction. "The Simple Man's Guide to Real Estate" details all aspects of this strategy (and all other strategies) in great detail and the many different ways in which it can be used. For now, let us look at a few brief examples.
CAUTION! The double escrow, though simple enough, requires a specialized contract like the one provided in our course and software. Although a "standard" purchase agreement can be used if certain protective contingencies are added, you would need to pay a lawyer to do that. It is far less costly to simply obtain our course with all the details and contracts included - no attorney required.
You should also be aware that many sellers, lenders and/or escrow companies are now requiring "transactional funding" - you actually must buy the property first, and then resell. This destroys the actual mechanics of the double escrow, turning it into (2) single escrows. But worry not - "The Simple Man's Guide to Real Estate" provides a simple workaround for that.
A prime example of the double escrow aka simultaneous closing is evidenced in the courthouse docs we post online where an individual offered $48,000 for a property and resold at the same closing for $64,900, for a net profit of $16,900. Not bad for his first deal. When this student first contacted us about this property, it went like this:
BACKGROUND: Our student, living in a broken down van had found a rare waterfront piece of land on a lake in Wilmington MA. The owner was about to lose it because the home that had been on it had burned, and the town had it demolished. The town told him the zoning laws would not allow a house to be built on the lot because the lot was "sub-standard" - too small. Wilmington had a "2 acre" law, and the lot was only 1/4 acre.
His mentor (Bill Vaughn) researched STATE law and discovered that a home could be built on that lot using the "grandfather" clause - the burned home could be replaced, in spite of Wilmington's zoning ordinances. We then advised the student to make an offer of not more than $50,000, and he got it under contract for $48,000. He immediately went to Century 21 in Wilmington and presented it to the Realtor. Knowing the value of waterfront in that upscale town, the Realtor contacted a local builder that same day, who offered $64,900 cash. And so it happened - quick and easy.
This proves three important points: first, the double escrow is legal and can make an investor a lot of money. Second, that the right, specialized contracts make it a cinch. And third, the incredible value of having a professional investor to assist you.
Another example that shows the flexibility of the double escrow would be it's use in a lease option. This is particularly interesting as it involves two methods - the lease option and the double escrow. And while our course covers several variations of this, we will focus here on one, so you can understand the mechanics behind it.
Lease a house with the option to buy (also known as "rent to own"). You have two choices - live there yourself, or sublet it. The latter makes more profit for you. In a lease option, a portion of your payment (try to get 20-25%) is applied to the purchase price if and when you exercise your option to buy.
Assuming you are interested in profit and not in living there yourself, your lease option should include the right to sublet. Your tenant is paying your lease for you, and it is his money that gets applied to your purchase price. Your tenant is making your down payment for you.
When the end of the option period draws near, simply exercise your option to buy, and use the double escrow to resell to either your tenant or some other buyer. Take your profits. Here is an example:
House purchase price is $150,000. Lease is $1200/month, with 25% ($300/month) applied to the purchase price. You sublet to a tenant for $1300/month, giving you a $100/month profit. The option period is 3 years, during which time $10,800 is paid toward the purchase price, courtesy of your tenant. In addition, appreciation may have added $5000 to the value of the property.
You can now buy a $155,000 property for $139,200 when the $10,800 is applied. Using the double escrow, you would resell the property for its $155,000 value, and pocket $15,800. You also pocketed $3600 in rent profits during the three years. Total profit, without putting up a dime - $18,800.
Imagine if you do one of these lease options each month - in three years you would net nearly $20,000 per month, every month...
The double escrow can be used in so many ways - it is the most flexible method of real estate investing. You can take out an option on a property, and when you find a buyer, you exercise your option and double escrow to your buyer. The double escrow can also be used to complete a contract for deed. And it can even be used to escrow both a property and a discounted mortgage, which effectively creates a triple escrow (detailed in "The Simple Man's Guide to Real Estate").
The double escrow, as mentioned earlier, is quite simple. But the secret lies almost solely in a) the right contract, and b) the experience of a professional investor. If you are not experienced, do youself a huge favor and connect with a professional, experienced investor to assist you. As for the contracts, only "The Simple Man's Guide to Real Estate" provides the specially crafted agreements necessary. What makes them special?
First, a good contract for use in a double escrow absolutely must provide you with enough time to find a buyer who can close on the same date. Our contract provides you up to 4 full months. Second, the contract must provide the investor with a way out if a buyer cannot be found in time. Our contracts do that - your money, your credit and your assets are never at risk.
I could go on, but I think you get the point.
Hey! Wait a moment...did you forget to SHARE this with others? It's pretty neat stuff, and deserves to be shared.
-- Bill Vaughn