Understanding the Differences & Choosing the Best Strategy for Your Real Estate Wholesaling Business
If you’re a real estate wholesaler, you’ve likely heard of 2 distinct strategies that investors use to wholesale real estate for quick cash:
- contract assignments
- double closings
But do you know the differences between them and which strategy is ideal for your wholesaling real estate operation?
Well, that’s exactly what we’re gonna do… explain and concisely contrast each approach, so you can not only understand the key differences but make an awesomely informed decision about which one to use and when.
Let’s get to it…
Real Estate Contract Assignments 101
A contract assignment (not to be confused with a letter of intent) is when a wholesaler signs a purchase contract with a motivated seller and then assigns that contract to an end-buyer for an “assignment fee.”
In other words, the wholesaler never actually takes ownership of the property but instead assigns their right to purchase it to someone else.
The vast majority of my wholesale deals have been via contract assignment. I’ve literally done hundreds and hundreds of them, but I lost track when I stopped counting somewhere over the 400+ deals mark.
Technically, with this strategy, the wholesaler’s not actually in the “chain of title,” but instead is transferring their “equitable interest” in the purchase contract to another investor.
So, for my fellow real estate jargon nerds out there, legally speaking, this isn’t a “real property” transfer but a “personal property” transfer.
Technical jargon aside, wholesaling property with contract assignments is increasingly being simply called “Paper Flipping,” thanks, in large part, to the popular training offering released by Dolmar Cross of Zombie House Flipping fame.
One advantage of the contract assignment approach to wholesaling property is that it’s relatively simple and straightforward.
You don’t have to worry about the costs and complexities of actually coordinating or showing up for 2 closings, since you’re only involved in 1 transaction.
Plus, you can often complete a contract assignment quickly and with minimal capital since you don’t need to put down a deposit or obtain financing.
FYI: If you intend to try this strategy but don’t know where to get a simple assignment agreement — I’ve got you… ッ
Here’s mine: You can swipe & deploy it — freely using it if you want to, no strings attached.
Bottom line, assigning contracts is the easiest, cheapest way to turn a quick profit wholesaling houses.
But yes, there are a few disadvantages to consider…
- For one, in some areas, you may run into legal and ethical issues if you don’t disclose your intention to assign the contract to the seller upfront.
- Additionally, you may have difficulty finding a buyer who’s willing to pay the price you want for the property, which can leave you stuck holding a contract that you can’t assign.
- And finally, as of this writing, several U.S. states had enacted laws or regulations aimed at limiting or prohibiting unlicensed real estate wholesalers from assigning contracts.
These states include:- Texas: In 2017, Texas passed a law (Texas Occupations Code §1101.0045) that requires real estate wholesalers to be licensed agents in order to engage in certain activities, including marketing or offering to sell an option or assigning a contract to purchase real property.
- Illinois: Illinois passed the Real Estate License Act of 2019, which requires real estate wholesalers to be licensed in order to engage in certain activities, including marketing or offering to sell an option or assigning a contract to purchase real property.
- Oklahoma: Also in 2019, Oklahoma passed a law (Oklahoma Statutes §858-353) that requires real estate wholesalers to be licensed as real estate brokers in order to engage in certain activities, including marketing or offering to sell an option or assigning a contract to purchase real property.
- Indiana: In 2020, Indiana passed a law (Indiana Code §25-34.1-10-6) that prohibits real estate wholesalers from engaging in certain activities, including marketing or offering to sell an option or assigning a contract to purchase real property, unless they are licensed as real estate brokers.
Yep, this has become somewhat of a “pain in the butt” issue in some states, but there are some relatively easy solutions, including:
- Getting a real estate license: I mean, duh. It’s not that hard or expensive… and completely resolves any issue in any of the aforementioned states.
- Use an agent: Yes, it’s most costly (their commission), but also quickly solves the problem on any given deal.
- Wholesale properties remotely: If you’re in one of the lame-o states, why not do deals “virtually” in other states? It’s TMI for this article, but you gotta understand that doing deals remotely in other (non-local) markets is legit easier than ever before!
The 101 of Wholesaling via Double Closings
A double closing, on the other hand, involves 2 separate transactions: one where the wholesaler purchases the property from the seller (A-B) and a second one where the wholesaler sells the property to an end-buyer (B-C).
The two transactions occur back-to-back, often (but not always) within the same day — this is also often referred to as “simultaneous closings.”
One advantage of this approach is that it can provide greater flexibility and control.
You can negotiate with the seller and buyer separately… and potentially earn a larger profit margin since you have more control over the price. Plus, you can often close deals with buyers who might not be willing to work with you on a contract assignment.
However, there are also some disadvantages to consider.
For 1 thing, double closings can be more complex and time-consuming than contract assignments, since you have to coordinate 2 separate transactions. More moving pieces and more players = more things to get misunderstood or possibly go sideways.
Additionally, for a double closing, you’ll need to come up with the capital to purchase the property in the first place, which you can then pay back with the proceeds from the sale to the end buyer. This can be a challenge for some wholesalers.
So transactional funding, also known as short-term funding, is one option wholesalers can use to finance these deals without having to use their own funds. The lender providing the funding is typically repaid once the end-buyer purchases the property from the wholesaler.
The cost of transactional funding in a wholesale deal can vary depending on a number of factors, such as the length of the funding period, the size of the loan, and the specific terms of the lender providing the funding. But, generally, transactional funding fees can range from 1% to 3% of the loan amount or a flat fee.
Awesome Fun Fact: Our good friend Cam Dunlap offers students of the One Day Flip training program up to $600,000 in transactional funding — at no cost.
Literally, it sounds crazy, but it’s 100% true: Anyone who invests in the training itself can tap into his transactional funding for $0 for up to 6 months after becoming a student of the program.
Other funding options for wholesalers doing double-closing deals include:
- Your own cash: Wholesalers who have enough cash on hand can use their own funds to purchase the property and then resell it to the end buyer. This is the simplest and most straightforward option, but may not be feasible for all wholesalers.
- Hard money loans: These are loans provided by private lenders based on the value of the property being purchased rather than the borrower’s creditworthiness. Hard money loans typically have high interest rates and short repayment terms but can be a solid option if you really need fast access to deal funding.
- Private money loans: These are loans provided by private individuals or companies, rather than traditional banks or lenders. Private money loans can offer more flexible terms and lower interest rates than hard money loans, but may be more difficult to find. In our experience, one of the best out there for private money is Cogo Capital.
- Business lines of credit: Wholesalers who have established business credit may be able to secure a line of credit that they can use to finance their deals. Business lines of credit typically have lower interest rates than hard money loans or private money loans, but may be harder to obtain.
- Joint venture partnerships: Wholesalers can partner with other investors to complete their deals. This can involve sharing the costs and risks of the transaction, as well as the profits. Joint venture partnerships can be a good option for wholesalers who don’t have enough cash or credit to complete the deal on their own.
Assignments vs. Double Closings – What’s Best for Your Biz?
So, which approach is best for your real estate wholesaling business?
Well, the answer depends on a variety of factors, including your resources, experience level, and goals.
If you’re just starting out as a wholesaler, or if you have limited capital, contract assignments may be the way to go. They’re simple, low-risk, and can provide you with some quick wins.
Just be sure to disclose your intentions to the seller up front, know the local rules and general “climate” of your state with regard to contract assignments, and be prepared to find an end-buyer who’s willing to pay the price you want.
On the other hand, if you’re more experienced and/or just doing deals in a state that wants you to be licensed but you’re not interested, then double closings may be a better fit. They can provide you with greater control and flexibility… and potentially earn you a larger profit margin.
Just be prepared to put in the time and effort to coordinate 2 separate transactions, and to come up with the funds to purchase the property in the first place — like Cam’s no-fee funding!
Ultimately, the choice between contract assignments and double closings will depend on your unique circumstances and goals. Be sure to weigh the pros and cons, check with and understand your target market’s rules, regs and limitations… and then make it happen.
Questions? Comments? Jokes?
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Please chime in below!
