I was talking to a loan officer and he was telling me about a loan process called a double escrow flip. I was hoping someone could help me by giving me some info on exactly what it is and what it is usually used for. I also have a question concerning penalties for someone buying a home as an investment property and then trying to get money on the front end. Would you purchase the property as an investment and then turn around and refinance? Or is there a better way?
double escrow:
you enter a contract to buy. you turn around and find a buyer to purchase it from you (flip). do both closings at the same time. You go to one closing, but there are two escrows: one for your purchase and one for your sale. you never actually “own” the property, just take the profit out of the middle.
there would be no “penalty” for getting cash out up front, other than slightly higher interest as you would be financing more. depending on the specifics of your deal, amount of equity vs purchase price, lender, etc this would be an effective way to finance repair costs without the hassle and expense of a refi after the fact. but, it’s hard to find a lender that will do that. I have done one where the lender added the repair costs to the loan, but then escrowed them. that had the hassle of submitting receipts and waiting for reimbursement.
Mark Wagner, CPA
Double escrow flip AKA. Double Closing there are many names for this and I have done this in the past the problem here is that most banks will not allow this anymore here is how it works…
I find a property for 150k that is worth 200k I sale it to you for 175k so I close with you for 175k then close with the seller I have property under contract for 150k I make 25k
This also can be done the other way where I close with the seller for 150k then close with you for 175k…
Can this still be done???
YES- The easy way is to locate a HML that will give the loan to the second buyer (END BUYER) I then use that money after I close with end buyer to close with the seller I make 25k for 1 hour of work…
Is this LEGAL??
There are some laws on equity skimming and would check guidelines for your state.
Am I saying to do this NO just like any other transaction seek legal advice!!
I will answer the next question before it is asked!!
Why are banks not allowing this?
Title seasoning… There are now title seasoning requirements for 99% of banks
Is there away around that?
Locate the bank that does not look for title seasoning and/or use a Hard money lender!!
Hope this helps!!
Now as far as ways around getting cash at closing yes there are ways. Some Legal and some not check into Tara Grants and other programs in your area. If you are going to do it by all means be LEGAL about it…
Thanks for the very helpful input. Your input is greatly appreciated. You seem like you have been doing investments for a lot longer then I have. I asked these questions because this is what one of my partners has done. He’ll find a property that he likes. Let’s just say the property was going for 100,000 and it has 50,000 in equity. What he does is takes the fifty grand out on the front end, how I don’t know, and keeps the rest to cover the expenses of renting the property out. Has anyone heard of this being done before? And if so, how?