This episode dissects the complexities of transactional deals through a $500K double close example where seemingly simple same-day transactions reveal multiple risk layers requiring sophisticated protection strategies. The fundamental challenge emerges from title briefly transferring to the funding partner during the A-to-B portion, creating exposure if the C buyer backs out despite wires being in escrow, because legally funds aren’t secured until closing documents are signed regardless of money being deposited.
Key Takeaways:
- Title Briefly Transfers Even in Same-Day Closes Most transactional deals involve actual title transfer for one minute between A-to-B and B-to-C transactions, requiring documentation ensuring your company retains control if the C buyer bails rather than leaving you stuck with an unintended acquisition.
- Escrow Deposits Don’t Equal Commitment C buyers can withdraw wires before signing closing documents despite money being in escrow, making pre-deposited funds a signal of seriousness but not legal protection until signatures are complete.
- Layer Multiple Risk Mitigants for Large Transactions On the $500K deal, protections included requiring C buyer’s full down payment in escrow pre-wire, direct commercial lender confirmation calls, and title documentation ensuring company control during the transfer window.
- Sub-1% Downside Risk Still Requires Full Due Diligence Even with minimal probability of C buyer default, getting stuck with a property bought at wholesale pricing with thin margins means conducting equity-level due diligence to understand true valuation before committing hundreds of thousands in wire transfers.
Listen to the full episode for detailed breakdowns of title company variations by state, documentation requirements for protective deal structuring, and frameworks for evaluating when transactional deal fees justify the inherent risks.
(Podcast transcript below)
Hey, it’s Chris Duff over at Serious Land Capital, vacant land funding partner. So today wanted to share some updated notes regarding transactional deals. It’s an area that we’ve made a bigger push into over the last three to four months, approximately. And, you know,
We always want to take a careful look at these because, you know, the injection of cash is so quickly, you de-risk the deal significantly. Obviously, the upside is less compared to handling a full flip, for instance, but can be a nice ancillary part of our business just to cover some of the operating costs, especially the higher dollar.
Um, value one. So typically we’re looking for, um, 2 % of the total expenses that we had going into the deal, uh, or $2,000, whichever is higher to make it worth our while. Um, and the thing that we’ve kind of come to realize is that pretty much at every title company, um, and the associated state that, you know, we might
run a transactional deal and just operates a bit differently. So we’ve had to update our paperwork almost every time. That’s why I get, it’s, you would think that it’s a little bit more cookie cutter, boom, you we can do the same day, maybe one day, close, wipe our hands a bit and move on. especially at some of these higher dollar values, like you always want to.
consider the downside scenario primarily the you hopefully less than 1 % chance that the end and buyer and the B2C transaction You know bails on on the deal when We’ve already sent in the wire for the a to b side So the way that we had always structured this before was
you know, kind of running under the assumption that there isn’t a true, title, transfer between the A to B and the B to C side of the, double close situation. but more often than not, we’ve seen that it is the case, even if it only lasts for a minute or so.
And so we updated our docs to really account for that. Again, you know, hopefully very minimal downside scenario or, you know, the downside scenario that we’re trying to minimize as much as possible is that in the case, the C buyer, bails on the deal that our company retains title during that middle portion.
and that we still have control over the property in that case that we’re going to have to try to source another buyer. The problem is and why that’s there, there’s a certain level of protection built in with that, but because transactional deals are usually not having much of a spread compared to
you know, if you’re buying the property outright for possible equity flip when you might have upwards of 2X gross margin involved in the deal, know, the double close situations tend to be much slimmer. You know, maybe only, you know, 10 to 30 % of spread, you know, depending on absolute dollar value and so forth that we have to
account for. If we get stuck with the property, that just makes it that much more annoying deal with because then we’re going to be stuck on a broker relationship more than likely and accounting for, okay, where are we going to find this other buyer? Was that even a unique situation where a C buyer came in? Is there still
an existing market or, you know, we’re going to be sitting on this property potentially with a lot of equity out on our side. That was a deal that we wouldn’t have even considered pursuing from an equity perspective. Plus you have to account for just internal team resources where
you know, for such a minuscule downside risk perspective and the very limited return that you might be getting on a transactional deal as far as the fee goes, you know, do you have to devote all those hours and, potential DD money, DD meaning due diligence.
to fully review a property as if you were doing an equity purchase just to understand, okay, what is that true valuation of the property anyway, even though a B2C buyer was lined up prior. So those are all kind of the contingencies you have to keep in mind. And how we try to mitigate some of those risks, usually our preference is,
we have the B2C buyer amenable to submitting their wire into escrow with title prior to us wiring in our funds. And sometimes that’ll be possible. Sometimes the title company might be more of a stickler where it’s like, if the B2C side purchase agreement didn’t account for
there are funds needing to be in prior to close, then, you know, they’re not, legally beholden to follow through with that. And then you also have to account for just the art of the deal is that, you know, if you’re asking for some of these contingencies on the B2C buyer, they might be asking questions, you know, they, might not have insight that, you know, us on the A2B side don’t own the property yet. And, you know, they’re paying extra.
Um, compared to what they could have gotten if they had dealt with, uh, uh, a site seller, um, originally. So you have to count for all of these, uh, complexities in, in that deal. And so, you know, sometimes we have transacted where, the C buyer will submit funds anyway, but, you know, something I just learned today, uh, as we’re trying to pursue a 500 K transactional deal that, uh,
you know, we’re buying for 500K and then, you know, same day closing for like roughly 600 and we’ll take that 2 % spread there. Um, you know, obviously that’s a lot of money out the door, even if it comes back same day, but that can be, you know, quick 10 K into our account. Um, that even if we got the B2C funds into the deal prior,
Legally, until the closing docs are signed by the B2C buyer, they could just come in and say, no, I refuse to do this deal. Just send the money back. So, you know, it can be comforting just to show the B2C buyer being serious about the deal that they’re willing to put their money in escrow. But legally, there’s not really any ramifications there because the title company doesn’t have.
control over those funds until the buyer signs off on them anyway. So it’s, you know, an additional complexity that we weren’t necessarily accounting for prior. then it’s always like, okay, well, how many other levels of protections can I put into place? And for this particular deal, there was a commercial lender involved.
for that B2C buyer and they’ve only had 5K into escrow for an EMD so far. But what we’re going to try to do again, try to massage it to where they’re not getting red flags on their side wondering, do these guys even own the property and so forth is that we’re gonna ask, okay, for the C buyer, even if they have a lender involved, can they wire in their full down payment
Uh, and, know, just understanding that the lender, you know, what, once they have all of their, uh, ducks in order that, you know, they’re going to be good for it. And we’re going to have a separate conversation with the commercial lender anyway, just to understand their process that, as long as all these docs are done, the wire is, you a hundred percent. Coming in. Um, so then we can remove, remove risk from that C buyer side where they’re, you know, we’re still waiting for.
funds on their side. And even though they could rescind the wire by not signing the closing docs, it still shows us, they’re committed here and they’re not looking like extend closing or some of those other potential red flags to remove our risk as much as possible. And yeah, that’s the problem with these commercial lenders is that until titles fully transferred legally, they, per their underwriting, just won’t.
wire in any other funds. So that’s not really something we can compete against. So then it all comes down to, how much possible risk mitigants can we throw into a deal like this?
while still understanding that we can’t be 100 % rock solid, but we can do as much as possible. So is it worth to throw in 500K and that sub sub sub 1 % chance that some issue happens and we’re stuck with a property we would prefer not to have beyond that same day close period or again, kind of.
taking some level of risk there in order to get that quick upside, just to help massage over additional operational expenses that we have as a company. just wanted to share some notes about that. Everybody is always so excited. Yeah, transactional deals, super simple, risk is effectively null. And yes, at face value,
That is true and we’ve done many of them and we will continue to do more. But nevertheless, still always do your homework, make sure your docs are rock solid, especially when you’re looking to wire out potentially hundreds of thousands of dollars or more that could potentially get stuck. those are lessons that we’ve learned even learning more today. Hopefully that helps you as you pursue some of those deals on your own potentially.
or are looking to get into them and looking forward to connecting again here soon. Recall, if you’re looking for deal funding, SiriusLand.Capital, preference of 50 to 500K purchase price. If you’re looking for zero cost due diligence, our Facebook group, we host a live every Monday and Thursday afternoon.
Check that out, landdailydiligence. then our soon to be released LandPricer AI software. Check out landpricer.ai for up-to-date announcements from there. Catch you all next time. Bye.
