Double Closing Or Assigning Contract?
Can you experts chime in and tell me which you prefer and why? I'm asking from both points of view... As the wholesaler and the retailer. I read in Bronchicks book that retailers (investors) are wary of contract assignments. But on the other hand it seems hard to negotiate a double closing due to seasoning issues.
a) What is flipping? The true definition of flipping is finding a property, putting it under contract, and then selling the property to another investor.
b) There are many ways to accomplish the flipping of a contract.
i) Double contracting – This approach is taken when you come across a property that has a large enough spread in it and you would like to protect your interest in it. If the assignment fee is greater than $5,000 then take this approach so the deal is not “stolen” from you and or also Hard Money Lenders do not like to fund flip fees in excess of this amount. Remember don’t get greedy; it still has to fit into our formula if you want to flip the deal (Arv x 65% - repairs - c/c/cost - af = mao).
ii) Assignment of Contract – Use this approach if all you want to do is flip the property to another investor and you are not profiting in excess of $5,000.
If you're netting $10K or less - asssign. If you are netting considerably more than $10K double close.
shikely,
Keep in mind also that most investors us Other Peoples Money (OPM) and it is generally a Hard Money Lender (HML). HML, do not like to fund Assignment Fees (AF) in excess of $5,000. That is just the way they work. Now if you have a private money person funding the deal then things may be different.
Ultimately doing a double close is the best way to secure your interest especially if you have a substatial profit to be made!
Best of luck
[ Edited by joel on Date 09/09/2003 ]
hey larry
if you do a double close to flip to a retailer/ investor, do you have to pay closing fee yourself?
i know if i assign there are no closing fee's the only one coming to the closing table with money to pay is the retailer/investor.
or am i just collecting my fee from retailer/investor in both cases at closing?
amy
Larry:
can you explain your formula for double closing? I dont quite understand the abbreviations you used. thanks!
-Brandon-
richar18,
Here it is again:
Work the formula. Arv x 65% - Repairs - C/C/Cost - AF = MAO
a) Arv = after repaired value
b) Note that if an investor is using a Hard Money Lender for the first time then the Loan to Value(LTV) will be 50% and not 65% as projected in the above formula
c) Repairs – use the evaluation sheet
d) C/C/Cost = carrying and closing cost
e) AF = assignment fee
f) MAO = Max. Allowable offer
g) Even if you decide not to wholesale or flip properties this formula should still be considered when reviewing all your potential deals.
There is no formula for when to double close. Keep in mind that you would only want to preform a double close when there is substantial equity to be made on a deal and you would like to protect you equitable interest in the deal.
Cons are:
a) have to pay double closing cost unless you can persuade the new buyer to pay all or a portion of the costs.
b) Need to come up with the cash to finace the first close
Hope this helps
[addsig]
amynewbie,
hey larry
if you do a double close to flip to a retailer/ investor, do you have to pay closing fee yourself? Yes you will have to pay one set of the closing costs in one of the closing transactions. Unless you a re good negotiator...Remember everything is negotiable in a contractual deal. Start out with a couple rediculous items in your offer and work backwords from there.
i know if i assign there are no closing fee's the only one coming to the closing table with money to pay is the retailer/investor. That is true.
or am i just collecting my fee from retailer/investor in both cases at closing?
No not entirely true. some where during the process of preforming a double close yoou will most likely incurr some costs
amy
Hope this helps
[addsig]
thank you larry
amy
I recently approached a local investor to see if I could flip a property to him. He has these huge billboards around town. His response was that "Flipping" is illegal. I was stunned! I am trying to build working capital from ground zero. Can't afford to hold a vacant property in this slow enconomy in Colorado but good buys are available. By the way, this guy asked for the property address so he could give me an idea of what he would pay for them. Made me uneasy!
our private investor does fund AF for a fee. the key to buy and sell is actually the double close, so yes there are two closing cost but that is how to legally do things and not having any legal problems.
[addsig]