Double Closing Question. Please Help.
OK. I just found a seller who will sign me a contract. my question is. Does the contract has to have a clause so I can assign it? Does it need to have a clause so I can double close? Can somebody tell me how to double close, step-by-step? Help. this is my first deal. It has plenty of equity.
Thanks very much.
If tjis is your first deal and you are unsure of the contract. How do you know there is plenty of equity?
Lori
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Lori,
What I know is that the guy is selling it for 260K and my comps say the value is about 300K.
Well that may seem like a lot of equity. Do you know if the house is worth 300K or if it needs repaired to be worth that? If it does, how much are the costs? Do you have a buyer?
Lori
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It needs little repairs (small repairs like paint, a little siding, and a window or two) I just want to assign it and ask for a fee, say $10K or so..
What most people I know do is get an option to purchase signed. Then get buyer under agreement. Most of these contracts have the final buyer paying for transfer taxes, so the original owner doesn't complain. When it closes you would provide an invoice for your fee. That would eliminate the double closing.
Before you ask I use a book called 301 Legal Forms & Agreements. it has all of these forms in it.
Lori
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Thanks Lori
I have another question.
Whats the difrence between an option to buy and a lease option.???
300k house selling for 260k is not a bargain. And definately no investor will pay you a 10k assignment. Have you ever heard of the MAO = ARV * .7 - repairs? By that calculation an investor would pay 200k. Of course the MAO is just a rule of thumb and in higher priced houses an investor will pay more like .8. But higher priced houses have more things that could go wrong. Everything cost more: holding costs, buying and selling cost, realtor fee, repair costs, unpaid taxes, etc. And the house is harder to get an exact ARV (after repair value) on.
Brenda
An option to buy is 1/2 of a lease-option. Option to Buy means seller is giving you, and only you, the option for a set period to purchase the property. Lease-option does the same thing, but you concurrently enter into a lease agreement with the owner/seller.
By the way, getting back to your original question, when the contract is worded, you name should be followed by the phrase BUYER AND/OR ASSIGNS. There is no clause needed, this phrase opens the door for assignments.
An option to buy is simply a contract (that may accompany the standard purchase agreement) which gives you the option to purchase the property for a specified duration of time (usually 30-90 days) in exchange for a fee. This fee can be whatever you are comfortable parting with. $10 (believe it or not) is sufficient for a standard ugly home deal if you can convince the owner you are a serious investor. That $10 will become thousands in time. What have they got to lose?
This accomplishes two important things. First, you are not obligated to purchase the property. If after crunching the numbers and doing DD you feel the deal will not be profitable, you simply walk away, minus the $10. Second, it legally bounds the owner to you for the duration of the contract. Basically, for $10, you can control a home worth 100k ARV. That's called leverage, and it's a beautiful thing.
Insist on full access to the property. This will allow you to show the home to contractors, fellow investors or possible tenants. There are several different options (kick-outs, rolling) but the basic works fine for wholesale flips.
Lease options are more tenant-related. Basically, you lease your property to a tenant for 2 years. At the end of the lease he then has the option to purchase the property from you. This is facilitated by allowing a portion of his rent payment to count toward the purchase price. Anywhere from 20 to 33 % is common. By doing this, he has time to build or establish credit and earn equity in the home, but only if he purchases it.
Hope this helps. Happy hunting.
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