contract flipping.....
I've heard a lot about contract flipping and I need some clarification... Correct me if i'm wrong. If you find a house and get a contract signed by owner to you and/or assigns, with an adendum stateing "subject to partner/investor approval" couldn't you then shop for a buyer at a higher price and get the difference? If you can't find a buyer, inform the seller that you didn't have partner/investor approval and walk away. Seems really good in theory, I just want to know if anyone has actually done it, or if it's legal. I see a lot of houses around my city that are good fixer upper houses but aren't for sale, if I found out who the owner was and made them an offer at a good price for me, got a contract signed and then found an investor to pay me more wouldn't that work? It seems that if you did that you could get more than a $500 dollar finders fee, potentially thousands depending on what the seller wants out of there property correct? I'm just really curious to see who has actually done this, and just how easy the paper work is..
Andy 
Yes, in theory, you could do it this way. Problem is, you will need a very motivated seller. Your "weasel" clause of partner's/investor's approval is the first problem. Most seller's either simply wouldn't sign it, say they'll wait on your partner to approve the property first, or give you a time limit (usually 7 days) for your "partner" to inspect and approve the sale.
Second, you need to inform the seller upfront about the probability of your assigning the contract for a fee/profit. They will see your amount at closing, and may not be too happy to see you making $1000-2000 dollars off of them. The could decide not to sell at the closing table, and you'll be left with an upset investor as well.
Finally, if you can't find an investor and invoke you're "weasel", you damage your reputation. If someone asks that seller if they have ever heard of you or your business, they won't give a glowing account.
Roger
Good points. I appreciate the ideas. Do you know anyone that does this or has done it on occasion?
Andy
There are conditions in which this works but rajwarrior is absolutely right on point that you need to be up front about it. I put in the second paragraph of all my contracts that I will be acquiring the property for short term or long term profit so as to avoid the angry seller at the closing table. This way they know that I am an investor and am going to make money. The people you would be able to use this technique with are those that don't care what you make so long as you are taking away their problems by getting this property off their hands.
The "approval by partner" is a good clause to use in a contract don't get me wrong. I believe that it is used properly in the short term i.e. during the inspection process. But it becomes a true "weasel clause" when it is invoked more than 7-10 days into the project. If you aren't on the same page with your "partner" at that point in the process then you look (and are) unprofessional. Use this clause to get into a deal fast if there is competion, check out the deal closely while you have control, and then move forward or get out by invoking the lack of approval by a partner.
If you want to test the waters for a longer term use clauses that are appropriate to that purpose and make the seller aware up front. Just tell the seller that you are an investor and are going to try to make it work for him/her. If they are motivated enough and you are genuine then it will be ok. In this case make your earnest money entirely refundable after the settlement period of 60-90 days. If someone has tried to get rid of a property and couldn't having you work on their behalf is no sweat to them. If the settlement date comes up and you have not found an end buyer you give the control of the property back to the seller and everyone is fine with it. I have flipped a proerty even after my contract expired in a case like this; I signed a contract with no money down and a 60 day settlement period. After 60 days two potential buyers fell through and I gave the property back. Two weeks later I found someone who could buy it, signed another contract and flipped that one. The owner/seller knew all along what I was doing and it was fine by him because he had tried and got no one. In the end I got my fee and didn't have to resort to being a weasel.
There are tools to be used in all kinds of situations and just as you can use a hammer to drive a screw into some surfaces it is not the right tool for the job.
All this being said I have to applaud your creative process. You saw a technique that could be used to get to your end and protect your interest. This kind of thinking is going to serve you well in REI.
[addsig]
how would the seller know how much you are making at closing table if you are doing a simult closing?
yes... with assignment of contract, the owner can find out how much you are making and may get upset, but they are getting the money they agreed upon and it should not matter how much you are getting. Afterall if they could do better, they would have done so by now.
In my understanding, when you assign a contract to an investor, the purchase price stays the same on the contract but the investor pays you for the contract. You would probably write up a little note saying you assign the contract to him and say how much he paid you, I don't know if that has to be brought to closing or not. Probably not, that is just between you and the investor. I haven't actually done a deal like this but I plan to in the future. For this whole thing you work you have to find a motivated seller that doesn't care what you make as long as they get their price. I'd be interested in a responce from someone who has done a deal like this before, it's all good in theory but a real life account is better.
Your right, sisayako, the purchase price remains the same when doing an "assignment contract," and the investor just pays you an assignment fee.
It is not just a little note between investors, though. It is a legally binding contract called a "purchase contract assignment agreement" and it becomes part of the purchase contract.
It WILL be part of closing and it WILL be listed on the settlement statement. And I'll lay odds, hrash, that if you don't disclose your assignment fee with the seller before you reach the closing table, that you WILL be left alone at that table with a bunch of worthless pieces of unsigned papers.
Roger
You can avoid having the seller see how much you make on the assignment, IF you KNOW the investor you are assigning to and have a good relationship with your title company.
We deal several investors, and sometimes, we collect the assignment fee up front, before going to closing. That way, we have our money, title company gets the assignment of contract, and proceeds to close the deal with the seller and the new buyer. IF you reall yknow your investor buyer, you can wait till after close of escrow and have the investor cut you a check. But you REALLY have to trust that investor.
Or, you can just do a dbl close, and the seller won't see what you are getting. The seller closes with you, then you close with your new buyer. But this will also cost you double closing costs.
Kristy-Az