Wholesale Real Estate Investing: Contract Assignment
Wholesale real estate investing inevitably becomes part of a real estate investors business if they buy properties directly from motivated sellers. This means that they buy them at a price low enough that they can sell them at wholesale prices to other real estate investors.
When you assign your right to buy a property from a seller to another person, usually a real estate investor, you have done a contract assignment.
In other words, you simply change the name of the buyer to the real estate investor for an assignment fee.
Everything else on the contract remains the same.
How does it work?
Here is how contract assignment works:
1) Get the property under contract
The first thing when you identify a good property is to put it under contract. The contract must explicitly state that it can be assigned to another buyer.
You can do this by putting "and or assigns", e.g. "My Company Name and or assigns".
If you exclude this little clause, you may be unable to get the contract assigned. It is important to let the seller know that you might assign the contract to another real estate investor.
Also I let them know that I could find a partner for the deal. You need to make them understand that their interests are covered, and that nothing else changes in the contract. They also need to understand you will make a profit from the deal.
2) Get title work done
This is usually done by a title company or closing attorney.
3) Sign the assignment contract
Once you have identified a real estate investor buyer, you then sign a simple contract for them to take over your contract.
Make sure you collect earnest money when you sign the contract. Earnest money usually goes to the closing agent. Usually I credit the earnest money to the deal at closing; if they do not close the deal they stand to lose it.
4) Close the deal
The new buyer then finances the transaction ready for closing. At closing, you will get your check for the assignment fee.
Advantages and disadvantages of contract assignment
When you assign a contract, you eliminate the need to close two transactions in incur two closing costs.
You walk away with the assignment fee stated in the contract.
It is important to show the assignment fee in the contract.
The contract fee also shows in the closing statement, meaning that all parties can see how much you make in the deal.
Be careful not to lose the deal because some seller or buyers could develop cold feet when they see how much you are making. Contract assignment is best when you are not making a lot of money from the deal. If I stand to make $5000 or more, I do simultaneous closing instead.
It is also impossible to assign some deals such as REOs and deals involving a Realtor. Such contracts specifically prohibit assignment of contract.
The biggest advantage is that even with little to no money, you can make a deal happen and walk away with a profit.
Wholesale real estate investing requires that you sell your houses fast to keep it successful . Learn how an interactive real estate investing website can help you sell your properties faster by building your buyers list and using the power of social media to reach more buyers.
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