Wholesale real estate investing is an integral part of a real estate investors business when they buy properties 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.
Contract assignment means that you assign the right to buy the property from yourself to another buyer, usually a real estate investor.
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?
The following simple steps describe the process of assigning a contract
1) Get the property under contract
Once you identify a property from a motivated seller, you put it under contract. The contract must explicitly allow you to assign it.
The easiest way to do this is put the buyer with “and or assigns”, e.g. “My Company Name and or assigns”.
Without this little clause you might be unable to assign the contract. It is very important that you let the seller know that you can assign the contract to another investor.
I also tell them that I could partner with another real estate investor. They must understand that the contract and closing will not be changed, and that at the end of the day, you will make some profit out of it.
2) Get title work done
The closing agent is usually 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.
You must collect earnest money when you sign the contract. The title company usually keeps the earnest money. 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 goes through the process of funding the transaction for closing. You walk home with your assignment fee at closing.
Advantages and disadvantages of contract assignment
In contract assignment, the need to close two transactions with two closing costs is eliminated.
The assignment fee stated in the contract is what you walk home with.
You must show the assignment fee in the contract.
The final closing statement also includes the assignment fee, meaning that all parties know what 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. To eliminate this risk, I only do assignment of contract when I stand to make little money. I use simultaneous closing when I stand to make $5000 or more in the deal.
Some deals also cannot be assigned, such as those involving a Realtor or REOs. Such contracts usually specifically disallow contract assignment.
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.
