Contract assignments are the no money down deals of your real estate investing dreams if you're an aspiring wholesaler. When you hear it said that you can make money in real estate with no money and bad credit (and even little real estate experience), this is it. It is the simplest way of wholesaling real estate there is.
Well, a contract assignment is a process (heck, even “an event”) in which one party’s bundle of rights and obligations under a previous agreement are transferred to a third party. In the narrow context of real estate wholesaling, an assignment contract is the legal document that records and legitimizes (grants enforceability to) the transfer.
You will want to note that the standard real estate purchase and sale agreement used by real estate agents in some states may include a non assignability clause.
If this is the case in your state or your local area, you should have an investor-experienced real estate attorney draft up a real estate purchase and sale contract that meets all the regulations and legal requirements in your area and is also assignable.Assignability is obviously the most important requirement for the process to take place.
Requirements for The Transfer
All you really need is:
- An executed (signed), assignable real estate purchase and sale contract between you and the property seller.
- A willing cash buyer (or a buyer whose lender will loan on assignments).
- An executed assignment contract that transfers the rights and the responsibilities of the original purchase and sale contract from you to your investor buyer.
- A settlement attorney or title company to verify clean,unencumbered title and to coordinate the closing.
General Outline of Deal Sequence
Wholesaling real estate through contract assignments generally follows the sequence I've listed below. However, you need the potential pitfalls to successful deal completion that are possible at each step. Here's the sequence:
- You and Seller (who we'll call Sally) agree to contract to purchase her house at $100,000 with settlement within 90 days.
- You Find Investor (Barry Cash Buyer) willing to pay $110,000 cash for property and settle within 20 days.
- You agree to, and sign agreement with Cash buyer for $10,000 assignment fee.
- At settlement, Barry Cash Buyer wires $110,000 to title company
- Title company makes Seller Sally sign deed document over to Cash Buyer and pays her $100K.
- Title company pays you $10K (Assignment fee).
- Title transfers deed (ownership document) to Barry Cash Buyer.
- Everyone goes home happy!
That's what the outline looks like when everything goes perfectly as planned. What happens when it doesn't ?...
Any number of things can go wrong when you're flipping homes. Here are a few of the most common complications that can lead to to a smooth transaction:
- Assignee (Barry Buyer) cannot settle on date agreed to in the contract, postponement or annulment of contract.
- Seller Sally decides 15 minutes before settlement, on the 20th day, that she will not sell, or will not sell at the agreed upon contract price.
- Settlement company discovers that Seller Sally does not possess clean and marketable (read: transferable) title because she originally purchased the house from her cousin (Negative Nelly), but never worked with a settlement company (or attorney) and did not purchase title insurance.
These are just a few of the scenarios that you want to prevent or overcome by careful planning, deal structuring and use of well thought out contract clauses and terms, both in your original real estate contract, and in the subsequent assignment contract.
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