Wholesale Real Estate Investing: Contract Assignment

Real estate investors who buy properties directly from motivated sellers must adopt wholesale real estate investing in their business. They must buy the properties low enough so that they can sell them at wholesale prices and still make a profit.

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 are changing the name of the buyer from yourself to the real estate investor buyer 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
Once you identify a property from a motivated seller, you put it under contract. The contract must explicitly state that it can be assigned to another buyer.

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 important to let the seller know that you might assign the contract to another real estate investor.

I also let them know that I could get into partnership with another investor in this 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
A title company or closing attorney usually acts as the closing agent.

3)    Get assignment contract signed
The next step is to sign a contract that assigns your right to buy the property to your real estate investor buyer.

You must collect earnest money when you sign the contract.   Earnest money usually goes to the closing agent.   If they do not close the deal, they stand to lose the earnest money, otherwise it is credited to the deal at closing.

4)    Close the deal
The buyer then gets the transaction funded ready for closing. When it closes, you get a check for the assignment fee.

Advantages and disadvantages of contract assignment
In contract assignment, the need to close two transactions with two closing costs is eliminated.

You walk away with the assignment fee stated in the contract.
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.

This means that some sellers or even buyers could develop cold feet when they think you are making a lot of money and back out of the deal. 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. Assignment of contract is specifically prohibited in such agreements.

The biggest advantage is that you can make a deal happen with little to no cost and walk away with a profit, even when you stand to make little money.

About the Author

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.

Author (simon87). Submitted on Tue, 20 Dec 2011 Time: 9:57 AM

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