To be able to wholesale real estate without first closing on it yourself, you need to be able to have your buyer take over your position in the contract that you have with the seller. Usually, we accomplish this by assigning our rights in the contract to our buyer and having our buyer close directly with the seller.
However, as a real estate investor I occasionally get a real estate contract that does not have a section that would allow me to make the contract assignable. How do you deal with this? Well, my late mentor, Brent Grove taught me the power of “and/or assigns.” While you will want to verify that contract law is the same in your state, in most contracts anything that is hand-written into the contract takes precedence over anything typed. So, if, when you write out your contract, you use your name as the buyer name and then add in the words “and/or assigns”, even if the contract states that it is not assignable, then the contract becomes assignable.
So, as an example, if I was writing a contract with Suzy Seller and my name was Bob Buyer, I might fill out the contract so that for the name of the buyer it would read:
Bob Buyer and/or assigns
If Suzy Seller agrees to the terms and signs the contract, then that contract becomes assignable. So, if I then sent out an e-mail blast to my list of thousands of real estate investor buyers to tell them about this new deal that I have, I could assign my contract to them. For a small assignment fee (which is often also called a wholesale fee), I would assign my rights and interest in that contract to my investor buyer and they could then purchase the house directly from Suzy Seller using my contract.
So, with that tiny phrase, “and/or assigns”, you can take just about any contract and make it instantly assignable.
Until my next post,
James
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You have found a great deal and you are ready to wholesale it, but how does your buyer actually close with your seller?
Well, there are two ways to do it: assignment or double closing. In this article, I will discuss each one.
First, let’s look at how an assignment might work. You find the deal and put it under contract to purchase it from your seller. In the purchase contract, you negotiate the right to assign your contract. Then, once you find your investor buyer, you fill out an assignment of contract form and help facilitate the closing of the deal with your seller and your buyer. Often, but not always, you are paid an assignment fee at the closing. Sometimes it’s classified as a fee to clear title.
Some of the advantages of this are that you are not actually closing on the property yourself when you assign it. You do not need to get a loan or have the cash to purchase the property. Also, if your seller and your buyer agree and cooperate it can be a very smooth transaction. Since you are not closing on the property yourself, you can save yourself some transaction fees. And, another big benefit is that you never appear on title or public records as having owned the property.
What are some of the disadvantages? In many cases, the buyer and seller each know how much you made wholesaling the deal. For some people this can be an issue, especially if the amount you are making as a wholesale fee is considered large. Of course, you can try to work with your title company to have separate HUD statements. Some may do this while others will not.
Now, let’s look at how a double closing might work. In this case, you do the same thing as in the first example except that instead of assigning the contract to your buyer you get a contract to purchase from your buyer that is contingent upon you having clear title to sell the property to them (in other words, provided that you can first close on the deal yourself). Then you go ahead and purchase the property and usually later that same day, you sell the property to your investor buyer. The mechanics of how this exactly works can vary quite a bit, particularly in the specifics of how the funding works. Some people try to do it with the funds from your buyer. Some insist that it must be funded with your own cash or loan and then you can get that all back hours later when you sell it to your buyer.
Any way you look at it, there are extra expenses doing it this way and you, or the entity you are using, appears on title. So, why would you want to consider doing it this way? Sometimes, it is the only way to get paid. If the buyer has restrictions from their lender on paying assignment fees or fees to clear title, you may need to do a double closing to make the deal work. Another very common reason is that you don’t want the seller or buyer to know that you are making a very large wholesale fee on the deal.
In general, if possible, I much prefer assigning contracts over double closings, but there are occasions when a double closing makes sense and should be used. Of course, you may want to check with your legal adviser to discuss issues particular to your situation and your local real estate laws.
Until my next post,
James
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