Real Estate Assignment of Contract: What Investors and Wholesalers Need to Know
Now and again you have heard experienced investors say you can break into the real estate industry with minimum or no capital. That sounds a relief. Getting capital to start a business is one of the greatest challenges for new investors. The jackpot they are referring to is wholesaling in real estate investing.
But how can I commence without money? This lucrative venture gives you an opportunity to acquire ownership rights of property by getting it under contract. After which you sell these rights to another buyer with a profit.
Contract assignment in wholesaling real estate is one process that all investors and wholesalers should understand deeply. It has its own intricacies that even those who have been in the industry don’t comprehend.
But again, it is not that complicated. If you are curious to learn how the real estate assignment of contract works and how to use it to achieve your financial goals, you are reading the right article. Let us begin.
A real estate assignment of contract
This is a wholesale approach employed by real estate investors to expedite the sale of a property between the owner and an interested buyer. In this strategy, a wholesaler signs a contract with the property owner that gives them rights to buy the house below the market value, in return for the house to be sold easily and quickly.
The wholesaler then goes ahead and sells these rights to an interested buyer at a slightly higher price than the contract amount. The buyer is mostly another real estate investor who is looking for desirably priced properties to fix and flip. The buyer in turn pays the wholesaler assignment fees and goes ahead to buy the property. In other terms, the wholesaler is flipping a real estate contract.
The strength of the contract relies on what is written in it. It should clearly outline what each of the parties involved will get out of it. As an investor make use of a specialized lawyer in a real estate contract assignment.
The contract should clearly state that the wholesale deal is a transparent process. Additionally, the contract should spell out the assignment fees and how the wholesaler will be paid after assigning a contract. The standard fee is usually $5000 though, sometimes it varies depending on the deal.
The process of assigning a real estate contract
As much as real estate contract assignment is profitable, the process to make it flawlessly can’t be underestimated. The following are steps you should follow to have a timely and valuable contract assignment.
#1: Find the right property
In wholesale real estate investing you don’t just look for any property. Your specific search is aimed at finding motivated sellers, who are looking to get rid of their properties quickly and easily. Because of their urgency, they mostly sell their homes below the market value.
In your hunt, it is wise to target homes that are in bad shape but can be renovated or those that have been in the market for a long time. Choose the right property and obtain all relevant information about it. You can go ahead and even estimate the renovation costs to build credibility with your buyers.
But how do you get such properties? It is not an easy process but you can apply the following methods:
#1: Driving for dollars
This entails driving around your locality looking for homes that look distressed and get in touch with the owners hoping to sign a contract.
#2: Bandit signs
Another option is strategically placing “we buy homes” signs with your contact, hoping a motivated seller will give you a call.
#3: Direct mail
This process involves purchasing a mailing list and sending several mails to potential sellers.
#2: Draft and submit the contract
Real estate assignment contract templates can easily be accessed online. Get one and make use of an attorney to go through and edit it to fit your needs. An attorney will ensure you do the right thing and provide legal advice in case of any issues.
Disclose this draft to the seller and explain all clauses if necessary. You need to assure the owner of the property they will get the proceeds of the property as agreed.
Depending on your local authorities, submit the real estate assignment contract for a title search to ensure the property has no outstanding claims. Then sign the contract to make it valid.
#3: Find a buyer
Just like finding a seller, finding a buyer involves exploring all avenues. Starting might not be easy, but with time you will make a buyers list that you can use to quickly assign contracts.
Your search will mainly focus on other investors flipping houses. Those who want to buy houses relatively below the market value rehabilitate and sell at profit.
Listing websites are one of the platforms you can get the right buyers. You can also check on your network of real estate investors to get a willing buyer. To market your business further, create a website and advertise there.
#4: Assign the contract
After successfully getting the buyer, to sail on a safe boat, request for an earnest money deposit to seal the deal. The deposit can be any amount depending on your negotiation as a wholesaler. This money will cushion you in case there is a breach of contract. The deposit is nonrefundable whether the deal closes or not.
#5: Collect your assignment fee
The profit from selling the property comes from the stipulated assignment fee and the difference between the contract selling amount and the actual amount the buyer pays for the property.
It is a win-win situation. The property owner has quickly sold their house as per their desires. Another real estate investor has found the right property hustle free to flip and get a profit. In your case, as a wholesaler, you have happily pocketed your profits.
Real estate assignment of contract is a good exit strategy to get into real estate investing with minimum capital commitment. However, you must grasp the process and execute it aggressively to get constant profits.