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. This means the price they buy the properties at must be low enough to allow them to make a profit when they sell at wholesale prices.

In contract assignment, you assign the right to buy a property to another person, 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.

<b>How does it work?</b>
Here are the steps of doing contract assignment:

<b>1) Get the property under contract</b>
The first thing when you identify a good property is to put it under contract. The contract must explicitly allow you to assign it.

You can do this by putting "and or assigns", e.g. "My Company Name and or assigns".

If you exclude this little clause, you may be unable to get the contract assigned. It is very important that you let the seller know that you can assign the contract to another investor.

Also I let them know that I could find a partner for the 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.

<b>2) Get title work done</b>
This is usually done by a title company or closing attorney.

<b>3) Sign the assignment contract</b>
You then sign a contract where you assign your right to buy the property to a real estate investor buyer.

You must collect earnest money when you sign the contract. This earnest money is paid to the title company. I like to make sure that they stand to lose the earnest money if they do not close the deal, but that the earnest money is will be credited to the sale at closing.

<b>4) Close the deal</b>
The new buyer then finances the transaction ready for closing. When it closes, you get a check for the assignment fee.

<b>Advantages and disadvantages of contract assignment</b>
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.
The assignment fee must be shown in the contract.

This is also included in the HUD1, meaning that all parties involved including the seller know the profit you make in the deal.

You must be careful because some buyers or sellers could walk out of the deal if they think you are making too much money. I only use contract assignment when I will make little money. I use simultaneous closing when I stand to make $5000 or more in the deal.

It is also impossible to assign some deals such as REOs and deals involving a Realtor. 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.

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