All You Need To Know About Contract Assignments2 min read
First, let’s cover the definition of a contract assignment. This is a sale where you find a property seller who is willing to take significantly less than market value. Then you resell the property, most often to a real estate investor, at a higher price. This is absolutely a legal deal, and it happens all the time. But the hitch is that this is not as easy to do as some real estate gurus might claim. But it is a proven strategy that many new real estate investors have used to get their business established.
How To Make A Contract Assignment Work For You
First, you need a motivated seller. This person must have a legitimate need to sell the property quickly. Often it is a need for cash due to legal issues, a divorce, or a sudden and unexpected significant expense. Never mistake a person who wants to sell with someone who needs to sell. Only a person desperate to sell will accept a lower than market value offer and be willing to jump on it and close quickly.
Next, you need to get a contract ready for the seller. There are templates online, but it is always best to have an attorney look over the document to be sure that it is legal and complete. And you need to verify that the contract specifies verbiage that authorizes you to re-trade the property to another buyer. Once the seller signs the contract assignment contract, you have some legal rights to the property and the deal. Then you can submit the contract to title according to the state regulations.
Now your challenging work begins as you search for a buyer for the property. Your first step in securing the buyer is to request non-refundable earnest money. This is the cash that keeps the buyer honest and will make up part of your profit. Once the buyer is committed, you assign the contract and start the closing process.
The Money Transfer
The way these deal works is that the final buyer transfers the money for the purchase, which covers your agreed-upon purchase amount, plus your fees. The most critical aspect of this deal is that everyone knows that this is a contract assignment. If the closing does not happen, because of confusion over the type of transaction, the original seller does not get paid, nor do you. And while these are generally not extremely time-consuming deals, they do consume your time, so you want to be compensated.
The benefit for new real estate investors is that there is no need to come up with cash to make a purchase and then wait to get a return on your money. You just need to turn around and sell the contract assignment property quickly to get paid and to meet the needs of the original seller.