Sell Your Purchase Contract
Imagine working as a real-estate investor without needing any credit or ability to close a loan, yet you are able to make thousands of dollars on each transaction. This can be done by simply selling your purchase contract to another real-estate investor.
There are some advantages to selling your purchase contract:
You do not need much money to get started as a real-estate investor.
You do not need the credit or funds to close on the property.
You receive your money at the settlement.
You can do as many as these deals as you can find and assemble; you are not limited by your available cash or credit situation.
You do not pay any closing costs.
The procedure is simple: You offer to purchase a property, and then after your purchase offer is accepted you sell your purchase contract, assuring your profit on the transaction.
Understanding Assignment
To be able to sell your purchase contract to another investor you must have the legal authority to do so. In most states, if a purchase agreement does not have specific language in it that says it is not assignable, then the purchase agreement is assignable without the consent of the other party.
Some purchase agreements have assignments built in to the contract. Some purchase agreements prohibit assignments.
Often the assignment can be made simply by including it as part of the purchase. For example, if Susan Johnson is the purchaser, she is identified in the purchase offer agreement as “Susan Johnson and/or her assigns.” To be sure you can assign the contract, always include a clause in your agreement giving you permission to make the assignment.
Make sure you know what the law is in your state by discussing real-estate purchase agreement assignments with your lawyer. Follow your attorney's advice to make sure you can legally transfer the assignment.
You should always structure your foreclosure deals so you can assign the purchase offer agreement to another person or entity. Even if you don't intend to sell the purchase agreement to anyone else, it is always best to have the ability to do so.
Earnest Money Amount
When you are presenting a purchase offer agreement that you plan to assign to another investor, you want to include as little as possible of your earnest money. You must make an earnest money deposit in order to make the contract binding. Some investors follow these guidelines:
Never offer more than $100 as earnest money.
Use a $50 bill, stapled onto the purchase offer, as earnest money.
Use a $100 promissory note.
Whether you are dealing with a real-estate agent, the defaulting borrower, or the REO department, keep your earnest money low. When someone asks for a larger earnest deposit, quickly respond with the question, “Why do you need more earnest money?”
Using Your Assignment
Once you have your purchase offer with an assignment accepted by the current owner of the property you can begin the process of selling it. Assigning the purchase agreement is accomplished quickly by signing an agreement with your purchaser.
Experienced real-estate investors that use assignments for flipping properties know to whom they are going to sell the property when they make their purchase offer to the property owner. This is because they maintain an active list of real-estate investors that will purchase properties regularly.
Will an investor accepting the assignment balk at paying a profit to me?
The answer is no, as long as there is room in the deal to make a reasonable profit.
Consider this scenario: You find a property worth $160,000. You make a purchase offer of $117,500, which is accepted. The property needs $11,000 of renovations and repairs, which means the property costs $128,500. You add on your profit and fee of $6,500, which still leaves potential profit of $25,000. There is $25,000 of profit on the table. If you were in a position to make the purchase, wouldn't you take the deal? If deals make sense, real-estate investors will take them. They don't mind paying for them via an assignment.
Conditions of the Assignment
Before you make an assignment of one of your purchase agreements, there are several things to consider:
Don't make the assignment to an investor that can't close on the property. This does no one any good — not the property owner, the investor that you assigned the purchase agreement to, or yourself.
Don't be greedy in what you want for your fee when the loan closes.
Don't become complacent with your deals. If you cannot close on the purchase agreement, you are only out your earnest deposit (although some attorneys might be able to pursue a breach of agreement suit against you). Nothing will ruin your reputation faster than not closing your transactions.
As your business grows and you become more familiar with investing in foreclosures that have been assigned to you, expect to accept these types of deals from others. As long as a purchase makes sense and is profitable, most real-estate investors will make the deal.
A typical assignment letter is included in Appendix C. This is only for illustration purposes. Consult with your attorney as to what your assignment letter should contain for your area.
Professional Bird-Dogging
Another way to make money as a real-estate investor is to do nothing more than find deals for other investors. This is called
Many new real-estate investors start this way. They have no risk; they are not signing purchase contracts or doing anything other than providing information and building a network of investors. Along the way they are earning cash for their efforts. Once they have enough funds on deposit they can start taking on their own deals.
