In this video, I talk about the assignment of contract versus double closing and the advantages and disadvantages of each method. If you are a new real estate investor who is just starting to learn about wholesaling and flipping properties, then you should learn how to utilize both strategies.
Assigning a contract for a fee allows wholesalers to “flip” properties without ever closing on them. Assigning a contract to someone else in exchange for an assignment fee allows the wholesaler to profit from flipping the contract to another buyer. That buyer then closes on the property and the wholesaler gets paid their assignment fee at the closing.
In order to make a purchase contract assignable, you need to put the words “and or assigns” on the purchase contract after the buyer’s name. For example, if the buyer is Jack Smith then on the purchase contract you would put “Jack Smith and or Assigns”. This makes the contract assignable.
If you are using a standard purchase contract for your State, then there is also a check box on the contract that you will need to check off that says “this contract may be assigned”.
The 3 main advantages of using the assignment of contract strategy when wholesaling are:
1. You do not need to pay any closing costs
2. You do not need to show up at the closing
3. You do not need to put up any money
The only money that you will need to put up is the deposit in escrow which can be as little as $10 and which will be returned to you at closing.
Assigning contracts allows wholesalers to potentially have a “Laptop Lifestyle” since they can theoretically be anywhere in the world when the closing happens. They get paid with their assignment fee which is wired from the Title Company to their bank account. This is a huge benefit because if a closing is delayed and the wholesaler is planning on traveling their plans are not delayed. If the wholesaler works remotely or even out of the country it makes no difference since they are not required to be at the closing.
When would you not want to use an assignment of contract? If you are buying a property from a bank then you cannot use an assignable contract since the bank will not allow this. That means you cannot use the assignment of contract with any foreclosure, short sale, or bank-owned property (REO).
If you are buying from an online auction site like Hubzu.com or Auction.com you can also not use an assignment of contract since they will not allow it. And if you are buying from Fannie Mae, Freddie Mac, or HUD you cannot use an assignable contract either.
So if you want to wholesale or flip a property that is bank-owned, listed on an auction site, or owned by a government entity then you will have to utilize the double close strategy. This means you will need to first purchase the property, and only once you own it, will you be able to resell it for a profit.
The disadvantage of a double closing is you DO need to be present at the closing to sign the closing documents for both the purchase and the sale (two closings). Another disadvantage is you need to pay both closing costs for the purchase and the sale which will significantly cut into your profit.
The third disadvantage is you will need to pay cash to buy the property before you can resell it for a profit. If you don’t have the cash then you will need to use a Transactional Funding Company which will charge you a transactional funding fee which will cut further into your profits.
The decision of when to use an assignment of contract versus a double close is relatively easy. If you are buying an off-market property directly from a seller then ALWAYS use an assignable contract. If your profit is ridiculously huge, then consider double closing instead of assigning if you are concerned that your end buyer will think you are making too much.
If you are buying from a bank, online auction site, or government entity like HUD then you will always have to double close and will not be able to make the contract assignable since the banks will not allow this.
Disclaimer: The information in this video and in the text above does not, and is not intended to, constitute legal advice; instead, all information in this video is for general informational and educational purposes only. Please consult with a real estate attorney in your State to obtain advice with respect to creating and using purchase contracts. I highly recommend you have an attorney create a purchase contract and assignment contract for you specifically for your use in your State.
If you would like to see a sample Assignment of Contract please visit https://www.lexlevinrad.com/assignment/