Assigning a contract is a very useful tool for wholesalers that would like to assign their rights to a property for a small profit. Bank owned properties and short sales are not “assignable” but any other type of contract is. And by assigning a contract instead of double closing you can save substantially on closing costs. In order to assign a contract all you need is an “assignment of contract” which is typically a one page (or more) contract which transfers all of the the rights to purchase the property from the assignor (person who has the property under contract) to the assignee (person who the property is being assigned to).

How Does the Assignment of Contract Work?

Assume your name is Jack Smith and you have signed a contract to purchase a property located at 123 Main St in Fort Lauderdale Florida. Your purchase price on your contract is $80,000 but you would like to make a quick $5,000 profit and sell the rights to purchase this property by assigning the contract to another buyer for a fee of $5,000. Let’s say that you are successful in locating a buyer for this property and that this buyer is willing to purchase the property for $85,000 which is $5,000 more than what your purchase contract states.

You tell this buyer that you have a contract to purchase this property for $80,000 and you will assign all rights to purchase this property for a fee of $5,000 to him/her. This fee is called an assignment fee.

The buyer agrees to the assignment fee and you have a one page form called an assignment of contract form (use an attorney to draw up this form) which states that you are giving up all rights to purchase this property and that you are assigning this property and all rights to this property in exchange for an assignment fee of $5,000.

What are the benefits of doing this? Well firstly you are essentially flipping a property without ever closing on it. You are really not flipping the property but flipping the contract which gives you the right to buy the property. This means that you do not have to come up with any cash to buy the property. You also do not need to pay any closing costs or incur any other expense. Wholesalers flip properties for a living and by using the “assignment of contract” they save a lot of money in closing costs and fees and still make money flipping properties. Those fees can really add up. If you flip 10 properties a month and the closing costs for each flip is $1,000 then you would save $10,000 a month by assigning the contract instead.

The only money that you will actually need to put down will be the deposit amount that you agree to on the purchase contract. The deposit amount that you put on the contract should be held in escrow with a title company or an attorney. The less the amount of the deposit the better of you will be since less deposit means less risk. If you can get away with only putting down a deposit of $10 or $100 then you should do so in order to minimize your risk. As a wholesaler, if you do not purchase the property then your deposit will be at risk and can be claimed by the seller. For this reason the less you put down as a deposit the better for you as the buyer.

All Purchase and Sales contracts have an inspection period which is the time period that the buyer is allowed to inspect the property prior to making a decision on whether they are going to move forward with the purchase (usually based on the inspection report). Regular buyers use this inspection period to bring in their general contractor or inspector to complete an inspection of the property. However wholesalers use this inspection period to try and market the property and flip it to a cash buyer.

If the wholesaler cannot find a buyer for this property then they can simply cancel the contract within the inspection period and get their deposit back. If there is a problem or delay in getting the deposit returned (like the seller won’t give it back) or if the buyer has cancelled after the expiration of the inspection period then the deposit will not be returned and will be forfeited. It is for this reason that you should use the least amount possible when placing a deposit on a property that you plan on assigning. Try and put down no more than $10 or $100 (if you can get away with it).

There is one key point for you to keep in mind if you are going to be assigning a contract. You must use the words “and or assigns” after your name. This means that on the purchase contract the buyers name should be “Jack Smith And Or Assigns” not just Jack Smith. If you don’t use those words “and or assigns” then your contract will not be assignable. You should also check off the clause that says that the purchase contract is assignable, which is a separate item that is further down in the purchase contract.

Another important point is that you will not be able to use the assignment method with bank owned properties and short sales. Banks do not want assignable contracts because they don’t want wholesalers flipping their properties. If you are making an offer on an REO or short sale or any property where the bank is the seller then you will have to use the double closing method for these properties. However you can use the assignment of contract on any other property most notably on For Sale By Owner (FSBO) properties or any seller where you are in direct contact with the seller.

One disadvantage to the assignment of contract method is that your buyer will see how much profit you make based on your assignment fee. So if your profit is a large amount it could potentially create a problem with your buyer trying to reduce the purchase price after he or she has agreed to purchase the property. For example if you purchased the property for $15,000 and tried to sell it for $45,000 with a $30,000 assignment fee then you might encounter a lot of resistance from the buyer who thinks you are marking up the property excessively. This could be avoided by using the double closing method where the buyer does not see how much you paid until after the transaction has closed (public records).

I find that it is often preferable to double close on any transaction if the amount of profit is large enough where you might encounter seller resistance. Most buyers will not have a problem paying you a $3,000 or $5,000 assignment fee. However fees of $20,000 or more can create a situation where the buyer tells you they are not buying the property unless you reduce your fee. In cases like this the price reduction you will need to agree to in order to save the deal will usually be far higher than the amount of closing costs that you would have saved. For this reason if your profit is large then just double close and pay the closing costs.

If you are wholesaling bank owned properties, foreclosures, short sales, or HUD Homes you will need to double close. I speak about this extensively in my book “Wholesaling Bank Owned Properties”. You can grab a free copy here.

If the property is owned by an individual (not a bank) then an assignment of contract is the preferred method for wholesaling and can be a really low cost entry into wholesaling. And this is especially so for new investors and beginning wholesalers. All you need to get started is to have a copy of your States standard Purchase and Sales Contract, $10 for a deposit and a seller that is willing to sign a contract to sell their property.

Try and use this method with sellers who would like to sell but do not have their properties listed on the Multiple Listing Service (MLS). These sellers are not willing to pay an agent a real estate commission and typically place “For Sale by Owner Signs” in their yard or on sites that advertise properties for sale. If you can get in front of a seller like this and get them to sign a purchase and sales contract then you have a property under contract that is not even on the MLS. That means for a brief period of time (however long the inspection period is) you have a property under contract that you can sell to anyone for a profit and this property is not even listed on the MLS. You can assign your rights to that contract for a fee. This is one of the easiest ways to get started wholesaling.

So next time you drive by one of those signs that says For Sale By Owner why not give them a call? Even better, why not stop and knock on the door and see if you could have a conversation with them about possibly buying their house.

One of the biggest mistakes I see beginners make is not having a purchase contract on them. If you are going to do this, make sure you have a blank Purchase & Sales Contract for your State in your car so that you can complete a purchase contract with them. I have found that sellers like this. Seeing a contract completed in blue ink and having them sign while you chat and build rapport at their dining table.

We teach our students how to do this more efficiently (although the old school method still works) by using our Wholesaling Contract on a Laptop or an iPad. We provide all of the purchase contracts to our students along with all of the motivated seller scripts to use and the calculators for establishing your offer price in our training.

We teach our acquisitions agents and our students that the fastest way to complete a purchase contract with the seller is to have a laptop or an iPad with the Wholesaling Contract site pre loaded. That way you can fill out the contract with the seller. The advantage of this method is you don’t need a printer or a scanner. Your contract is automatically created and turned into a PDF and emailed to you. Then you can use docusign to automatically email the contract to the seller.

I like to do this while I am with the seller and I teach my acquisitions agents and my students to do the same. Make sure the seller signs the contract before you leave their house. If they don’t sign, there is a good chance you will lose that contract to your competition. I train my acquisitions agents that if they walk out of the house without a signed contract then the seller becomes open game for any other acquisitions agents in our company. Never leave without a signed contract!

If you want to learn how to wholesale, I have trained thousands of wholesalers throughout the U.S. I even have students who live out of the country that wholesale (some with businesses generating more than $500,000 a year). Some of my more successful students now run 7 figure wholesaling businesses. Some of my students have wholesaling businesses that generate more than $3 million per year in profit! One of  my students who generates these number started when he was just 18 years old by attending my Wholesaling Real Estate Boot Camp.

Flipping houses is easier than you think – but you do need training. You need to learn how to generate motivated seller leads, you must know how to talk to sellers, you need to have a good script, you have to understand the four pillars and you need to know how to establish your maximum offer price and know how much to offer.

Finally you need to know how to complete a Wholesaling Purchase contract. I teach all of this at the Wholesaling Real Estate Boot Camp. One flip can generate a profit of 50 times or more than the cost of the boot camp. Consider it an investment in your education. My student Marcelo flipped a house and closed yesterday for a $67,000 profit. If you think the cost of education is expensive (like attending my boot camp), ask yourself what the cost of not learning is. Would Marcelo have made that $67,000 yesterday if he thought the Wholesaling Real Estate Boot Camp was expensive? If you are serious about learning how to wholesale and flip houses then invest in your training and education. A good place to start out is the Wholesaling Real Estate Boot Camp. Click here to learn more about the next boot camp.

If you would like to book a call with me or my team to learn more about how to get started wholesaling and to learn more about the Lex Levinrad Real Estate Training Program, along with information about our real estate training Boot Camps, our Home Study Course,  Our online training and our coaching program click here to book a call with me.

Don’t forget to grab a copy of my best selling book “Wholesaling Bank Owned Properties” here

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