Hello everyone....Today I want to explain a little of what I do in my real estate investing business. When I tell people that I invest in real estate, they assume that it takes a lot of money. But, really, it doesn't. I use a technique called assignment of contract to make money without putting up any money or very little money of my own.
When I assign a contract, I am putting a property under contract with the seller. I am then finding another buyer for the property and assigning my contract to the new buyer. I then charge the buyer a fee, an assignment fee. This fee might be a set amount or a certain percentage of the sale price. It might range from $1000 to $10,000. The contract is now between the seller and the new buyer and I have now stepped out of the deal while still making some money.Who can do this? Anybody!! No real estate license is necessary.
My favorite type of property at assign is a bank owned property. These are properties that the bank has taken, usually through foreclosure. They are then listed by a real estate agent on behalf of the bank and usually sold at a price that is much lower then its appraised value. The bank is motivated to sell the property to make some cash, the buyer is motivated because they are getting a great deal and the investor is motivated because they see an opportunity to provide a service and make a profit as well. Many people will balk at getting involved with assigning a bank owned property because banks will use language within the contract that states that the contract cannot be assigned and that whoever buys the property cannot resell it within a certain timeframe. This timeframe is mostly between 60-90 days. This becomes unattractive to investors because now the investor has to come up with the money to buy the property and make 2-3 months of payments before selling.
However, there are ways to get around the banks contract language and still make money at the closing. The first way to do this is to simply form a shell LLC. This can be done by going online to state attorney's general website and filling out some forms. There will be a relatively small cost for this, sometimes a few hundred dollars. You then put the property under contract with the bank using the LLC's name. Then, when you have found your buyer for the property, you sell the LLC to that person for the amount you would have gotten for an assignment fee. Voila!!! You have legally and expertly gotten around the bank. But, there is an even more attractive method to use.
The best way to invest in bank owned properties and not have the banks contractual language prevent you from making money in a timely manner is to do a double closing. A double closing is when there are two, back-to-back, closings all in the same day between the three parties involved....you, the buyer and the seller(bank). There is something called a simultaneous close which does the same thing but uses only one close between all three parties. But when you use a simultaneous close all three parties can see the deal made among the three. In a double closing, each party can only see the contract made between them and the party they are dealing with. Why is this important? Well, let's use an example. The bank owns a property that is worth $250k. It is selling the property for $220k and we negotiate a deal that will allow us to buy it for $200k, not an unrealistic scenario. We enter into a contract with the bank to buy the property for $200k and we find our new buyer. We show this new buyer how much the property is actually worth and in our negotiations, we agree on a price of $220k. Now, we have bought the house for $200k and resold it for $220k AND we are not going to have to use any of our own money. Here's why....at the day of closing, the first person to arrive at the title company is the new buyer. They bring in all the money required, the $220k plus any fees and closing costs. They then sign their paperwork and are done. The next person to come in will be the bank's representative. They will sign their paperwork and pick up their check for the $200k they agreed to sell the property for. Then, I come in last. I sign my paperwork and collect any money due to me, in this case the $20k in difference between what I bought the property for from the bank and what I sold it for to the new buyer. Now, during a simultaneous close the new buyer would have seen my deal with the bank and not been happy. The bank would have seen my deal with the new buyer and not been happy. But with a double close, the bank on;y sees the deal they made with me. The new buyer only sees the deal they made with me. And everyone is happy with their deal. The bank sold a property that they owned and made some money. The new buyer bought the property they wanted at the price they wanted and have instant equity in the property. And I sold a property for a $20k profit instead of maybe $5k if I had just been able to assign the contract. Oh Happy Day!!
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