Up to this point, I have taught you how to make a fortune buying and selling distressed property for large profits. What I am about to share with you is a nother powerful concept which will multiply your money making options, and allow you to buy and sell property for no money down. The concept? Assigning your real estate contract to other investors.
You’re probably saying, “Hold on Duncan! Now you’ve confused me!” The truth is, it sounds harder and more confusing than it is.
Let’s say you come across an excellent deal on a property. You agreed to purchase the property for $50,000 from a homeowner. After studying the value of other properties in the area, you know that this property can easily sell for $110,000 after all repairs are completed. So what you do? Do you buy the property yourself, fix it, and wait to resell it one to three months later? There is another option: you can assign the contract to an investor for a finder’s fee.
Before you can decide which decision is best, you obviously need to become informed as to what assigning a contract entails. So let’s go.
The simplest method I have used is that on my contract that specifies the agreement I have with a particular homeowner to purchase his home states, “And/Or Assigns.” What these three words indicate is that I may, if I choose, assign this contract to another investor for an assignment fee. The amount of the fee is entirely up to me, and is largely dependent on what the property will bear. I cannot stress enough how important “And/Or Assigns” is to a real estate investor. It gives you the choice and power to either keep the property for yourself or sell/assign the contract to another investor. I never fail to include “And/Or Assigns” after my company name. Though I may be 100% sure that I will keep a property for myself, I still put that phrase on my contract. Why? You should be asking
“Why not?”
By selling or assigning the contract to another investor, you can make a quick profit with NO MONEY DOWN! Don’t get me wrong, 99.9% of the properties I go under contract with I keep for myself. But there are times when I have so many properties coming in that just can’t handle them all. This is when I assign the contract to another.
Just to give you an idea of the profit potential involved, the last two properties I assigned to other investors, I profited $8,000 and $12,000 — and it required zero work! All I did was sign the contract with the homeowner, found an investor, signed an assignment agreement with the investor, and 30 days later I was $12,000 richer! Is that awesome or what? This is the laziest way to make a fortune in distressed property! A number of individuals who have taken my course specialize only in Assigning Contracts to Investors. Why? Because the only work required is locating properties. There is no applying for financing, no making sure that all repairs are completed, and no finding buyers. Best of all, IT’S FAST. You will get paid when the investor/assignee actually purchases the property, and that usually takes 20-45 days.
One thing I have come to understand from this business is that everyone is different. Some people are happy making a fast $12,000 for assigning the contract to an investor; others, like myself, ask, “Why should I assign this contract for $12,000, when I could keep the property, fix it, and resell it in a few months for $40,000?” Do you get my point? The direction you take in this field is entirely up to you.
CONTRACT ASSIGNMENT PROCESS
Okay, let’s walk through this process slowly, so you know just how it works. You locate a property and sign a contract with the owner to purchase it for $50,000.
Where it says “buyer” in the contract, you will add “and/or assigns,” The inclusion of this contractual provision has no bearing upon the homeowner selling the property; it is none of her business. Her only concern is to sell the property. When you go under contract with the homeowner, to make the contract legally binding you MUST put some money down. This deposit can be as low as $1. I usually put $100 down. But remember, never make the check out to the homeowner; always ask who their attorney is, then make the check payable to the attorney’s trust account. At closing, the investor (person you assign the contract to) will refund any money you may have placed as a down payment. The net result is, you will be assigning contracts with NO money down. Amazing, isn’t it?
All you do next is find an investor you can assign the contract to. THIS IS SO EASY! Why? Because there are tons of investors out there looking for distressed property. Essentially, there are two ways to locate such investors. First, you can place a small advertisement in the “Homes for Sale” section of your local newspaper. Sample advertisements follow:
ATTENTION INVESTORS
One Family, 3 br, 2 ba
Handyman Special — Won’t Last!
Call 555-555-5555 for Details
NOW AVAILABLE!
ATTENTION INVESTORS
Foreclosed Properties
Call 555-555-5555
Both of these ads have proven very successful. The second great way to find investors is to look under the “Real Estate Services” section of Craigslist or orther online sites. You will see ads in this section such as, “Fast Cash for Your Homes.” These are placed by investors looking for distressed property. Call the phone numbers listed within such ads and tell the investors that you have a property for sale. ( Use the Online Lead Finder – and direct email them )
You are probably thinking, “What kind of fee do I charge these investors?” There is no clear-cut price. It is entirely up to you and what the property will bear. I can tell you what I would charge per our last example. You purchased the home for $50,000.
Repairs will equal about $10,000. You also discovered that according to the value of other homes in the area, the house is worth approximately $110,000. Now, let’s crunch some numbers, considering the property from an investor’s point of view (the person you are hoping to assign the contract to).
$50,000 (purchase)
+ $10,000 (repairs)
+ $ 2,500 (closing costs)
= $62,500 (total cost)
Then, let’s plug-in our $110,000 projected sales price.
$110,000 (sales price)
– $62,500 (total cost)
= $47,500 (total profit)
It should be noted that the above figures assume the investor will not borrow any money to purchase the property, nor pay closing costs, nor make a down payment for the buyer (you). If the investor needed to meet these latter expenditures, his total profit would decrease by at least $10,000.
The amount of fee you charge depends on the profitability of the property. Most investors expect to make a net profit (after all expenses are met) on each property of the least 30%. Therefore, because total costs equaled $62,500 in the above example, the investor would expect to clear at least $18,750 ($62,500 x .30 = $18,750). But we already demonstrated that this particular property has the potential to make about $47,500. We once again plug in the numbers:
$47,500 (potential profit)
– $18,750 (minimum required profit)
= $28,750 (profit potential which exceeds minimum 30%)
These numbers indicate that you could charge the investor an assignment fee of $28,750, as the investor would certainly be satisfied receiving his 30% profit of $18,750. This means you would earn $28,750 for doing almost nothing! At the same time, you would not be cutting anyone short on the deal — the homeowner would get to sell her property, the investor you assign the contract to would earn his profit, and you would earn your profit. A win-win-win situation!
There are factors involved, though, which may preclude you from being able to charge that high of a fee. Let me explain. From the investor’s point of view, not everything may go as smoothly or profitably as the above calculations indicate. For one, he may not be able to sell the property for the anticipated $110,000. Secondly, if he is less than a smart investor, he might not sell the home as quickly as he would like. While I have shown you that a great way to expedite the sale of any home is by offering to pay for the buyer’s closing costs—he may not know that. But if he is a savvy investor, like you, he will pay for the buyer’s closing costs, which will reduce his profits about $7,000.
Thirdly, it is possible that the investor had to borrow from a hard money or private lender. If so, he is likely paying somewhere around 18% interest. If these three profit reducing factors exist for the investor you assigned/sold your contract to, it will have the effect of reducing the assignment fee you can charge him. Let’s go back to our chalkboard:
$62,500 (total cost)
x .18 (18% interest)
= $11,250 (annual interest payments)
187
188
$11,250 (annual interest payments)
÷ 12 (months)
= $938 (monthly interest payments)
If the investor keeps the house for six months, he will pay $5,628 in interest-only payments. If he also pays the buyer’s closing costs when he actually sells the home, that will cost him another $7,000 (approximately). Adding up these two additional expenditures equals $12,628.
What you have to do is take the original fee you would charge, $28,750, and subtract the investor’s additional expenditures of $12,628, which leaves you $16,122. This latter figure is a good assignment fee to charge the investor. Though you could charge up to $28,750, most investors will not pay that high of a fee, because it does not leave them enough of a margin to handle unexpected or possible expenditures. It is better to charge the lower fee, as the investor will expect you to explain just how you derived the fee amount. And if you treat him right, he will be much more likely to do business with you again! This is what you want—not just to do well on one deal, but to establish yourself with the real estate community so that you can prosper in deal after deal!
Keep in mind, not all investors are the same. Some will be satisfied with 20% profit, while others want 40% to 50%. By way of wise business protocol, when you quote the investor a fee, always start high. Why? You can bet he will try to haggle you down. But there is nothing wrong with that—haggling is part of smart business too. In the example we worked with above, I would quote an initial fee of $16,000, then let the investor haggle me down to about $12,000 to $13,000. Once an agreement on the fee is reached, it’s time to complete an “Assignment of Contract of Sale.”
INSERT SAMPLE AGREEMENT HERE
Completing the Assignment Agreement
I will now show you, step-by-step, how to complete the assignment agreement. As you’ll notice, the sample agreement at the end of this section is annotated with numerical references. These references highlight the important parts of the contract. Now let’s go through them, one by one.
1) This is your company or personal name that you enter into contract with.
2) Here is the name of the investor you are assigning the contract to. It could be a personal name or a company name.
3) This is a repeat of the name you are entering into contract with. You are known as the ‘assignor.’
4) Your business address.
5) Enter the property address which you have agreed to purchase.
6) Virtually all homes, except some which are located outside of city limits, have a block and a lot number. Enter those numbers of the property your purchasing here.
7) Insert the city and county where the property is located.
8) Enter the name and address of the investor you are assigning the property to. He is known as the ‘assignee.’
9) The name and address of the seller go here. This is the person you are purchasing the home from.
10) To me, this is most important part of the contract—the assignment fee that you and the investor have agreed to.
11) Enter the purchase price of the subject property that the investor has agreed to purchase.
12) The investor’s personal or company name.
13) You and the assignee both sign the document.
14) Enter your name and company information (if you have a company).
15) The name and company information of the investor.
16) The date on which you and the investor sign the contract before a Notary Public.
17) The personal names of you and the investor.
Before you and investor sign the agreement, you must go to a Notary Public so that both signatures might be witnessed. ALWAYS GO TO A NOTARY PUBLIC! Never let the investor tell you otherwise. It is also a good idea to make two agreements and have both notarized; in this way, both you and the investor can take a copy to your respective attorneys. Assuring that the investor gets a copy of the agreement, which he can then give to his attorney, allows his attorney to pull title on the property.
One other thing, DO NOT go back to the seller and inform her that you assigned the contract to another investor. This will only make the seller nervous. Why? While the primary reason the seller agreed to sell you her property is for the money, she may also have done so because she was comfortable dealing with you. So if the seller discovers that you assigned the contract, she could decide to back out of the contract.
Maybe yes, maybe no! But why take the chance? Just tell the seller that your partner (who is really the investor) may be stopping by to inspect the property. At the same time, let the investor know what you told the seller.
At this point, your probably wondering, “When do I get paid?” The answer is: the day of closing. When the money is disbursed, you will receive your check for $12,000. NOW WASN’T THAT EASY? If you only assign only ONE contract per month to an investor, you’ll be on your way to making over $100,000 per year! As a mentioned earlier in the chapter, many individuals who have taken my program concentrate only on assigning contracts—because it’s the laziest way to make a six figure income