Kick Start Your Real Estate Investing Business Through the Assignment of Contract

Posted on: May 13, 2011

Categories: Buy, Procedures, Profit

Author: lbuen

2235529638 f134918e00 m Kick Start Your Real Estate Investing Business Through the Assignment of Contract

Assignment of Contract Image by thinkpanama via Flickr

Contract Assignment

A great way for a fledgling real estate investor to kick-start a career in this business is by flipping contracts. When you assign a contract, it means that you grant another party to your rights and prerogatives in a written agreement in exchange for consideration. In legal parlance, “consideration” is anything that has value, including money, goods, services and promises. In this post, let’s use the term to denote “money”.

The Real Estate Contract

As you already know, a transaction in real estate involves two primary parties: the seller who has a property to sell for a specific amount and the buyer who is willing to buy the property for a certain amount. The two will hash out prices until they reach a certain agreed amount. Once they strike this bargain, the agreement materializes into a Purchase Contract. Please bear in mind that in real estate transactions, a contract has to be written down so that it becomes legally binding.

As an example which we will be using throughout the post, let’s assume that in a contract, You as Mr. Buyer, agrees to pay $ 40,000 for the property of Mr. Seller. You do your math mentally and could see that if the property is rehabbed, it can sell for $80,000.

The Assignment of Contract

With a contract in his possession, the buyer can discharge each of his obligations listed in the contract so that in due course this execution of duties can bring the contract to a close and the buyer can get hold of the title to the property. The buyer also has the option to trade in his rights to another party who can take over as though the latter had inked the original contract. In legal terms, the third party is known as the “assignee”, while the one who assigned the contract is known as the “assignor”.

The assignor and the assignee would ink a new document known as the “assignment of contract” so that the former can pass on the position in the contract to the latter. Once this has been signed, the assignee has to pay the assignor an assignment fee and the latter in turn has to furnish the former with the original purchase contract and the assignment of contract so that closing can proceed. In practice, the assignee will hand over the assignment fee first to an escrow agent and the assignor can get the amount during closing. However, if the assignor and the assignee already have a good business relationship, this may not be necessary.

With the Purchase Contract signed by you and Mr. Seller, you, as a real estate investor flipping contracts, would start looking for someone interested to pay you $3,500 assignment fee in exchange for your rights and privileges in the contract. Once you find this person, you and the new buyer sign the Assignment of Contract, wherein you are the assignor while the new buyer becomes the assignee. The new buyer then pays you $3,500 while you hand him the Purchase Contract and the Assignment of Contract and hand it to the escrow agent. The closing proceeds with the buyer paying the seller $40,000 who gives him the title. Basically, the new buyer would purchase the property with an after repair value of $ 80,000 for $43,500.

Assignability of Contracts

As long as it is not specified that a contract is not assignable, you can assign any contract to another party.  Most if not all banks selling their real estate owned (REO) and bank owned properties will restrict the assignability of contracts.  Some real estate investors say they have figured out how to work around this and make money wholesaling REO’s.  Personally, I have tried many of the creative real state investing methods out there and have wasted a lot of time.  There is great money that can be made by applying the basics of real estate investing.

When you understand how the process works, assigning a contract is relatively a cinch to pull off, making it a fantastic entry strategy for real estate newbies to earn in this business.

 Kick Start Your Real Estate Investing Business Through the Assignment of Contract
pixel Kick Start Your Real Estate Investing Business Through the Assignment of Contract

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