I am new to real estate whole selling, I am still doing research and reading on the matter. I have a general idea of how it works but a few of the minor details I am stuck on, they are:
Once I make contract and have motivated seller sign it, do I take it to a title company?
Once I find a buyer and re-assign my contract to the new buyer, do I take the re-assignment contract to the title company?
If I make a contingency contract to buy from a motivated seller for $50,000(example price) and find a buyer willing to buy for $60,000(example price) how exactly do I go about collecting the $10,000 difference?
Thanks in advance,
Yes, you need to work closely with the title company. If you are wholesaling based on contract assignments, then all assignments need to go through the title company. Along with the assignment letter, you should submit an invoice for the $10,000 (example price) so that you can receive a check from the title company at closing.
Once you have a contract on the property which includes contingencies allowing you to get out if you need to, you then take the contract and your earnest money and open escrow. Make sure your contract does not include a "Non Assignment Clause" and if it does you can cross it out and you and your seller initial beside it. Then you can write "Novice to Real Estate and / or Assigns" to assure you have an assignment right.
Now you have two choices to wholesale the property, either an assignment or transactional funding.
An assignment is your buyer assuming your position by signing an assignment form which you fill out and then you normally ask for a minimum of your earnest money upfront, but many of my wholesale buyers pay me half to all their assignment fee upfront.
Don’t charge more than 6 percent for an assignment as statistical research shows a buyer will pass above this threshhold and go to another property as the assignment fee is not able to be included on the HUD 1 and the buyer can not borrow 80 percent of the assignment fee. You usually want to take your assignment buyer into the escrow company and introduce him / her to the closing officer and have the assignment form signed in the presence of the title / escrow company.
You will collect the balance of your unpaid assignment fee’s at close of escrow and you want to ask your escrow agent whether you will need to submit an invoice for the unpaid fee’s or whether they will collect funds against your assignment form without further submittal of paper work.
You always want to make sure any buyer is qualified and either has a mortgage approval for conventional, FHA or VA loans or has a hard money / private money lender approval they can present to you with the contract.
Transactional funding allows you to collect any amount over 6 percent as you are borrowing short term usually 24 hours the entire cost of the property and closing to you in the afternoon and then closing to your buyer the following morning. The cost for transactional funding is usually about 1 percent with a minimum around $800 dollars. In the case of transactional funding you write an entirely new contract with the buyer with you as seller and you collect a earnest money deposit and open a second escrow at the title / escrow company your purchase contract is opened at, then explain to your closing officer your first contract is tied to your second sale contract.
I would say that flipping a home can be risky. You’re incurring a large amount of debt for a potential payoff in the future. Sometimes, that payoff doesn’t materialize. You could be sitting on a property for longer than expected, paying a mortgage, property taxes, and continual upkeep. Sometimes, you will need to sell a home for less than you bought it for. So the ultimate goal of any house flipping project is to make money. You should always have an idea or how much money you want to make on your house flipping project. Flipping properties was a big pattern for a while there, until the housing industry crashed. However, the number of people doing it has begun to boost.
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Mitch, there is a difference between wholesaling properties and flipping properties. When a buyer wholesales a property, there is a double closing. If you are the buyer, then you “buy” the property and them immediately resell it to your buyer moments after you close. Often it is the end buyer’s money that is paid to the original seller. The difference is kept by the wholesaler. Once you have an end buyer and a title company willing to handle the transaction - there is little risk here.
Flipping properties on the other hand is when an investor actual buys a property, usually fixes it up and sells it for a profit. There is some time that passes in these transactions. There is risk. An investor must be able to handle the holding costs while he waits to sell. This can be offset through renting if a long holding period is anticipated.