Assigning a contract - questions

General Real Estate Investing
1

:help :banghead :help :banghead:help :help :help :help

Hi,

I’m a new investor in MD and I’m sending offer letters to prospective “vacant and abandon” property owners in my area. My questions are as follows:

  1. I’m unable to locate the owner of record for several vacant properties. What resources are available to locate an absent owner?

  2. What is the average earnest deposit amount for the wholesale buyer to provide? For example I have a contract for purchase for $125,000. I’m asking for a $5,000 earnest deposit and $120,000 due at closing. My assignment fee is $25K. The ARV is between $225,000-$286,000. The repairs are:(removing the carpet in all four bedrooms to expose the hardwood floors, painting throughout, upgrading the kitchen and 2 bathrooms, installing new fixtures, installing ceramic title in the sun porch, installing new appliances i.e., stove, washer, dryer. (The stove and refrigerator are still in good condition). How would I setup this to request I get $5K as well as my assignment fee of 25K?
    Details:
    Number of Bed/Bath: 4/2
    Home square footage: 1,120
    The comps in the area are: $255K-$380K
    Style of home: Rambler

  3. Do I need a notice of agreement along with an executed contract when selling to a wholesale buyer? Does or will that benefit me? Who do I send or submit the notice of agreement to? Is it filed at the county office?

  4. Is there a way to acquire / purchase a property if your unable to locate the owner of record and or next of kin? Is it possible to go to the county to find out or does anyone know what options are available?

  5. What other language or contingencies can be included in the contract if I’m unable to get a wholesale buyer to buy in time? In the contingency section I have the following: This contract is contingent upon all partners approval and due diligence. Listed below is my sales contract to include: (Can a wholesaler in MD review the below contract and provide feedback)? The below contract is for the seller ie owner of record

Standard Purchase and Sale Agreement
AGREEMENT dated this (XX)th day of May , 2013 by and between:
(XXX) hereinafter “Seller” and

SHELBY TOWNSEND____________________ hereinafter “Buyer” (or and/or assigns/nominees)

  1. The Property. The parties hereby agree that Seller will sell and Buyer will buy the following property, located in and situated in the County of Prince George’s, State of Maryland, to wit:
    Known by street and address as: (XXX)

The sale shall also include all personal property and fixtures, except
Unless specifically excluded, all other items will be included, whether or not affixed to the property or structures. Seller expressly warrants that property, improvements, building or structures, the appliances, roof, plumbing, heating and/or ventilation systems are in good and working order. This clause shall survive closing of title.
2. Purchase Price. The total purchase price to be paid by Buyer will be $125,000 payable as follows:
 Non refundable earnest money deposit (see below) __________________ $5,000.00
 Balance due at closing ------------------------------ $120,000.00
3. Earnest Money. Agent of buyer’s choice shall hold the buyer’s earnest money in escrow. Upon default of this agreement, seller shall retain earnest money as his sole remedy without further recourse between the parties.

  1. Mortgage or Third Party Financing. It is agreed that buyer may require a new mortgage loan to finance this purchase. The application for this loan will be made with a lender acceptable to Buyer, and unless a mortgage loan acceptable to buyer is approved without contingencies other than those specified in this contract within 15 (fifteen) days from the date of acceptance of this contract, buyer shall have the right to terminate this contract. Buyer shall return any surveys and copies of leases received from seller. Seller acknowledges that there may be a new institutional mortgage being placed on the property and closing may be extended a reasonable amount of time to accommodate the mortgage financing process.

  2. Closing. Closing will held be on or about (XXX), 2013, at a time and place designated by buyer. Buyer shall choose the escrow, title and/or closing agent. Seller agrees to convey clear title by a general warranty deed, free of any liens, judgments or any other encumbrances. Taxes will be prorated at closing.

At closing, Buyer shall pay the following costs in transferring & recordation of title: The buyer shall pay 100% title fees.
At closing, Seller shall pay the following costs in transferring & recordation of title: The seller shall pay $0 title fees.
Seller agrees to provide possession of the property free of all debris and in “broom clean” condition at closing. Buyer reserves the right to do a final “walk through” the day of closing.

  1. Execution in Counterparts. This agreement may be executed in counterparts and by facsimile signatures. This agreement shall become effective as of the date of the last signature. The seller may mail their signed contract to the buyers address.

  2. Inspection. This agreement is subject to the final inspection and approval in writing on or before (XX), 2013.

  3. Access. Buyer shall be entitled a key and be entitled to access to show partners, lenders, inspectors and/or contractors prior to closing. Buyer may place an appropriate sign on the property prior to closing for prospective tenants and/or assigns.

9.Assignable. This sales agreement is assignable.

  1. As-Is. This property is being sold As-Is with no repairs or warranties provided.

  2. Cancellation. Buyer or Seller have the right to cancel this contract at any time without penalty or recourse.

  3. Contingency. This contract is contingent upon all Partner(s) approval and due diligence.
    Owner of Record Full Name (print) Seller Signature Date
    Owner of Record Full Name (print) Seller Signature Date
    Buyer Signature Buyer Signature Date
    Buyer Signature Buyer Signature

Questions Continued:
5. I’m new so how do I find wholesale investors interested in purchasing the properties I locate for an assignment fee? Are there resources, lists or websites you can refer me to that have investors looking for properties?

  1. Does anyone have access for websites that calculate and estimate property value besides trulia, realtor.com, & zillow?

  2. Also can anyone tell me what formulas you use to determine if a property could be assignable?

  3. Does anyone work with clients up-side-down? How could I work around high mortgage payments? I was thinking about doing a subject 2 but the payments are higher than the average rents. The mortgage payments are $2200 and the rents are between $1200-1500

  4. How do you check proof of funds? What are you asking the wholesale buyer to provide or submit and how do I confirm that its accurate and their just not kicking tires?

  5. When dealing with a wholesale buyer how would they know they need to close with all cash or hard money? Is this indicated in the sales contract?-Does anyone have a universal contract for MD you could share with me that has that language? My contract doesn’t say how they should purchase the property from me?

  6. Also, does your universal contract state the wholesale buyer needs to pay all closing costs which includes: closing costs, fees, taxes and redecoration, assignment fees, liens and encumbrances? - how should this be written?

  7. Do you know of any online resource that have “vacant and abandon” owner of records “email addresses”?

  8. How would I do an assignment of contract when dealing with a bank owned property? I understand banks don’t allow this so how is it done? I have several pre-list opportunities that aren’t on the market yet and I want to secure these properties before there listed ie get an executed contract. Does anyone know how to do this? My thought was to partner with the wholesale investor buyer then sell my interest at closing - can someone elaborate on how this works and how to advertise and or get a wholesale buyer to partner with me ASAP?

  9. I have access to (22+ acres of land) and there are 11 properties located on them of which the owner wants to sell. The properties are near an up and coming mix-use development in my neighborhood. I want to partner with an investor that is familiar with doing assignments to commercial developers. I need assistance with my exit strategy i.e., how to set this up and what I should do… I was told the owners are willing to sell cheaply. Can anyone share some knowledge & resources etc?

I’m sorry I left such a long message. As I mentioned I’m new to the process…I just saw this site a few days ago and its full of information which I desperately need but I had more questions!!! I need some help pulling everything together and would very appreciate someone that can email me your professional answers, thoughts and suggestions as to how I need to maneuver per the 14 questions above. :help :help :help :help :help I’ll check this site tomorrow to see if anyone answered. I hope so. :help

2

Hi,

I just took the next two days off work to answer these questions!

Welcome to REI Club!

First of all there are many resources on the net to track down and trace absentee property owners!

There are only 3 ways to handle wholesale property purchases:

  1. Buy for cash yourself and then market to sell wholesale to another investor or an end user owner occupied buyer.
  2. Create a purchase contract and then assign your contract to another investor or end user owner occupied buyer.
  3. Create a purchase contract and use transactional funding to close to you, then create a second contract to sell your interests to another investor or end user owner occupied buyer.

These are the only three ways to create a recorded sale agreement.

Obviously buying for all cash and holding inventory you make available to buyers does not seem to fit your current plan.
Now when you make a purchase agreement and then assign the contract historical analytical data tells us that a 7% assignment fee is the largest margin (profit) you can charge without the buyer walking away as your buyer can not borrow your purchase price plus his assignment fee as the assignment fee can not be included in the HUD1 and therefore the buyer can not borrow say 80% of the assignment fee. The assignment fee has to be paid entirely out of pocket.

Now an investor can choose to pay anything he chooses and can borrow hard money to close his purchase, however you need to do some research as $30k profit on a $95k purchase price will probable drive your potential buyers away because this is a huge percentage of profit in a wholesale deal and is really big at 31.6% profit. You need to make a profit but you don’t want to get greedy and make the price so high it’s insulting and believe me reputation is everything, make one wrong move or mistake and it will be all over the investor community.

Do you even have a good reliable estimate of what it would cost your buyer to go through and remodel / rehab the house and how long it will probable take? Keep in mind the investor will want to buy this for 30% below FMV minus (-) construction / rehab costs and carrying / overhead cost’s. Since you want $125k this tells me you factually know this home only requires $40k worth of rehab done in about 4 to 6 weeks because you only left $50k available for cost’s as 70% LTV is $178k and the buyers closing costs are roughly $3k.

Now FMV is only one value, it is not $255k to $380k as the home in great condition for the amenities, square footage, finishes, lot size, etc. is only one value! A brand new home is only one value! In order for a realtor to list a home for sale it must have one (1) value!

What is a “Notice of Agreement”? Every property you buy and sell goes through a reputable escrow / title company and must have title insurance as you do not want a problem to come back and bite you in the future and you do not want unknown liabilities hanging over your head! There are times as you become more experienced where bypassing title insurance for a short period can benefit you, for instance I have bought properties through my wholesalers where they are also the hard money lender and since they bought with title insurance we have wrapped their position during our rehab period and then escrow / title has transferred ownership with new title insurance to my owner occupied end buyer.

No, either the property becomes a tax sale or the county can’t help you, for one reason or another a lot of people own more than one home and just don’t visit or use it anymore and may have an attorney or trust making property tax payments and paying any other expenses, but the government can not help you unless they seized it for taxes and put it up for sale.

You only have 14 to 21 days to sell your wholesale property because in a 45 to 60 day escrow period the lender will need 30 to 40 days to approve and fund and escrow will need some period to get a title insurance commitment and prepare documents.
Your contingencies should be 1. Loan or funding (Rate & Points approval) suitable loan. 2. Termite / Pest Inspection. 3. Due Diligence for rehab estimating. 4. On approval of partner.

Comp’s, Comp’s, Comp’s, Comp’s, Comp’s. Using an online resource is fine for basic yes / no decisions to review further however for your peace of mind and to be correct you have to get a realtor on your team and use comparable market analysis data through the multiple listing service (MLS).

FMV = 100% - 30% - Rehab / overhead / carrying cost’s / purchase cost - your fee = purchase price!

You know it is much easier as a new investor to completely bypass upside down properties with high mortgage payments until you gain enough experience to know what your doing in that situation!

Proof of funds is bank letter of credit or a mortgage brokers approval letter or hard money lenders approval letter! You can call the issuing party and verify their ability to perform. (Don’t remove contingencies until your positive your end buyer has approved funds!)

Does it matter, cash, check, money order, bank transfer, gold, silver, oil, conventional loan, FHA, VA, Hard Money, Private Money or all in pennies it’s still all cash to you at close of escrow! Don’t limit yourself as it will reduce the number of potential buyers and make the process harder than it needs to be! You sell wholesale property and you don’t much care how they close. Now once you have enough cash to buy and own inventory and you own it then asking for cash or hard money at closing is reasonable.

You pay closing cost’s as buyer when you pay cash or use transactional funding to close. You pay seller closing cost’s when your the seller to an end buyer and using transactional funding. Your buyer pays all closing cost’s for the assigned contract when the buyer is the assignee.

If you can’t find the owner pass on it and go after easier properties as there are thousands and thousands and thousands and thousands and thousands and thousands and thousands and thousands and thousands out there!!!

You will need to use transactional funding to close bank to you! Then close you to your end buyer! The bank will not allow you to “And / Or Assigns” or add a partner not written on the contract!

I am sorry but land (11 Properties) is zoned according to the current use, if this is residential then probable no commercial developer will buy it as it is probable going to be in the counties existing master plan to remain in it’s current zoning. Since I am a developer I would much rather buy vacant land as to buy property with old buildings means dealing with lead based paint, asbestos, and sometimes old oil tanks and boilers. The cost’s for remediation can be huge!

Ok, Hi Ho, Hi Ho it’s back to work I go!

Good luck,

             GR
3

Hi,

Thanks GR for replying…I know I wrote a novel. I still have some questions can you PM me I have additional questions and I don’t want to write novel #2.

Thanks in advance.
Shelby

4

There are plenty of questons that could be answered by reading the thousands of articles and archives on this site and others… Read as much as possible and then ask…

Get focused… i can see you are trying to do everything without getting the basics first…