One of the reasons I got out of REI back in 2007 was because I was running into problems with closing deals because my buyer’s lender (even hard money lender) wouldn’t pay the assignment fee on the HUD 1.
How are wholesaler’s collecting their fees for flipping the contract nowadays, if the lenders won’t close when there is an ‘assignment fee’ on the HUD1?
Here’s a couple of options:
Assuming this is not a bank REO:
(Or you open escrow, adding ‘et al’ to your name on the purchase agreement, and after the buyer pays you your assignment fee, you add/substitute him into the purchase agreement.)
Either of these can be done with single or double escrows.
I prefer to have the buyer pay me my non-refundable assignment fee, and then assign the purchase agreement to him, and let him open escrow and fund the earnest/binder deposit. This way, I get paid regardless if the buyer performs or not, and I don’t lose my deposits.
If the buyer doesn’t close, theoretically, you could find the seller another buyer, and make money twice off the same deal. Why not?
Of course there’s some due diligence issues here, and you need to build in some time for you and/or your buyer to inspect the property, and subsequently provide some cushion to fund the earnest/binder deposits.
Meantime, somebody has to fund the earnest/binder deposits to open escrow. I prefer my buyer to do that, so that if he doesn’t perform, he loses ‘his’ money, not mine.
Hope that helps.
Thanks so much. I used to wholesale to folks who were going with hard money and the lenders never had a problem with the assignment fees until 2006-2007 ish.
Suddenly, I had brokers and title telling me I couldn’t show it, and buyers generally didn’t have the ‘cash’ to pay the assignment fee directly to me, they were rolling it into their HM loan.
Having been out of the business since 2007, I’m feeling very, very disoriented right now. But I am determined to jump back in.
I can see you having a problem getting paid, if your fee comes on top of the sale price, instead of being part of it.
The sale price needs to include your assignment fee, and then you invoice the escrow company separately for your fee.
Meantime, you assignment fee should be treated like any other invoiced fee, such as a real estate commission, etc.
What am I missing?
Here’s what/how I did it…
I had the contract with the seller for $35K
I then used an “Assignment form” assigning the rights to that contract, to my buyer for say, $5K
My buyer was getting a hared money loan in the amount of $50,000.
The HUD1 showed:
$35,000 going to my seller
$5,000 assignment fee going to me
And any and all other costs (ie, loan proceeds to my buyer, escrow for repairs, closing costs, etc.)
Then suddenly, the hard money lenders didn’t want to ‘loan’ on that ‘assignment fee.’ (or into ‘loan proceeds’ either, but that’s a different conversation.)
Some of my assignment fees were as high as 1/3 of the gross proft margin on the deal, and my buyers didn’t pay $2,000- $5,000 to me ‘personally’ (cash out of their own pockets) for my assignment fee, because they didn’t have to. They could roll it right into their loan.
I’ve no idea how things work today. I’ve been out of the business for 7 years.
That’s a clearer picture.
Well… you weren’t the only wholesaler to have this problem in 2007.
HML’s all over the US were ‘suddenly’ changing the terms of their loans, including only funding 50% of the price.
It was a big risk to loan in 2007. In fact, it was a stupid risk in 2007.
2008 offered a dead cat bounce, where prices rebounded and then died again, and scared the crap out of everyone including buyers and lenders (except the sophisticated risk takers). It was a FANTASTIC and PROFITABLE time to buy in 2008. Very few recognized this. There was blood in the streets. And you know what is attracted by blood? Vampires.
2009 barely crawled. 2010 got better. 2011 was threatening another dead cat bounce. And then 2012 marked some serious appreciation against 2009 prices and especially 2008. And we’ve been seeing relatively solid, steady increases since, despite the massive interference by the government.
HML’s change their lending criteria about as often as we change our underwear. A loan commitment letter is as dependable and reliable as an ADHD victim operating a traffic control tower. You fly at your own risk.
So, you need to begin to build relationship with HML’s all over your farm area. You need to know who lends on what, for how much, for how long, and to whom. Then you match buyers with HMLs that you think will most likely close, while you control the process from beginning to end.
LMAO! That is the best description I’ve seen yet with regards to what happened to our industry over the past 7 years.
Yep, it does seem that what I need to do is to get out there.
When I first started investing (1999) I’d read all the guides and home study courses, etc, and read about ‘flipping’ and hard money, (70% of value they said back then… but it was more like 65% of ARV minus repairs and closing costs, by the time I actually figured stuff out.)
I tried to flip a few but never found any buyers.
Finally started going to the meetings, and got hooked up with a hard money broker who had the terms:
65% of ARV full loan amount… anything price amount less than the 65% of ARV, repairs, and closing costs was given to us as ‘loan proceeds’
No Doc - no credit check, no income verification.
Once I learned that those were the prices I needed to have for getting this hard money, it was easy to figure out that if I got the houses for less than that, that I could flip them to another investor for the difference between what I was getting it at, and how much they could fund with hard money.
Then in 2007 you needed credit scores, and skin in the game, and you couldn’t even flip because lenders wouldn’t roll those assignment fees into the buyers’ loans.
In 05 I got pregnant and it was a realllllly tough pregnancy (high risk) and I was on total bed rest for 7 months. Not being able to work I depleted my own cash reserves, and even with great medical coverage, between the ‘excessive’ costs and what wasn’t covered and deductibles, without having worked for 7 months when those bills came due, I couldn’t pay them and my credit got destroyed.
I figured ‘no big deal. My industry isn’t credit driven, I’ll just flip a few houses and make the money to pay them and restore then restore my credit.’
But it was not to be. It took about another year for both the baby and I to be healthy enough for me to get back to work, and by then…
The HML market started demanding credit scores and skin in the game.
And with no cash for marketing I couldn’t even market for the subject to’s and L/O’s.
Within months I lost everything. I didn’t have money to repair rentals that tenants had trashed, I didn’t have money to evict tenants that weren’t paying their rent, and even with 35% equity in them when I bought them, the values were tanking and the hard money lender pool was a barren desert. Especially when they would only lend 50% of the purchase price, with 40% down and only to 650 and better credit scores.
I remember thinking, “with those terms I can go conventional at 7%-8% instead of 15%!”
And that’s when I also found out that these lenders wouldn’t loan the buyer the ‘assignment fee’ either.
But I didn’t have the cash down or the credit score, or the money to market for the subject-to’s and the L/O’s, RTO’s, etc.
And just as it all came crashing down, to the point where I had NO money left at all, I found out I was pregnant with my second child.
I pretty much couldn’t do anything at all anymore and I just abandoned the entire business.
Of course, the 8 years I spent being ‘self-employed’ made me ‘unemployable’ at a time when there were no ‘jobs’ anyway… so I did online freelance work to support my family.
But I am ‘pulled’ by real estate investing. I was good at it, I liked it, and I loved the big fat checks. My husband has been gently pushing me to go back to it because he thinks I will be ‘happy’ if I do because I’ll be back in ‘my element.’
That’s why I’m trying to get some information to have at least some knowledge before I go out there writing up offers and contracts.
I’m planning to go to the SREIA general meeting Tuesday night, and hopefully get some more info there.
Thanks for all the advice. I think you’re right. The only way I’m going to find the current state of affairs in the business is to get out there and netowrk with the people who are in the business.
Vanessa