Hello I am new to Rei. I have been studying up on rei and learning the ropes. I have come across what I believe is a good deal from my anylisis. This is my first deal. What my question is. I have pictures of the property and an estimate from a contractor the cost break down of the rehab work. The guy that sent me the pictures and the estimate also sent me an Assignment of Contract If I liked the place and want to buy it. I do not really understand the meaning of assignment of contract. Is there anyone out there that can help me with understanding this? I want to purchase it. I do not have any money and my mid score is a 548 as of first of July. I just don’t know what the next step for me to purchase this house. I want to buy and flip or hold it for cashflow. Here is a little about the house.
SFR
Amount of Repairs:
$11,986.00 of repairs
Properties ARV:
$42,500-$76,850
Facts:
Recently sold houses in the area are between $50,000-$80,000
Rents can go for $800 a month
Home values rise annually 5.5%. Due to the job growth, there is a
strong demand for homes.
How much does he want for his contract? Usually you sign to take over a deal he has already negotiated, and pay a fee to take it over.
For instance: his contract with the seller is 16k, and you pay him 5k to buy it. Your cost is 21k and after your 11k est. repair you have 32k in the project. After looking at the home and doing your own extimate of repairs and pulling some comps to have a better idea of you ARV you will know if the deal is for you.
Thanks for your response SeraJinn, I am asking him now how much he wants for the contract. He did not tell me the price in the email. I understand now you made it simple for me to understand I needed that. Is it common to sell the contract for 5k or can it be negotiated for a lower price?
There really is no standard fee. It all depends on the price range of the homes you’re dealing with. In my area where homes start at 350K, an assignment fee can be upwards of 15K, 20K, or more. In lower price range areas the fee can be 5K or less it really just depends on the deal and how much profit is left over for the rehabber. And remember, in real estate, everything is negotiable.
The person that is assigning the contract to you is most likely wholesaling you this deal. There are many, many articles available for free on this forum and others where you can educate yourself on this technique and the basics of it.
That being said you really need to to get a better idea of what your comps are. The range you gave is way to wide to allow you to make an informed decision on whether this is a deal or not. If the house comps at the mid to high end of your range and your repair estimate is correct you may have a deal here. If the house comps at the low end, you may want to be a little more cautious, there isn’t much room when you factor in all of the costs involved (holding costs, closing costs, commisions, the list goes on and on). Especially considering the current state of the housing market. With that tight of a spread any extended holding costs will eat you alive.
Have you ever done a rehab? Or do you have construction experience? You may want to try wholesaling a few deals before jumping into a rehab. Wholesaling is a much less risky proposition and you can learn from the investors that buy your deals. I am not trying to rain on your parade, I would just hate to see you get in over your head on your first deal. If you already know all of this I apologize.
In this market, being cautious and buying right is extremely important. Good luck and I wish you well.
Thanks for your input. No this is my first deal I have never did rehab or construction. I am looking for guidance. I do want to do what is best for me. Wholesaleing would be more favorable I believe because I am miles away from property.
The property is 10k and he is asking 6k for the contract. And the rehab cost is going to be 11k to low 12k . This would be around 27k into the project.