I have a few questions regarding the “assignment” method of wholesaling:
LeGrand states that we should never take title to a property in our names - If I am assigning my contract to my buyer will the title ever actually be in my name? Can I use a land trust in this transaction?
What exactly will happen at the closing? Would someone please describe step-by-step their experience with a closing where they assigned a contract to the buyer? Will Seller and Buyer be present? Will my Seller know what I am selling the house for? Will the Buyer know the price I negotiated for the house? Just curious mostly. I wanted to be as prepared as I can be before jumping in the water!!!
Any and all information/assistance will be greatly appreciated.
Example of an assignment:
John wants to sell a house. Snookie wants to buy a house. They sign a purchase contract where John agrees to sell the house to Snookie and/or assigns for $80K. They agree to close the property March 30th, 2005.
Snookie finds another buyer, Bob, that is willing to pay $85K for the property, so they sign an assignment contract which states that Bob is assuming the position of buyer from Snookie and in return, is paying Snookie $5k. Bob will do the final closing with John and Bob will get the deed in his name (or whatever name he chooses).
Sorry for the childrens’ book example. But, while it is a bit simplified, that is the basic way an assignment goes.
So to answer your questions directly. No, your name will not appear on title if you do an assignment of contract.
Question two is a bit more complicated. The closing process can vary, sometimes, greatly, depending on what state your in.
Will the buyer and seller be present? That depends. I’d say the majority of the time, both the buyer and seller will be at the closing. However, the seller can usually sign their necessary paperwork ahead of time (sometimes days in advance) and therefore, will not need to be at the actual closing.
Will the Seller know what I am selling the house for? Will the Buyer know the price I negotiated for the house?
Well, first, you would only be “selling” your position in the contract, that of the buyer. So you’re really not selling the house. I know, a technical point, but one needs to be clear here. The buyer is going to know how much you have the house under contract for because they are buying your position in that contract. The seller, however, may or may not know how much you are making on selling that position. If you collect your money upfront (recommended), that is, when you sell your position, then it is highly unlikely that the seller will have any way of knowing what the end buyer paid you. However, many times, for a number of reasons, the assignment must be paid at closing. If this is the case, then there will be a line on the HUD-1 statement showing that amount.
I know Roger has his hands full right now dealing with multiple properties he is rehabbing, so I will answer your question for him.
-You should ALWAYS try to collect your fee before closing. Once you get established, you will have people begging for you to sell your wholesale properties to you at the time of ‘assignment’, so you can demand it.
-Yes, your fee will show up on the HUD-1 as an ‘assignment fee’. However, I have had problems with this when dealing with conventional lenders and they would not allow it. I have found though that hard-money lenders and private lenders do not have a problem with it.
-You can get paid however you wish, your name, LLC, Trust, whatever you desire…
One last note, if you are ‘wholesaling’ properties for $20k - $50k which you will, you can collect some money on the front end and then put a 2nd Trust Deed on the property and get paid when they sell the property! This works great.
I have a couple questions regarding assignments from you vets out there.
I have a good real estate agent who can find me some good properties, but do agents generally allow you to assign a contract???
Do the real estate agencies selling bank owned properties allow you to assign them?
What’s better. Get a property, and assign it to your wholesaler and he or she pays you right then, or do you do a double close, where you buy property for say, 80K and sell it to wholesaler for $90K at closing. Then, what happens if your person backs out at closing, am I liable to buy property and have that financing all prearragned just in case???
You don’t want to go around telling all the agents that you are a ‘wholesaler’ as they will not want to work with you. I would recommend you get the offer accepted, contract signed, open escrow as an ‘assignment’. You can tell your agent you may be closing in your partners name. You can also put on the contract “Vesting to be determined at closing”.
Bank REO’s are a different ball-game. They typically will not let you ‘assign’. However, you can use a Land Trust to get this accomplished. Or, you can close in your own name with a hard-money lender or private lender, grant deed, collect your fee and have them assume the financing in place as long as they have decent credit. Hard-money lenders are pretty flexible about letting people take over loans as long as they have decent credit as they are loaning on the property.
In terms of them backing out at closing, this is why you collect at least 50% of your fee upfront. If they back out, they lose it! As you get better ‘wholesaling’ you can demand all of your fee at time of ‘assignment’. I would recommend you take Steve Cooks course on ‘wholesaling’ you can but it right on this site…
Once you become an experienced wholesaler, then you will have buyers lined up wanting to buy your properties. Especially when you have 100% financing on the properties like I do. I have repeat customers and only work with serious investors. I have a relationship built with these investors so getting paid up front is not an issue. If for some reason there is a glitch with the title or something, they know they can come to my office and I will refund their money.
In your situation, I would get at least 50% upfront. I would also try to get some hard-money lenders lined up for your deals and pass the financing on to your ‘wholesale’ buyers. You can even arrange to make a point or two as a referral fee! Even private lenders will work…
So get out there and tie-up some deals! Try to work with only people who can perform and close. Not look-ie-loos!
If I could just ask a follow-up to some of the previous remarks - should there always be two separate contracts (original with seller and 2nd with the seller you’re assigning to) - OR - could an addendum simply be added to the first?
Also - When you’re first starting out, do you recommend (until you know what you’re doing more) taking along a contractor for estimates when you first go to the property. then finding a mortgage broker for advice on selling price (to help you run your numbers)?
Sorry if this question has been asked/answered before, but I just found this site and I’m just starting out at this!
I recommend you take Ron Legrand’s wholesale/retail course. I would buy it used on E-bay. I would also take Robyn Thompson’s Rehab course live. The information you will learn will save you a ton!
I would only have one contract… The open escrow and ‘assign’.
It this business you can make a lot of money, but you need to educate yourself. This site has some great courses on it… I would also recommend you buy John Cash Lockes course on this site…
Just want to thank you for your comments. Although I have rehabbed a home, taken several of the courses, including Ron LeGrands and a few others, your comments about assignments are invaluable.
I just found out last week that I’ve been furloughed due to budget cutbacks so I’ll have to do some assignments just to keep the money coming in! Thank you!
I second that Jeff! Thanks for the support and answering questions!
I was working with people before and did pretty good I know you can make mega $$$ doing this what I was missing and still am a bit is a couple bits of the puzzle! (Or I think so) just my nature :>)
But its coming together!
I am having a wicked time finding a lawyer here in ILL that knows creative REI other then that, things are getting in place
in the next 2 weeks will have a good buyers list with 2 being heavy hitters, looking into HML so I can steer buyers that way.(Do you ever ask for a little fluff from your HML since you are sending your buyers their way?)
Have no problem locating motivated sellers and talking face to face with them, since I was there a while back myself!(divorce for me)!!
But it is a bit scary when you don’t have someone else working with you and being at a closing ,opening up Assignment escrow(Which is another question difference I can figure out, but do I have to explain to the Title company what I am doing) ect ect but I know I cashed a check for 30,000 9/4/2004 and had about 15-20 hours into it!!
Let some one tell me they can do that working a job!:>)
The people I worked with on the 9/04 deal also received 30,000 50/50 split
But they don’t seem to want to market anymore and or to busy doing non related REI,
So yes its a bit unchattered waters for me but I know I want to do this the rest of my life…
Thought I would just tell you my feelings for the real newbies to stay the course and yes it is scary, but with the advice we are getting here the bumps in the road may not be that bad!!( I hope and pray!! :>)
I simply wanted to ask a few clarifying questions, and after reading your comments (and reading other questions/answers on this discussion board), it’s helped out quite a bit!
I’ve attended the Rice Brothers’ “Cash Flow Generator” 3 day seminar (a la Russ Whitney group) and found the info useful but the boot camp prices are just a tad out of my league … hence, my interest in assignments as a way to develop capital now and build slowly. I’ve heard of Robyn Thompson and will check her materials out as well as Ron Legrand. I’ve seen his stuff on eBay before, good idea to look there.
This is a terrific web site, and it seems from what I’ve read so far that everyone wants to genuinely help others - I hope to be able to do the ame when I get some “seasoning” under my own belt!
The courses on this site are priced right. For example the courses by John Cash Locke and Steve Cook are excellent resources and you dont have to pay thousands! It is actually better information than you would pay 1000’s for at some of the bootcamps out there…
I would also recommend anything by Ron Legrand that you can get your hands on… Network with other investors, join your local REI Club.