Assigning a Contract to a new buyer is the easiest way to make a quick profit on a house that you can get below value. But… the only problem is that everyone can see your profit at the closing table. Many sellers have backed out at closing once they see the money they could have made on their own. Never mind all of your hard work and diligence finding the property, finding the buyer, and negotiating the paper work!
One alternative that MAY work is to flip the property. The problem normally that comes to mind with this strategy is two fold: 1) You have to take title to the property (even if only for a second) so there are double transfer taxes to pay…, and 2) the new buyer may have trouble getting a loan because now you have a title seasoning problem.
IF and only IF you have enough profit to cover the spread, you can offer owner financing to your new buyer and then sell that seller financed mortgage at closing for the cash you need to 1) pay off your original buyer, and 2) to put a profit in your pocket. Remember all seller financed notes are purchased at a discount… so there must be enough profit to cover the spread.
Basically, it works like this. You put the property under Contract with the original seller. Let’s say for $80k. Now you put the property under Contract to sell it to the new buyer for $100k, assuming it really will appraise for this (very important). Now you have $20k as your spread.
Suppose your new buyer can put down $10,000 in cash at closing and has “okay” credit of 600ish. We structure the deal so that you “the seller” carry back at $85,000 first lien and a $5,000 second lien. Let’s say we purchase the first lien from you at closing for $77,000.
Now you have the $77,000 from us, the $10,000 from the down payment, for a total cash amount of $87,000 PLUS you have a $5,000 2nd lien to keep as an investment. The title company will take the $80k to close the transaction with your original seller. He will receive that amount, less any underlying payoffs and title fees.
You receive the difference: $7,000 in cash and a $5,000 2nd lien as an investment. The title company will take out the transfer taxes (usually 1-2%) depending upon what is stipulated in your respective Contracts. If you state the seller is to pay all of it on the first contract, and the new buyer is to pay all of it on the second contract, you can save yourself that fee. Be careful.
This is just one way to save a deal where an assignment might not work.
Hope this gets the creative juices flowing!
Warmly,
Michele Robbins, CPA
Note Funding Resources, LLC
http://www.notefunding.com
Office (410) 827-5788
Fax (410) 827-8294