Many investors are often puzzled at the simplicity of Assigning Contracts. I mean… All you’re doing is selling the initial contract that you have executed with a motivated seller, to a cash buyer.
But sometimes like in any other business, there are hurdles that investors may need to overcome. That’s why in today’s article, I want to give you an overall checklist of what you need to be doing when you are assigning your contracts to other real estate investors when you are wholesale investing.
So What Are The Steps That You Need to Take When You Are Assigning Contracts?
Let’s say you’ve found a motivated seller and have also found a cash buyer that is interested in moving forward on the property that you are looking to sell.
Let’s also say that you have given the seller an initial deposit of $500 to tie the contract up. Here’s what you need to focus on in order to get the contract assigned and closed:
1. The first thing that you need to do is use an Assignment of Contract Agreement and get the property assigned to your cash buyer.
2. Inside of the contract you want to make sure that the buyer understands that they will be paying you a “NET” profit not a “Gross” profit. (below is a sample of a generic Assignment Contract)
For example: If you are looking to make $10,000 on the deal, be sure to write $10,000 NET.
This means that you will walk away from the closing $10K richer.
3. You want to collect at least double the amount of money that you put down on the property. In this case your cash buyer will be putting a deposit down of at least $1000 since you’ve put down $500.
This will ensure that you have a true no money down deal. And if the buyer were to back out at the last minute, you will recoup your $500 deposit with the seller and make $500 back for your time.
This is why it’s so important for you to collect double the amount of your deposit with the seller from your buyer. Make sure your buyer has some “skin in the game.”
4. Once the buyer signs the contract and gives you the initial deposit you will want to give the buyer a copy of the contract as well as a copy of the initial contract that you have with the seller.
5. Once you have the deposit and the contracts signed, and you have gone ahead and given the copies to the buyer what you would need to do is contact the title company that you are dealing with in order to get the settlement set up.
FYI – You can also use an attorney to handle this, but it’s not necessary in most states. States like, North Carolina, New York, Delaware and others have to close real estate transactions with an attorney, so be sure to check with your local state laws.
Another way to handle your closing is by doing the deed transfer yourself down at the court house or through a notary. When you are doing things this way, your buyer should do their own due diligence to make sure that the title is clear. They can do this at the court house.
Then all you have to do is have the buyer pay you the funds necessary to close the transaction as well as your assignment fee and then have the seller sign the deed over to the cash buyer.
Disclaimer: I’ve only closed a handful of deals this way. Most of the time, this method isn’t being used.
The easiest way to approach assigning contracts when you’re a beginner is by simply using the title companies or attorneys depending on what area you live in.
6. If you decide to go with an attorney or a title company (which you should), then the next thing you would have to do is let them know what the numbers are (i.e. how much you have paid for the property and how much you have sold it for), you also want to give them a copy of the contracts and let them know what you NET profit amount is.
7. The title company will handle the closing from that point out.
8. On the closing date be sure to show up and collect your check as well as a copy of the settlement sheet (HUD-1).
That’s it! As you can see assigning contracts is really easy to do. Once you have a deal and you are ready to assign the deal to a cash buyer, be sure to use the tips in this post to guide you through the transaction.