How to Use Real Estate Assignment Contracts for Investing
Real estate assignment contracts can lead to easy money
Visualize a real estate purchase contract with just a few extra words added to your name as the buyer. It would look something like this:
"Buyer: John J. Doe, and/or assigns."
That's it. You've provided for a real estate assignment contract. It seems simple, and it is, and it opens up many opportunities for profits in real estate investing.
Who or What Is an 'Assign'?
Your "assigns" would be anyone to whom you want to pass your purchase rights. Maybe you've effectively locked up a property with a purchase contract. You can now go ahead and buy it, flip it, rehab and rent it, or apply any other strategy that's legal.
Or you can also pass it along to someone else for profit, never actually buying it yourself. This is an assignment contract.
Control is all in your court at the beginning; you don't have to turn the deal over to anyone else if you decide not to, or until such time as it best suits you financially if you decide to go ahead with the assignment. The downside is that if you can't find anyone to take over the contract and that was your intention, you'll be legally obligated to consummate the sale yourself.
What an Assignment Conveys
You're not just passing your purchase rights along. You're also passing your obligations in the contract. This means that you're no longer involved in the transaction at all after the assignment takes place.
You don't have any right to make claims against the seller if there are problems with the deal moving forward, however. The person or company to whom you've assigned the deal to is now responsible for taking the deal through to closing.
Of course, this assumes that you've actually assigned the contract to another party. Until that time, you're on the hook. The contract is a legal document, governed by individual state laws, so the seller might have various means of recourse if you don't assign the contract and you don't follow through and close on the property.
You probably won't be receiving your fee or profit until closing, so you might be understandably nervous as you wait for the deal to close.
A Note About State Laws
A few states won't let you transfer liability in this way, so you might want to check with an attorney in your area to make sure you understand the laws in your jurisdiction before you jump in with both feet.
HUD homes and real estate owned properties or foreclosures generally aren't open to assignment in any state.
Profiting by Referring It Along
The simplest way to profit in this situation is to locate one or more buyers in your buyer database, show them the value in the deal, and take a referral or "bird-dog" fee for bringing it to them.
Bird-dogging doesn't involve getting technically involved in the deal at all. It's more or less an arrangement where you locate the property, then say, "Here you go, Investor," and the investor takes it from there, personally entering into a purchase contract with the seller—in exchange for a fee to you, of course.
You'll then assign your rights to the deal, and they'll go forward to closing.
They'll pay you your fee at or after closing. You could profit handsomely, even though all you had at risk was whatever earnest money deposit was required. And that risk is pretty low if you know who your buyers are likely to be before you contract the property, assuming the value is there.
Building a Buyer List
You'll also begin to build and maintain an active investor buyer list for your customer pool. This is critical because you really want to be sure you have a ready buyer or two for a home before you commit that earnest money. You should be covered pretty well if you do a good job of building your list.
The list should include both fix-and-flip and rental property investors who have an interest in buying depending on the condition of the property.
Rental investors normally want a house ready for occupancy, or at least with only cosmetic or minor repairs necessary.
Back-to-Back Closings for a Flip Sale
You can also take on the purchase personally and immediately selling it to another investor or a retail buyer. You might want to take this approach because your profits would be more significant.
Unfortunately, you can no longer use the funds from one deal to close on another in simultaneous closings since the mortgage crisis in 2007. Lenders just won't allow it. But you can explore resources for short-term funding, such as a relative, your own cash, or a hard money lender.
You only need the money long enough to close the purchase and resell. This might be hours, but it should never be more than a day or two.
A Great Real Estate Investment Strategy
Ideally, you've perfected your techniques and you can locate really great deep discount real estate deals with others. There are many ways to get to a good deal early, and your value to your buyer-customer is that you've got the property in your control. They'll only get it if you pass it along.
You can make this work well for you by honing two tasks: First, have a really good buyer database with information about what each is looking for, and second, learn and put into play various strategies for locating great property deals before they become general knowledge.
Using real estate assignment contracts can be your ticket to real estate investing profits with little of your own money at risk if you get these two things in line and operating for you.