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Real Estate Wholesaling Explained: How an Assignment of Contract Works - YouTube
Channel: REtipster
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when it comes to assigning contracts in
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real estate the concept can be a little
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tricky to grasp at first so I'm going to
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start by explaining how assignments were
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meant to be used and then I'm gonna give
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an example on how they can be used with
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an interesting loophole let's say you're
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a real estate investor who doesn't like
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to buy properties with basements one day
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you get a lead on an investment property
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from a seller who says the property was
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built on a slab foundation you both
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agree on doing a deal and enter into a
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purchase agreement but lo and behold
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during your due diligence you find out
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that the seller wasn't entirely honest
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with you
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and the property does indeed have a
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basement at this point you have two
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options
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you can back out of the deal and walk
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away or if you happen to know another
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investor who doesn't mind properties
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with basements and they like the deal
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you can assign your rights in the
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purchase agreement to this other
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investor for a fee now in order for this
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to work you need to make sure that the
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original purchase agreement has the
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proper legal jargon that gives you the
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ability to do this but as long as it's
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in there instead of walking away with
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nothing but a waste of your time you can
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actually walk away with a little money
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in your pocket the process looks like
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this you and the new investor would
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complete a brand new contract called an
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assignment agreement this agreement lays
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out the terms of how this new investor
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is replacing you as the buyer and that
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they're also paying you an assignment
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fee which compensates you for your
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trouble and allows them to buy their way
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into the purchase agreement to assume
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your position as the new purchaser when
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this is done correctly and the deal is
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closed you'll be able to walk away with
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some money in your pocket the seller is
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still able to sell their property and
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the new investor is able to get a great
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deal it's a true win-win for everyone
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involved this is how a signing contracts
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are meant to be used but here's a
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question wasn't it interesting how you
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were able to walk away with money in
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your pocket even though you never put
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any of your own money into the deal
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personally what if you use this concept
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just to find deals for n buyers think of
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how many more deals you could do if you
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weren't actually buying anything
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yourself and you didn't have to come up
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with any of the cash on your own this is
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where the loophole comes in some
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investors specifically real estate
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wholesalers commonly assign contracts
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with the full intent
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of assigning them to another buyer for a
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fee some wholesalers actually build
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their entire business model around doing
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these assignments here's an example
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let's say you get a property under
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contract for $50,000 you then find
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another investor who has the cash and
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wants to buy your position in the
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contract and so they pay you a $5,000
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assignment fee to take over the deal
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the buyers still getting a great deal on
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the property for fifty five thousand
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dollars all in the seller is still able
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to sell off their property and you get
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to walk away with $5,000 it's a pretty
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sweet deal right this business model is
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intriguing because if done correctly you
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can make thousands of dollars just by
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acting as the middleman and connecting
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motivated sellers with cash buyers with
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little to none of your own money
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involved in the transaction on paper
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this all sounds pretty great but we want
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to strongly suggest that you seek legal
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advice as to whether or not this
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strategy is actually legal some states
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have basically outlawed assigning
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contracts without the involvement of a
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licensed real estate agent the reason is
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when you enter into a purchase agreement
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without the actual intent to buy the
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property yourself the contract is
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somewhat misleading and in some
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jurisdictions the purchase agreement may
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effectively be null and void likewise if
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your primary business model is to do
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these types of assignments and you're
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not a licensed real estate agent it
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could be interpreted that you're acting
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as a real estate agent without a license
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understandably there are differing
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opinions on the legality and ethics
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behind this type of transaction but as
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you can imagine when it's done correctly
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and communicated clearly to all parties
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involved it can work to everyone's
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benefit in different markets around the
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country some local governing bodies are
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more strict with their laws than others
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and this is why it's in your best
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interest to consult with a local real
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estate attorney in your area just to
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ensure you understand what is and isn't
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allowed to make sure you're using the
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right documentation and that all parties
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involved
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are acting within the confines of the
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law we hope this explanation helps you
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understand the basics of how an
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assignment works in real estate
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again we're not lawyers and this video
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isn't intended to be legal advice so be
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sure to talk with a legal professional
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in your area before you dive into this
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strategy any further for more tips
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tricks tutorials and real-world guidance
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on how to crush it as a real estate
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Wester come and join us over at re tip
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sir dot-com
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