(MP) Need extra money here’s a real estate activity designed to get you extra without ever purchasing properties. If you’ve ever heard of “contract flips” or “wholesaling,” is what they’re talking about with making money in real estate without money. Sometimes people might talk about flipping, but they mean purchasing a house, a quick fix-up, and then selling it. This kind of flipping we will avoid here: financing, purchasing, fix-ups, work.
Listen, there’s nothing wrong with buying a property, fixing it up pretty and selling it. You’ve learned how to not waste money so, take the savings and make money in this kind of activity. However, I suggest until you’ve made enough money in the industry to do purchase flips, stick to lease options and the kind of flips discussed here.
What are Real Estate Contract Flips?
A contract can be assigned. That means if you are the buyer under a property contract to purchase and sell real property, you can assign your rights under the contract to a third-party. Assuming that the contract represents a good deal for the buyer, giving up your buyer rights means you are giving up something of value. For that you deserve to be compensated. Conversely, the assignee–the person to whom you assign these rights, gains some value too, –which must be paid for.
There is no set amount for the assignment fee. It can be considered more than a finder’s fee, since you not only find the property but you also negotiate a contract. It has a lot to do with the value of the property involved, and can range from $500 to $10,000 or more. This will become clearer as we look at what you actually do with a contract flip. Now let’s look at the roles of each player in the contract flip.
As a flipper: You gain control over the investor’s property at well below the going or retail rate through a contract he signs with you. In essence you act as both the principal and middleman, buying at one price, then reselling at a higher price and keeping the difference.
The good news is you need no kind of license to do contract flips. You’re not regulated by any government agency. You enjoy low overhead (work from home) and you only need a telephone with voicemail.
Roles involved in contract flips
Contract flips evolves through three different levels, depending on experience, ability and how much time and effort you put in. Let’s look at the different roles and pick the one you’re most comfortable with.
Most contract flippers start out this way: The finder seek out potential deals then sells the information to other investors. This is an excellent way to get started because you don’t need cash or a lot of knowledge or expertise. You just look for distressed properties for sale, gather necessary information, and then offer it to investors for a fee. The fee varies according to the price of the property and how much profit potential it shows. You easily earn $600 to $1,000 every time an investor uses your information to buy a deal.
The Dealer also locates properties for other investors, but takes the added step of signing a contract for purchase of the property. When you do this, you will have two options.
1. Chose on the property and turn it over for immediate sale.
2. Just sell the contract to another investor.
Whichever option you chose, you’re providing more than just information and because you control the property with a binding contract you’ll demand more money. Also, if you put up earnest money to secure the deal, you assume more risk than the Finder does. As a Dealer, you can flip as many deals as you can find. It’s not a matter of money; it’s a matter of finding deals. If you look on a full-time basis, you can make well over $25,000 a month ( believe me, I know), without ever repairing a property or dealing with a bad tenant. Even a part-timer can make $3,000 per month doing contract flips.
The Retailer (Investor)
The investor buys the property with the intention of immediate resale for profit. He or she is who buys properties that Finders and Dealers find. The Retailer fixes up the property to be sold for the fair market value (FMV). Of these three roles, the Retailer puts up the most money, bears the greatest risk and stands to make the largest profit on each deal. He or she is the one who needs to rehabilitate the property, offer it for sale and incur carrying costs on the purchase, repair and other expenses associated like taxes and utilities. Our friend Jason Van Steenwyck offers a fascinating look at and real estate contract assignment.
Next up: I’ll show you exactly how I use to do contract flip deals. Stay tuned.