Real estate (MP) Let’s lay out exactly how real estate contract flipping works. In the first article, I explained the different roles involved in contract flips now I’ll show exactly how it’s done…. No B.S. So, let’s go right in. Here’s an example of how a typical contract flip might work. When we flip a real estate contract it involves transferring our interest in the contract (also known as assigning) to a third party or vice-versa. When you flip a contract, you are namely the assignor. The beneficiary of the terms of the contract is referred to as the assignee. The key is to negotiate a good deal with the seller so that you can get a profit when you bring in the buyer. Here’s an example of what I’m talking about…
How A Real Estate Contract Flip Works?
You’ve found a distressed property. It typically runs down and vacant. It doesn’t have a for sale sign in the yard. One thing that’s guaranteed here is that whatever you offer the owner is more than he’s currently getting now. You’ll do a little detective work (more on this later), you find the owner and negotiate a “risk-free” contract to buy the property. The price you negotiate will be better (i.e., lower) than 60% of the value the house will have after repairs are made. You offer a very low earnest money deposit ($10.00) to him. Depending on which state you live in, you offer earnest money because it constitutes a legal binding contract. Without earnest money, the owner is not legally bound to sell the property to you.
Now, it this case the owner wasn’t actively trying to sell the house, so a minimum earnest deposit offer should not create a dilemma. And since the house was just sitting there presenting no economic value to the owner, the price you offer can be low.
As soon as you get the signed purchase contract, you contact an investor that rehabs houses in the area and offer to sell the house for $3,000 more than your contract amount. That would still put it at around 60-65% of its value, which will be very attractive to the investor. To transfer your right to the property at the contract amount to the investor, you fill out one-page “Assignment of Contract” form and get $500 in earnest money (deposit). A few days later the transaction closes at a title company or an attorney’s office and you get a check for $3,000 plus you $10.00 earnest money.
Where To Begin Real Estate Contract Flipping?
First, you’ll want to know what to do with a house after you find it. If you find a property first then try to figure out what to do with it, you could end up with a nightmare. Certain preparations ensure a good and profitable experience with contract flips.
Before you even look for a property line up your real estate investment team:
1. Rehab investors or Retailers to buy your contract
2. A title company or an attorney to close the deal. Check out how it works in your state.
3. Most importantly a good contract or agreement, plus the Real Estate Contract Handbook (17.95) by Attorney Craig Buck will help you write and negotiate contracts.
How to find real estate investors?
Read newspapers ads. They usually advertise something like “We Buy Houses.”
Attend real estate auctions to meet investors. Foreclosures and tax sales take place in every county and don’t forget estate sales. Walk up to one and introduce yourself and tell him you find just like the ones sold at auction and ask if they would be interested in being contacted when you find something. Ask in what price ranges they buy in. Get business cards and certainly, ask for theirs. By building a good relationship with these investors you call from ads, investor clubs or at auction, you’ll develop a base of mentors that you can call anytime you need advice.
Keeps things organized. When you find a house make sure it’s in a place one your investors prefers. Find out and note in your file on investors –if they are cash buyers or do they need time to arrange to finance. Of course, you’ll contact cash buyers first.
Every county has title companies. Find one in your local paper or online or ask your investors which title company they use. How about starting your own title insurance company?
You need the right kind of document that will give you control over the property so that you are able to make money from it. A rule of real estate tells us that if it’s not in writing, it doesn’t exist. In the contract, you can record all the points that you and the seller have agreed to orally. The contract tells the seller you’re serious about buying their house and it provides written details for the title company. Your best bet is to consult with an attorney to have your contract written in your best interest.
Whichever way you decide, make sure to add a clause that protects your interests and allows you a way out of the contract.
Examples include: “Subject to approval of Buyer partner.”
If a real estate agent of seller barks, tell them, you have a partner and he wishes to remain anonymous. You won’t be lying either because your investors (one buying from you) are in a way partners and if they don’t want the property, well you get the point.
“This agreement is subject to Buyer’s approval of satisfactory building Inspection within 15 days.”
“This contract is contingent upon the buyer obtaining new financing of their Choice of $140,000 at 5.5% per annum over 30 years.” –This example you would use the number that pertains to your deal.
and “This contract may be assigned; in such event, the buyer named therein is Released of all further liability.
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