Advantages to Assigning Real Estate Contracts
Assigning real estate contracts is a strategy that does not require much capital and can be a great way for somebody who is just starting out to get involved in real estate. The assignment fee can generate anywhere from $ 1,000 to $ 10,000 or more, depending on the price of the property, so it is a useful tool for generating capital. Additionally, assigning contracts is a short process and although it requires time to be invested up front, it is possible to assign multiple contracts per week.
This strategy would work for a range of people, from fulltime jobs to unemployed, because the time required will vary with the number of contracts that are assigned. For investors with fulltime jobs, it is possible to network at work and research the properties during the weekends. For the unemployed, networking can involve joining community activities and setting up lunch dates, and there is plenty to research during the week. Research involves scouting out the properties and can consist of driving by neighborhoods looking for signs that indicate the house is for sale, looking at the MLS online, or actively posting notifications in newspapers or on the street that advertise you buy houses. However, before you know what properties to hone in on, you need to know what the buyers are looking for. This is where the networking skills come into play—find your buyers in real estate meetings, community gatherings, real estate magazines, or any other creative avenue where you believe you can find active buyers. Discuss what they are looking for, and then go out and find it!
Assigning contracts is not as labor or capital intensive as rehabbing properties, since no physical work is required. Additionally, the person who secures the contract never buys the property, so there is no need for him/her to have enough funds to cover the property in question. The contract assigner does not close either, leaving the closing to the buyer, which further simplifies the process. The one thing you want to be careful about is that your buyer is going to retail the house or rehab it and then sell it, not pass it on to another investor. Passing it on not only artificially jacks up the price, turning it into speculation, but it also runs the risk that the second investor may not close since the profit margins are smaller, resulting in your investor failing to close, which means you don’t get the assignment fee. You can make sure that your investor plans to sell to a homebuyer or rehab the property by asking and by prohibiting them from writing ‘and/or assigns’ next to their name.
Assigning contracts is a useful strategy for new real estate investors who are looking to get introduced to the field, as it builds confidence, expertise, and does not entail a large financial risk.
Jay A. Redding
JMJ Services, Inc.
Jay began his real estate investing career at the beginning of 2005. He has been a full time investor since 2007. His business focus and specialized knowledge is in rehabs, lease options, rentals, fix and flips, discounted turnkey cashflowing properties for passive investors, wholesale properties, self-directed IRA investing and basic asset protection. In addition, he is a managing member in two commercial projects. His expertise has been sought out as a consultant by independent clients throughout the Midwest as well as California and New York.
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