A Letter from Eric – Pricing the assignment of contract.

June 12, 2009

Hello sir.

I was wondering if you could give me a little bit of information referencing assigning contracts. Can you please let me know how to do this correctly. I think I get the gist of it I am just confused in one area. What if the seller talks to your investor about the original purchase price?  Next I wanted to know how you find your investors? And lastly how much should the whole transaction cost, and what is average profit? I notice that some say 1 to 3k but I have heard of 10-20k.

Best Regards

Eric

Hi Eric,

The basics on assigning a contract is that you are selling your position in a real estate deal for a sum of money. Setting that price really depends on how sweet the deal is and as they say in Economics class…” what the market will bear”

If you can put yourself if the position of the seller and it seems to be a great deal, then you should have no problem commanding a  premium for it.

As an example I have a blog post on a deal that one of my partners did where she got great terms on a property that had quite a bit of equity in it. The sweet part was that the seller was carrying back financing at zero interest.  In that instance, she was able to command $8500 for assigning the contract.

In essence, the better the deal is the more you should be able to get for it.

On your question as to what happens if the seller talks to the investor on the original sale price, I think you are getting at one of two things:

1) Can they go around me and make a deal without my help?

The answer to that is “no”, not while the property is under contract. However, they may try to wait you out, hoping that you won’t find an investor, or close on the property yourself. Once you fail to make deal, they can then go back to the original seller and do the deal themselves.

This is why you generate the buyers list first and have a ton of people that are ready and waiting for you to find them a house.

Or else you must mean

2) Won’t they be upset when they see how much money I am making off of them.

This is really a moot point as if you are assigning a contract, the buyer of the contract will certainly know what the original price is.  It also really doesn’t matter what you paid as long as the new buyer sees the value in the deal for themselves.

Now you may be talking about creating another contract to sell the property at a higher price, but this would ultimately involve two closings or a compressed closing,  the simplest and most straightforward way is to assign the existing contract you have with the seller to the investor/buyer and walk away. Let them worry about financing the deal, inspections and closing dates.  You just take the check and hand over your position in the deal you have created.

There is some legal jargon for a general assignment of contract found at: http://www.lectlaw.com/forms/f203.htm

Keep in mind that I am not an attorney and I recommend that you use one whenever possible. Getting connected with the right attorney will save you more money than they ever cost.

Wikipedia has a good section on assignment of contracts:

http://en.wikipedia.org/wiki/Assignment_(law)

As for finding deals….

I have a few posts under “finding deals” and “marketing” at the right, but the best one is probably the “finding deals on Craigslist” blog post  post  at:

Take care,

James

Advertisements

Land contracts – A letter from Peter

June 9, 2009

Dear James,

I read one of your articles on Biggerpockets about three ways to buy real estate.  You mention a ‘Land contact’.  I have never used one of these before.  Would you have a sample that you could send me without names and data so that I can see what they are like?  Thanks,  Peter

Hi Peter,

Land Contracts are a bit more popular in certain areas than others. They may also be called something different in other locations, such as “contract for deed”,  “installment sale”, or “trust deed”, etc.

It is essentially and agreement where the seller acts as the bank. The difference between this and simply holding a first mortgage is that the deed stays in the sellers name until a certain equity point has been reached by the buyer (often a complete payoff).

This arrangement gives the seller more protection and control than transferring the deed and just holding paper would.

The seller usually still has to foreclose on the land contract as the buyer does have a level of ownership/equity interest under the contract.

Here are a few sites with good information on Land contracts:

http://www.buyland.com/Land_Contract_Information.htm

http://www.freelegalforms.net/index.cfm?index=forms&filename=form15763.htm

http://www.wisegeek.com/what-is-a-land-contract.html

Take care,

James