No worries, I’ll explain…
I’ve been in the REI business for quite a while now, and without a doubt, the two methods I use most often to close wholesale deals are the “Assignment” and the “Double Close” methods.
Both of these approaches can help you close a transaction and get paid, and both have advantages and disadvantages.
Look, as a newbie real estate investor or someone who’s been in the game, these are two proven methods that work and you need to know how to use them.
Let’s jump in!
The Assignment Method
What It Is: In this method, you’ll simply “assign” your role in the distressed seller’s contract over to your cash buyer. Here’s the trick: because you’re a principal in the transaction, you do not need a Realtor’s license to wholesale properties this way, so you are allowed to charge an “assignment fee” (which is similar to the commission that a real estate agent would earn). And boom! Money in your pocket; deal is done.
- This method is as easy as 1, 2, 3!
- Find a cash buyer.
- Fill-out a one-page assignment form that “assigns” your rights in the original contract over to your cash buyer.
- Collect your “assignment fee” when the deal closes.
- This method is cheap, requiring only one set of closing costs (paid by your cash buyer).
- Privacy goes out the window. Due to the requirement of the assignment contract, all players involved will see how much money you’re making on the deal. It can get a little dicey if you’re profiting a large amount. Why? Well, because you’re basically making bank for doing nothing and not taking any risk. I’d suggest you do what I do regarding this method… only use the Assignment method if you’re making $10,000 or less in profit.
The Double Close Method
What It Is: It’s really two transactions, commonly referred to as the “A-B & B-C” strategy. A is the distressed seller, B is you, and C is your cash buyer. In the A-B transaction, you buy the property from the distressed seller. In the secondary B-C transaction, you sell the property to your cash buyer. And now you know your ABCs!
- Privacy remains intact. No one but you sees how much profit you’re bringing in from the deal. Again, I’d suggest you do what I do… always use this method when making more than $10,000 – or if the other parties involved seem to be super uncomfortable about it.
- Since there are technically two transactions, you’ll have to work with two different sets of closing costs. Annoying, but this shouldn’t be a reason not to use this method.
Hooray! Bonus Questions
What do you need for an Assignment?
- You simply need “and/or assignee” terminology in your contract.
- A contract assignment form in which you’ll include the above mentioned ‘and/or assignee’ terminology.
Generally, there are five terms that should be agreed to in the assignment contract:
- Close of Escrow Date
- Earnest Deposit
- Inspection/Escape Clause
- Closing Agent Named
Wanna check out my assignment contract, which you can use for your deals? I’m happy to provide it to you as a free download, just fill in the blanks as they relate to your specific deal. You’re welcome!
In the Double Close, can your B-C end-buyer’s money fund the A-B deal or do you have to come to the table with the funds yourself?
Typically, yes, you can use C’s money to flow over and fund A-B’s deal, only after it’s recorded.
Let’s say we’re selling to C for $120k; $100k from that B-C deal can flow over to the A-B deal to pay off the distressed seller and that transaction is closed and recorded. The escrow agent then gets confirmation that A-B closed and proceeds to close and record the B-C deal.
The $20k is your profit, after fees and expenses are paid. Timing is everything in this situation, you have to plan closings nearly simultaneously (at the very least the same day) so the second transaction can fund your first.
One last note here… I can’t stress enough how important it is to establish a solid working relationship with an investor-friendly title company that understands both the Assignment and Double Close methods.
When you find one, treat them like gold. Lay it on thick…send birthday gifts, holiday cards, fruit baskets, thank you notes, whatever. Let them know how grateful you are because they are going to make you a bunch of money.
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