(light music)
- [Narrator] When it comes to assigning contracts
in real estate, the concept can be
a little tricky to grasp at first.
So I'm gonna start by explaining how assignments
were meant to be used, and then I'm gonna give
an example of how they can be used
with an interesting loophole.
Let's say you're a real estate investor
who doesn't like to buy properties with basements.
One day, you get a lead on an investment property
from a seller who says the property
was built on a slab foundation.
You both agree on doing a deal
and enter into a purchase agreement
but, lo and behold, during your due diligence
you find out that the seller wasn't
entirely honest with you, and the property
does indeed have a basement.
(screams)
At this point, you have two options:
You can back out of the deal and walk away,
or if you happen to know another investor
who doesn't mind properties with basements
and they like the deal, you can assign your rights
in the purchase agreement to this other investor for a fee.
Now, in order for this to work, you need to make sure
that the original purchase agreement
has the proper legal jargon that gives you
the ability to be able to do this.
But as long as it's in there, instead of walking
away with nothing but a waste of your time,
you can actually walk away with
a little money in your pocket.
The process looks like this: you and the new investor
would complete a brand new contract
called an assignment agreement.
This agreement lays out the terms
of how this new investor is replacing you as the buyer,
and that they're also paying you an assignment fee
which compensates you for your trouble
and allows them to buy their way
into the purchase agreement to assume
your position as the new purchaser.
When this is done correctly and the deal is closed,
you'll be able to walk away with
some money in your pocket, the seller is still
able to sell their property, and the new investor
is able to get a great deal.
It's a true win-win for everyone involved.
This is how assigning contracts are meant to be used.
Here's a question: wasn't it interesting
how you were able to walk away with money
in your pocket even though you never
put any of your own money into the deal personally?
What if you use this concept just
to find deals for end buyers?
Think of how many more deals you could do
if you weren't actually buying anything yourself,
and you didn't have to come up
with any of the cash on your own.
This is where the loophole comes in.
Some investors, specifically real estate wholesalers,
commonly assign contracts with the full intent
of assigning them to another buyer for a fee.
Some wholesalers actually build
their entire business model around doing these assignments.
Here's an example:
Let's say you get a property under
contract for 50,000 dollars.
You then find another investor who has the cash
and wants to buy your position in the contract,
and so they pay you a 5,000 dollar
assignment fee to take over the deal.
The buyer is still getting a great deal
on the property for 55,000 dollars all in,
the seller is still able to sell off their property,
and you get to walk away with 5,000 dollars.
It's a pretty sweet deal, right?
This business model is intriguing because,
if done correctly, you could make thousands of dollars
just by acting as the middle man
and connecting motivated sellers with cash buyers
with little to none of your own
money involved in the transaction.
On paper, this all sounds pretty great,
but we want to strongly suggest that you seek legal advice
as to whether or not this strategy is actually legal.
Some states have basically outlawed assigning contracts
without the involvement of a licensed real estate agent.
The reason is, when you enter into a purchase agreement
without the actual intent to buy the property yourself,
the contract is somewhat misleading
and, in some jurisdictions, the purchase agreement
may effectively be null and void.
Likewise, if your primary business model
is to do these type of assignments
and you're not a licensed real estate agent,
it could be interpreted that you're acting
as real estate agent without a license.
Understandably, there are differing opinions
on the legality and ethics behind this type of transaction,
but, as you can imagine, when it's done correctly
and communicated clearly to all parties involved,
it can work to everyone's benefit.
In different markets around the country,
some local governing bodies are more strict
with their laws than others, and this is why
it's in your best interest to consult
with a local real estate attorney in your area
just to ensure you understand what is and isn't allowed,
to make sure you're using the right documentation,
and that all parties involved are acting
within the confines of the law.
We hope this explanation helps you understand
the basics of how an assignment works in real estate.
Again, we're not lawyers, and this video
isn't intended to be legal advice,
so be sure to talk with a legal professional
in your area before you dive into this strategy any further.
For more tips, tricks, tutorials, and real world
guidance on how to crush it as a real estate investor,
come and join us over at retipster.com.
(light music)