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Updated about 7 years ago, 12/10/2017
How to sell assignment contract
I have some investors that want me to find rehabs for them. I know a contract can have a provision for assignment. My questions is how does it work so that the investors do not see the spread between the seller and their purchase price. I don't want to incur the expenses of double closings. If the seller agrees to a price of 50k and I want to make 5k, how do I keep seller and buyer from seeing my profit?
#4 All Forums Contributor
- Plymouth, MI
@Ron Feinsod First, are you hiding the fact that you are wholesaling to the end buyer? Obviously not if they are wanting you to find these deals for you. Just tell these investors you charge a standard $5k assignment/wholesale fee per deal.
Then, make your offers in the name of an LLC instead of your personal name. Then just sell the LLC to the end buyer for the $5k. One closing, the seller has no idea you are making any added money since all they see is the LLC buying the property for the agreed price. Different owner of the LLC, but you didn't make the offer to buy...the LLC did...and they're the ones that are buying.
Joe Villeneuve
REcapSystem
A2REIC
Ron - If you do an assignment (as opposed to a double close) then your assignment fee is going to be listed on the final settlement statement. Why not just be upfront/honest about your fee and explain the benefits you are presumably providing? I don't think anyone expects you to work for free. You just need to point out your value to them.
@Ron Feinsod Don't start your process with deception. No real cash buyer is going to care that you've made money, or how much you've made, as long as you are finding good deals for them, where they have plenty of profit margin.
Just remember, the investor buyer is assuming all the risk. They deserve to make their profits. You found and negotiated the deal, so you deserve to make your profit as well. They understand that. If they don't, then find new buyers, which you will have no trouble doing, if you have real "deals".
The key is, don't be greedy. Leave enough spread for the investor to get what they need. I will short myself, before I would short my buyer. Again, I may have done the leg work, but they are assuming all the risk. Plus, I'm interested more in a relationship that will lead to many deals than I am a single deal.
#4 All Forums Contributor
- Plymouth, MI
@Kyle J. Which is why I don't assign...I sell the LLC. Separate agreement. Not part of the Purchase of the property. One closing for the agreed upon contract price. Just a different person running the ship (the LLC).
Joe Villeneuve
REcapSystem
A2REIC
#4 All Forums Contributor
- Plymouth, MI
Everything @Hattie Dizmond said. Both parties should respect the fact that you are in business...and the most important point, particularly with your buyer, is you are establishing a relationship to be renewed over and over again.
Joe Villeneuve
REcapSystem
A2REIC
Thanks Joe
Not hiding anything from buyers, however I would rather not have them privy to my profits. I guess my next question is, since these folks want to but several properties, they probably do not want separate LLC's for each one. So, with that in mind is there another way to handle this? Also, I think it might get expensive to keep setting up LLC's. I am new to this type of transaction. My experience is really in buy & hold rental properties.
Assignments of contract are for deals where your buyer understands and agrees to pay your asking price and to all the terms of the purchase agreement. They are stepping into your shoes as the buyer, so they must read the agreement and agree to those terms, one of which is price. There is no way for the buyer to not know what the spread is in an assignment, at least in my experience. IMO, assignments are not for deals where you don't trust or know your buyer.
Sounds like you may be looking for many houses for the same buyer. If so that is great, just negotiate a set fee per property and go find some houses! Everyone should be happy.
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Ron Feinsod:
Thanks Joe
Not hiding anything from buyers, however I would rather not have them privy to my profits. I guess my next question is, since these folks want to but several properties, they probably do not want separate LLC's for each one. So, with that in mind is there another way to handle this? Also, I think it might get expensive to keep setting up LLC's. I am new to this type of transaction. My experience is really in buy & hold rental properties.
You buyers should not have a problem w]knowing what you make. If they do, find other buyers.
We always set up new LLC's with each buy/offer. It only costs $50 to set up and $25/year to keep in Michigan. Not sure how much it costs to set up in NJ. Even if it costs $250, you can reuse the LLC until you sell it with the house. Once you sell the LLC, you get your money back, so the cost of the LLC comes out of the sale of the LLC to the buyer so you're not "out" the money.
Joe Villeneuve
REcapSystem
A2REIC
I have a question, and I really need help and I'm stuck at a particular point in my Real Estate Investor career. To make a long story short, WHEN dealing with an agent. Im bring a buyer and a seller together for the first time through a agent. How do I get paid in the middle as the the investor? Since Agents contracts are not assignable.