Got my first contract

[Natalie Wade]

I have my first property under contract. The contract amount is for 200k for a fixer in my area. Now that I have it I am sooo nervous as to what to do next. All the info I have read is exploding in my head. I want to wholesale the property. Or is assigning the contract the same thing?

I can find a buyer that will pay $205k-$210k or a bit lower but I will assist in fixing up the property. (and make money from that end).

Do I have the end buyer sign a new Purchase agreement for the above amount of $205k and make my 5k that way when the sale goes through, or simply have him pay me 5k for the assignment fee?

Seems like im missing something here. Can anyone make this simple for me?

Thanks

[Marv Jordan]

Originally posted by Natalie Wade:

I have my first property under contract. The contract amount is for 200k for a fixer in my area. Now that I have it I am sooo nervous as to what to do next. All the info I have read is exploding in my head. I want to wholesale the property. Or is assigning the contract the same thing?

I can find a buyer that will pay $205k-$210k or a bit lower but I will assist in fixing up the property. (and make money from that end).

Do I have the end buyer sign a new Purchase agreement for the above amount of $205k and make my 5k that way when the sale goes through, or simply have him pay me 5k for the assignment fee?

Seems like im missing something here. Can anyone make this simple for me?

Thanks

The short answer to your last question is, probably, "no". But I'll try to be helpful.

You have at least two sales contracts to be concerned with.

One is, how do I structure the sale of the property to minimize my risk and maximize my gain (while accelerating my cash flow)?

The second is, how do I leverage my skills and vision as a remodeler and recycler of used housing to maximize my economic opportunities in this business?

An assignment of the contract which you say you have, can maximize your speed of getting paid, and, it can minimize your risk in the deal because the buyer of the contract assumes all of the purchaser's risks as well. However it will yield the lowest price.

If you are not offered immediate cash for the assignment you should get more, as you are being asked to forgo and forbear the use of money, plus, in effect, the buyer is asking you to retain a portion of the risk. Because of the risk and delay in being fully compensated, a strong cash deposit should also have a guarantee from the buyer that, if the underlying contract doesn't close, you collect at least the deposit.

The amount should be appropriate for the amount of risk and delay you are being asked to bear. You need all the information you can get about the buyer and the deal to make a judgment call about this. If, for example, the buyer placed all of the funds necessary to close, into escrow, upon execution of the assignment agreement, and, there was no reason to expect a delayed closing, I would have no qualms about accepting my fee from the proceeds of escrow at closing.

The advice you've been getting from these gentlemen is pretty good. Good RE attorneys should be part of your master mind group and inner circle...people you can trust for their smarts and expertise, and also that you can trust for their loyalty and integrity. Also, get good tax and accounting advice.

You might contact Bill Bronchick, in Colorado, for recommendations on counsel in your area. He is one of the nation's best RE lawyers, and is very accessible to investors, as he is an active player himself.

Closing services should not cost very much. Title insurance companies provide escrow services in California, I believe, and my experience with them in Washington, Oregon, and Idaho, makes me prefer them to attorneys for most closings. As an escrow, they make sure all parties receive their contracted consideration from the transaction. A good closing agent is also a good person to know. Ask them to walk you through the process a few times.

The California Licensing division will be glad to give you a lot of information about the laws and regulations and the standards of practice there. Go to CA.gov and look for the statutes and regulations, on line. You may also find an organizational manual with contact information and addresses of state officials and offices. Do the same for counties and cities for info on local building codes, zoning, and who's who behind the desks.

Now about the second question. Is one of your motives for buying rehabs, to secure paying work for yourself? If so, know that as soon as you assign ownership of the property to another you have lost control of the job.

Let's assume, which is probably the case, that you cannot afford to finance the work and the real estate transaction, together, without help.

One alternative is to enter into a contract with yourself for the work prior to the sale, making the sale or assignment "subject to" the construction contract. For this to work you should have more than one legal entity able to enter into arms length transactions, and the potential conflict of interest, due to interlocking ownership should be fully disclosed in the transaction documents. The construction contract needs to be made with a valid legal entity with the legal authority, capacity, bond strength, insurances and necessary licenses to contract for the work. The specifications, drawings, contract documents, and permits must be made a part of the sale transaction.

If you wish to work as an unlicensed builder/remodeler your only alternative is to own the house until the work is done.

Lot's of people make money buying and fixing, then renting or reselling property. To be successful at it, one thing you need is the ability to get from here to there, and ride out the storms. Whether it is strong trade lines, credit cards, home equity lines, a rehab lender, or seller financing, there has to be a plan to carry through to the finish, before you tackle the deal.

One alternative is landlords. Landlords look to expand their rental stock. If you can get a landlord convinced that you can deliver a great house for a great price by converting the doghouse in front of you, then you make a contract of sale for delivery of an as will be built product with the sale agreement going into escrow before the start of construction. The landlord will have financing available which will be in the form of a take out commitment and site draft cashable upon presentment of the certificate of completion and final inspection, together with the down payment and closing costs all on deposit in escrow. Hard money lenders will fall over themselves to fund this for the short term construction period. Try to get the seller to carry back a note for your down payment to be paid from the proceeds of final sale and you're home free from day one, plus you get a paycheck during the job, every Friday.

I guess the point of this is to think strategically. Think about what you want and need, and what others want and need. Great deals are all-win deals where everybody thinks they themselves are swifter than Houdini and on their way to out-riching the Rockefelers.

When can you bring your truck up to Washington, to work on my barn? ( :cool: )