Are you interested in earning $3,000 to $10,000 per month or more buying and selling real estate without the risk of ownership or obtaining a realtor’s license? There’s a low risk approach to doing so without laying out large sums of cash. It’s called wholesaling.
By definition, wholesaling is the entering of a contractual agreement with a seller for the purpose of purchasing property at one price, and then assigning your interest in that contract to your investor at a different (higher) price. The difference between the two prices is your spread or most commonly referred to as the assignment fee. This fee is the money you earned on the transaction.
Let’s look at an example of my very first deal in Hallandale Beach, FL (see picture above). I found this vacant 2/1 house from Belinda, a resident in the neighborhood (my “bird dog”). The house was boarded up and was in pretty bad shape. It needed about $20,000 in renovations but I estimated it’s value to be about $90,000 ARV (after repair value).
I signed a purchase agreement with the seller for $20,000. I then advertised the property to my cash investors for $42,000 and received an offer for $38,000 which I accepted. The investors signed my assignment agreement for my fee. I then provided the purchase agreement and separate assignment agreement to my title company. At closing, the buyer bought the house for $38,000. The seller received the $20,000 and I received the $18,000 ($500 went to my bird dog as a referral). Pretty sweet first deal, don’t you think?
Let’s break it down:
Transaction A: Investor Buys
$20,000 purchase price
$18,000 assignment fee
$600 closing costs
$20,000 renovation costs
$2,500 holding and marketing costs
$61,100 total costs
Transaction B: Investor Sells
$91,000 selling price
$2,730 closing costs
$88,270 gross profit
$88,280 gross profit
- $61,100 total costs
= $27,180 net profit
The seller removed the aggravation of trying to renovate the property himself and sold the property putting $20,000 in his pocket. I earned $18,000 and the investor netted $27,180 profit after all costs when he sold it for $91,000. Everyone wins.
I have wholesaled hundreds properties through the years and will discuss in greater detail but I want to keep this first posting simple. Don’t worry. You’ve got questions. I’ve got answers. There will be much more to follow in future postings on wholesaling.
After the rehab
Assignment Agreement
Used to assign rights in a purchase agreement from one party to another for a fee.
Use: Used in conjunction with a purchase agreement for a single family residence as an addendum to a purchase agreement.
Price: $14.95
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{ 4 comments… read them below or add one }
Great job with the rehab!
Thanks Brett but that was a rehab my buyer did, not me. If you want to see one of my rehabs, refer to Top Ten Rehabbing Tips posting. You can see the before and after pictures of a property I rehabbed in Miramar, FL.
What states still allow assingments? I know Nevada title companies will no longer do assignment of contracts. You can do a back to back closing (if cash) but that first leg of the transaction would have to fund before they would close with the final investor. And another problem is that bank sellers and short sales won’t allow a contract to be assigned. Have you found other creative ways to profit in the wholesaling business?
Hello Jennifer,
As far as I know, there are no restrictions per state on using an assignment agreement. It is the decision of a title company to allow an assignment. Most do and the ones that don’t, usually have no experience with them. If a Nevada title company will not permit the use of one, then the alternative is to use a title company from outside the state that has experience with assignments to handle the closing on the Nevada property. You are correct about bank sellers/short sales as an assignment can never be used. The solution to this scenario is a double closing or to put the property in a Land Trust naming you as the beneficiary. At closing, your buyer is purchasing beneficial interest in the trust. Whoever owns the trust, owns the property. Besides assigning a contract on one property, try doing one with a bulk REO package provided the seller is private and not a bank. Usually both parties will allow a small assignment of $500 – $1,000 per property and if you are selling 20-50 of them, those numbers add up. Thanks for the questions and keep them coming.