Doing Real Estate Deals With No Money Using an Assignment of Contract

This article is the fourth in a series of seventeen articles that will give readers insights into how real estate investors are able to do transactions with little or no money, no credit and little or no risk. In this part of the series we will discuss the technique that is possibly the one most used by investors who are just starting in the business. This method is called an Assignment of Contract and as its name implies, the purchase and sale contract is assigned from an investor to an end-buyer of the property.

Often, realtors and REO Asset Managers do not want to allow a buyer to assign a contract. This process essentially and immediately changes who is coming to the closing table with the original seller, whether it be a homeowner or bank. Actually, the seller shouldn't care at all whom closes as the transaction will be completed and all parties will have achieved their individual goals. Likely, realtors feel the transaction will not close and the asset managers feel they have left money on the table as far as the sale price is concerned.

For the investor the process is fairly simple. He gets a property under contract, finds an end-buyer and then signs an Assignment of Contract with his end-buyer. It doesn't matter what the property will be used for by the end-buyer, only that the end-buyer will come to closing and pay the original seller the money due on the original contract.

Generally, all contracts are assignable if they do not state otherwise. This is important to carefully look for an assignment clause in the contract and check the appropriate option for that deal. The options usually include that the contract is assignable with no liability to the Assignor (investor), continued liability to the Assignor if the deal doesn't close, or the contract is not assignable at all.

The closing statement can be handled in a couple of ways. It can reflect the original purchase price and a line item that shows an Assignment Fee was paid outside of closing (POC) - this is where the Assignee (end-buyer) pays the Assignor the agreed upon fee before the closing. Otherwise the purchase price of the property on the HUD-1 closing statement is increased to show the full assignment fee. The Assignor is paid at the closing table for the full amount of the assignment fee less any deposit he took and he is reimbursed for the deposit he originally made to the seller.

In summary, an Assignment of Contract is a very powerful method of doing real estate deals with no money, no credit and minimal risk (deposit to seller). Don't forget to get your original deposit back at the closing table from the end-buyer. If the amount of the profit on the transaction is greater than $15,000, you are better off to do a double closing as the seller and buyer may think you are making too much money for the short time and small investment you made. The double closing costs a little more in fees; but can save your most profitable deals from collapsing at the closing table.

Dave Dinkel has over 35 years experience in real estate investing which has given him a unique perspective into the real estate market. Dave is the author of the best-selling e-courses http://www.fsbopowersellingsystem.com/ and many other e-courses for investors and homeowners. Dave's focus in the past few years is educating the public in a manner that doesn't amount to paying for a master's degree. His recent contribution to this end is the e-course "48 Ways to Create a Massive Buyers List" which can be seen at http://www.MakingaBuyersList.com.