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Assignment of Contract

Would you like to make $10,000 by the end of April? Have you ever heard someone mention that they ‘assigned a contract’ to a rehabber or investor here in Hawaii? It’s actually not that complicated. What’s more, it’s often an easy way for someone to make some quick cash. Here’s how it works:

You find a property that someone is looking to sell. Single family house, multi family house, condo, vacant land — it doesn’t matter. Only three things do matter:

  1. You get it under contract. That means you have a written purchase contract signed by both you and the seller.
  2. The terms of the contract will be attractive to another buyer.
  3. You find that buyer!

Assignment of ContractLet’s use a basic ‘fix and flip’ as an example. Say you find a 3 bed / 2 bath single family house in Honolulu that is a good ‘deal’ according to basic real estate investor criteria, meaning it provides substantial upfront equity after all rehab costs and fees are subtracted from the final selling price. This house in Honolulu is worth about $350,000 today and would need about $20,000 in rehab to bring up to excellent condition where it would fetch roughly $375,000. However, the seller lost their job and owes a lot of back taxes but they do have $300,000 in equity in the property (owe $50,000 on the mortgage). They don’t want to get in trouble with their local bank and have other immediate expenses, so they agree to sell it to you for $245,000 in 30 days. You then assign the contract to one of your local Hawaii real estate buyers for a $10,000 fee. The buyer can pay you then and there (preferable) or pay you at closing. Let’s look at how each person wins in this situation:

  1. The owner avoids getting a lien for the back taxes. They also net roughly $195,000 ($245,000 – $50,000) in CASH at closing and are free of their mortgage. They do not have to pay a 6% realtor fee and possibly wait months for it to sell. Instead, they get their problem solved right away!
  2. You make a $10,000 assignment fee for solving the seller’s situation while providing a good investment deal for the buyer.
  3. The buyer is happy because even after paying you the assignment fee, they are still going to make a nice profit if they rehab and flip the property, rent it out or even live in it, capturing a lot of upfront equity.

So basically, you are assigning the terms of the contract to another buyer who will actually close and take title of the property. Just be sure you analyze the property, its after repair value and the scope of work needed so that you know what price you need on the contract. Know your market and what similar units are selling for. And don’t forget to include your assignment fee in there! If it’s worth only $200,000 to and end buyer, then you need to get it for less than that if you don’t want to work for free!

Here are some tips to help you make some great cash assigning properties in Hawaii to other buyers:

  1. Always build your Hawaii real estate buyers list (here’s an example). If you have a great deal but no one to assign it to, then you won’t make much money. Have buyers ready to go and know what they want.
  2. Understand your local Hawaii market. Learn how to comp a property according to recent, similar, nearby sales. What’s selling in Honolulu is not necessarily what’s selling in Kapolei or Waianae. Are condos in Kihei moving? Houses in Poipu? If not, then you really better get that price down!
  3. Go for the close! Have a blank contract with you at all times as you’re driving around the island. You just never know!

Buyers like myself will gladly pay $10,000 for a contract that still nets us a good profit at the end of the day. Go find those deals and make some $$!

You may also be interested in THIS PRODUCT HERE if you really want to get into assigning contracts…

Originally from Philly, Mike came to Hawaii via Washington DC and is the founder of HawaiiHousingNews.com and its sponsor, Big Rock Investments, a Hawaii real estate investment company based in Honolulu. Mike buys houses directly from sellers ‘as is’ for cash and helps stop foreclosure by leveraging capital from private lending investors seeking a safe, high return on their capital with the security of discounted real estate. Learn more at http://bigrockinvestments.com.

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  • RobFonner

    First, you have to find that somebody willing to sell their house at wholesale or less. That, my friend, is a true diamond in the rough! Way too many sellers in this market will just sit on their house believing the governments blather about how we’re are just around the corner from a rebound in pricing. It’s such a rare combination to find someone as describing in this article, but they can be found. Again a numbers game.

  • http://BigRockInvestments.com Michael Borger, Admin

    You are correct, Rob! It takes a lot of hard work, knowledge and persistence to find someone willing to sell their house at a discount significant enough to be assignable. You really must have your marketing in order — direct mail, online sites, networking, etc. — to come across these quality seller leads, but they are out there. Then you have to actually get it under contract before finding a qualified buyer to assign that contract to. It’s not rocket science, but it is work.

    Just a couple weeks ago I found such a homeowner and am actually assigning that contract to another rehab buyer friend. I’ll make a nice profit and so will he, and most importantly, the homeowner gets the solution they wanted — a quick sale with no fees.

    Assigning a contract is a winning solution for all involved but only when the proper pieces are in place.

  • http://BigRockInvestments.com Michael Borger, Admin

    I just assigned a contract for a $12,000 fee to a rehab buyer. You can do it!

  • Cora Garvey

    how can i get started with assignment of contract

  • http://BigRockInvestments.com Michael Borger, Admin

    Aloha, Cora. There are basically two main stages of a successful assignment of contract: finding the seller and finding a buyer.

    1. Find a seller who is motivated to sell at a discount in exchange for other benefits: not paying any agent fees (usually 6%) and a closing on their schedule are two common advantages. For some sellers, there are significant advantages! You then agree to a contract.

    2. The next step is to assign that same contract to buyer who considers the terms (price, closing date, etc.) acceptable for the property in question – with your assignment fee added.

    That’s an assignment in a nutshell. However, it takes a lot of work. You need to actively be marketing for motivated or distressed sellers and you should be constantly networking with buyers (like myself and others) so that when you do put a property under contract you have someone to actually assign it to.

    Hope this helps!

  • Anthony P.

    Why does the amount of equity in the house matter? And how much equity needs to be in the house for one of these transactions?

  • http://BigRockInvestments.com Michael Borger, Admin

    Aloha, Anthony. Having equity is not required, however it’s definitely the better way to go. The reason is this: you’re assigning a contract that’s been signed by the seller, meaning they agree to the terms. The assignee (your buyer) can plainly see the terms and knows that the seller is ok with them.

    With a property that has no equity, however, such as an underwater mortgage, the BANK has to agree to the terms through a successfully negotiated short sale. The seller can sign whatever they want, but the bank has to give the approval. You can still assign the contract, but the assignee (buyer) would be buying a contract that might not even be approved by the seller with the actual authority — the bank. In that case, you’re almost tricking the buyer, which is a major no-no in my book.

    There are ways to assign a short sale, but it’s a bit complicated. Perhaps I’ll write a post about that in the future.

  • Sam

    Does someone have a sample of assignment of contract?
    Thanks .

    • http://bigrockinvestments.com/ Michael Borger

      Hi, Sam – apologies as I’m just seeing this now. There are plenty of sample assignments on the web to be found. Just Google the term or you can always have an attorney draft one for you. They’re rarely more than one page as you’re just assigning interest and not selling an actual house.