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:
- You get it under contract. That means you have a written purchase contract signed by both you and the seller.
- The terms of the contract will be attractive to another buyer.
- You find that buyer!
Let’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:
- 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!
- You make a $10,000 assignment fee for solving the seller’s situation while providing a good investment deal for the buyer.
- 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:
- 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.
- 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!
- 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…