An assignment of contract can be one of the most powerful tools available to real estate investors. Although the agreement is easy to use, most investors don't know how to use one effectively. Bottom line: The contract's basic structure assigns the rights and responsibilities to another party or assignee.
Flippers use it when assigning the contract's rights and responsibilities over to another investor or whoever is buying the wholesale property. The buyer can also be an entity like an LLC or a trust.
New investors benefit from using an assignment of contract because it lets them complete a transaction and get paid without owning or closing the property.
And that is especially great when you have zero or very little cash to invest.
Sometimes investors need immediate cash flow. When you assign your rights to someone else, you immediately get an assignment fee. In some states, for legal and tax reasons, it is referred to as an assignment fee, consultation fee, or a transfer fee, or earnest money. However, never refer to it as a commission. Check with your closing company, attorney, and tax advisor to find out which is best for you.
You can stipulate that the assignee will pay 100% of the fee at the signing. Or 50% of the fee at signing and 50% at closing. By accepting the fee this way, you get protection from a possible breach of contract. The investor also has an extra incentive to close because the assignment fee is non-refundable. This strategy instantly lets you know which investors are serious. Remember, you are the party in control. By clearly stating your expectations, then there will not be any misunderstandings.
The assignment fee amount can be a flat rate or a % of the selling price. The standard fee is around 5,000. However, there are times when the amount will be much more considerable.
For example, if you had negotiated an extremely low purchase price or if the property was a high-end white elephant or perhaps the property is zoned commercial. When you do not want your buyer to know how much money you are making. Instead, when these opportunities arrive, use a simultaneous closing instead of an assignment of contract.
It is cost-effective; about $400 to create and $100yearly to maintain and a trust the attorney does the paperwork.
Legally, we can transfer the trust by signing it over to a buyer. Since it's considered a transaction and not a sale, closing costs are minimal. Always look for ways to legally offset or sidestep taxes because it's a strategy that can keep fixed costs low.
Trusts provide privacy and asset protection from prying eyes and lawsuits.
All contracts are assignable unless it specifically states that it is not. Realtors use nonassignable contracts, government entities like HUD and Freddie Mac, or Banks and lending institutions. Sometimes you can't avoid them so work with them. Here's how to do it.
Claim it now. Download the Free assignment of contract and fill in the blanks.
We hope to see you out there flipping houses and kicking assets.