The non assignable contract has popped up everywhere. All the banks, mortgage companies, HUD and Realtors use it to protect their interests. No longer can an investor sign a sales contract then simply sign it over to a third party. And now, many investors who flip, sell wholesale or even sell to retail buyers are feeling its sting.
But there's always a legal solution provided you have a little knowledge and the right strategy. And we have 4 legal strategies that will let you get your deals closed.
The strategies aren't complicated. All you need to do is tell your favorite investor friendly title company what you want to do. They'll make sure all the paperwork is in order and filed correctly.
ADD AN ADDITIONAL BUYER to the non assignable contract with an addendum.
It's quick and easy. If you are flipping the property just add the name of the buyer you're flipping the property to along side your company name. Then you have
2 options. Leave your name on the contract and sign a quit claim at closing or use a second addendum to remove your name off the contract before closing. You don't need to worry about the details. All you need to do is give the instructions to your favorite investor friendly Realtor or title company and they'll do all the work.
USE A LLC. Write the non assignable contract to purchase using your LLC as the buyer then at closing transfer your membership interest in the LLC to your cash buyer with a substitution member form. A basic LLC is simple and can be completed online for about $200. Use the property address as the name of the LLC and you as the agent.
However, wait to get the tax identification number because you'll give that paperwork to your buyer at closing and they'll submit it.
Also in many states when you sign over your membership interest, it's recorded as a transfer and not a sale so there isn't any sales tax due. Plus it ensures a clean chain of title. But you don't want to sell more than 5 LLCs a year without talking to your CPA or financial adviser first. Find out more about LLCs here.
USING LAND TRUSTS is a lot like using a LLC except the paperwork is a bit more complicated and the cost is around $400 to create the trust and $100 yearly maintenance. You can do it yourself however, we highly suggest using a trust attorney.
You'll write the non assignable contract to purchase using a land trust, (sometimes called a title holding trust) and at closing you'll assign and transfer your beneficial interests to your cash buyer. All the paperwork is taken care of by the title company. In all states, this transfer of interest is not recognized as a sale and so no sales taxes are due although sometimes there is a transfer fee but it is minimal.
Unlike LLCs, there aren't any limits, you can sign off of as many land trusts as you want without any extra ramifications. Here's the details about land trusts.
SIMULTANEOUS CLOSING consists of 2 contracts, 2 sales and 2 closings.
That's why it's sometimes referred to as a double close. This strategy produces
the cleanest chain of title but the closing costs are more costly. More importantly,
the cash buyer that you're flipping the property to doesn't know how much money you're making on the deal. You'll find this especially helpful if you are making
more than $7,000 on the flip. As an example, you could increase the value of the property by repositioning it.
First sign a non assignable contract to purchase the property with the seller then you create a separate contract to sell (flip) the property to your buyer. Since the 2 closings are taking place simultaneously you don't need to worry about funding. Your end buyer brings the funds to the closing.
PRO TIP. To eliminate headaches and get your deals closed quickly, always use an investor friendly title company.
Before you flip that property find out what you need to do to make it a successful flip.