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In this video, I review how to complete a purchase contract for wholesaling real estate and how and when to use an assignment of contract form.
If you are coming to my Wholesaling Real Estate Boot Camp, I go over this in detail at the boot camp.
STANDARD REAL ESTATE TRANSACTION (RETAIL)
If you own your own home, then the way you purchased it was with a standard real estate transaction. You paid a retail price (the appraisal value) and you used a mortgage to purchase your house. There was also a survey, an inspection, and an appraisal.
In a retail transaction, if you are buying a property that is listed on the MLS, then typically the listing agent (seller’s agent) will prepare a purchase contract for the buyer. This purchase contract will be the Standard Purchase Contract used by all real estate agents in that State.
The listing agent usually sends the purchase contract to the buyer to sign and after there is an executed contract, an inspection is scheduled. If there are issues that come up in inspection, then typically either the seller fixes these issues or offers the buyer a credit. That is what happens in a standard real estate transaction.
CASH TRANSACTIONS (REO’S BANK OWNED PROPERTIES, HUD ETC)
Real estate investors like me, that are buying houses at a discount for cash are NOT standard retail real estate transactions. There is no appraisal, no mortgage, and no survey. Instead, there is CASH. Investors must pay ALL CASH to buy these bank owned properties at a discount. Mortgages are not allowed since the banks want to liquidate these bank owned properties quickly for cash to the highest bidder. All bank owned properties (REO’s), foreclosures, short sales, Fannie Mae, Freddie Mac, and HUD Homes are CASH ONLY. They will require you to prove that you have the cash by showing either a bank statement or a proof of funds letter. That is why I give all students in my training program access to my proof of funds letter.
When you complete a contract to buy a property for cash there are some notable differences. The contract used will be dependent on the seller, so they may or may not be the Standard Contract for your State. The seller (the bank) will require CASH ONLY to purchase these properties and will also require all offers to be “As Is” on an “As Is Contract”. What does that mean? If you buy the house and a week later the plumbing stops working or the roof caves in that is your problem, not the seller’s. You are agreeing to buy the property in “As is” condition and you cannot come back after the fact and say that something was not disclosed (like damages).
The seller (bank) will also require the contract to be NOT ASSIGNABLE (to prevent wholesalers from flipping the property to someone else for a profit).
So If a wholesaler wants to flip a bank owned property, or any REO, Short Sale, Foreclosure, HUD Home, Fannie Mae, or Freddie Mac Home, then they will need to “double close” on the property. Essentially that means that they have to buy the property and close on it (and pay for it) before they can flip the property to someone else. That gets rid of a lot of wholesalers.
If you want a primer on Wholesaling Bank Owned Properties and how to double close and flip these properties then download and read my book by clicking below:
ASSIGNMENT OF CONTRACT
But what if you want to wholesale and you don’t want to double close?
There is one clever way that wholesalers can wholesale/flip properties that they acquire directly from motivated sellers without having to buy (and pay for) the property first. What they do is they create an assignable contract that gives them the right to wholesale or assign the property to anyone else for a fee (an assignment fee).
If you want to be a wholesaler, and you want to wholesale real estate and flip properties to other investors (by assigning the contracts) then you are going to need to use a Wholesaling Contract that specifically allows this.
I have one that I use with my students at https://www.wholesalingcontract.com
Watch this video to understand the key clauses in the contract that you need to understand if you want to wholesale. You need to put the words “and or assigns” after the buyer’s name on the purchase contract in order to make the contract assignable. On a Standard Purchase Contract, there is a “buyer may assign” box that needs to be checked off too.
You also need to have an assignment of contract form. You can get one here: https://www.lexlevinrad.com/assignment/
If you want to learn more about how to get started Wholesaling Real Estate you should attend the Wholesaling Real Estate Boot Camp.