I was wondering which one is better to do for investors who want to wholesale real estate.....a "back to back" closing where transactional funding is used OR a "assignment of contract" where the investor signs over his or her rights to an end buyer? I'm confused about which one is better or safer to perform. Also, what if an assignment of contract is illegal in one state that an investor resides in can an investor use a title company that's outside of their state to perform an assignment of contract? Thanks!!
Wholesaler · Dallas, TX · Member since 2011 · 294 posts · 152 votes
14y
Doubling closing is going to cost YOU money (transactional funding has a cost).... Assigning the contract shouldl not cost you anything. Your end buyer or seller pays the closing cost if you've properly written your contracts. It's all in the paperwork and you should speak to someone who has REAL experience in your market. I spent a lot of time with my title office while completing my first few deals.
Regarding your sexing question, you should speak to a real estate attorney in your area. Luckily for me, my title office is also my real estate attorney and she's the president of one of my reia groups.
Wholesaler · Dallas, TX · Member since 2011 · 294 posts · 152 votes
14y
Doubling closing is going to cost YOU money (transactional funding has a cost).... Assigning the contract shouldl not cost you anything. Your end buyer or seller pays the closing cost if you've properly written your contracts. It's all in the paperwork and you should speak to someone who has REAL experience in your market. I spent a lot of time with my title office while completing my first few deals.
Regarding your sexing question, you should speak to a real estate attorney in your area. Luckily for me, my title office is also my real estate attorney and she's the president of one of my reia groups.
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
14y
As Stinson points out, assignment will be cheaper on any given transaction. That said, under many circumstances (REO, auction, short sale, etc), assignments may not be permitted, as per the contract. So, being familiar with both of these techniques is probably your best bet.
In terms of assigning a contract being illegal, the legality of assigning of contract is based on contract law, and I'd be very surprised if assigning a contract were illegal in any state. Remember, assigning a contract isn't specific to real estate, and if it were illegal somewhere, the ramifications would extend much past the realm of real estate wholesalers.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
Mathew, the two options you speak of are not the only two options to wholesale property, there are many other ways and all have been discussed in detail on this site.
There is no better than the other, what matters is each individual situation. If you are locking up short sales or REO properties, they are not assignable per the contract addendums from the banks as J mentioned, therefore that option is out the window. As Stinson stated, double closings cost more in that you have transactional funding costs and two sets of escrow/title charges.
I persoanlly recommend using other options as they can be applied in almost all transactions and are less expensive leaving more rooom for you and your buyer.
Property Management · Memphis, TN · Member since 2009 · 668 posts · 362 votes
14y
I personally like simultaneous closings. For example on the buy side the purchase and sale agreement you have with the seller stating the terms and conditions of the sale say for $200,000.
Then a sells contract between you and the new buyer for $210,000. When I open escrow with my title company I inform them that you would like to complete a simultaneous closing and with two separate escrows and HUD 1 Settlement Statements for the property.
I also request a “hold open” title policy, one for the buy side and one for the sell side. When its time to close I get the back end close first having the new buyer with the funds to sign before closing with the seller ( 1 recording not naming me). Not all title companies will do this so make sure before you open escrow.
@Will I don't plan on dealing with REOs or short sales (maybe in the future). Just dealing with a private owners, no banks and realtors. I would also like to know what other options would you recommend like Jonny mentioned? I know they're probably mentioned on this site but your 2 cents would be greatly appreciated. Thanks!
@James I don't think they do simultaneous closings here in South Carolina but I will definitely look into that in other states. I appreciate your help!
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
My prefered choice and what I use is the land trust (not the complex and overpriced land trusts offered by the gurus, but a simple land rust). It only costs me around $300 to have it formed (I could do it all myself for even less, but prefer to save the time and pay my paralegal to handle it for me) and it allows me to wholesale the property without double closing, without assigning the contract, and without borrowing funds.
There are three ways to do it, the most common way is the following: You find a deal located at 123 ABC Street, you make your offer vested as "123 ABC Street Trust". You name yourself personally as the "trustee" and your entity as the beneficiary. You would have to come up with the earnest money deposit. When you find your buyer, you agree on your price (higher than that of your contracted price) and on funding day, your buyer funds the escrow and you execute a transfer of beneficial interest in the trust over to your buyer. This document gets recorded at the county recorders office and your buyer is now the true owner of the trust - which controls the 123 ABC Street property. The day of closing (or a day or two after) you (by order of the beneficiary) complete a substitution of trustee and your buyer names their new trustee. You no longer have any responsibility or wonership of the property and the overage of funds sent in by your buyer was instructed to be wired to your account via your wire instructions. This is something you as the trustee instruct escrow on during the escrow period. (I simply tell the escrow companies that for accounting purposes, we will intenttionally over-fund escrow and the escrow refund is to be sent to: . . . . . your instructions.
Another option is the entity transfer, however, in CA, forming an entity will cost you money, plus there is the $800 CA franchise tax fee. In such a case, similar to the trust format, you "sell" your shares of the entity to your buyer for your fee.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
Simu closings are hard to come by these days. Most title companies will not insure the transaction so while they are not "illegal" they are hard to accomplish in most areas of our country.
Matthew Terry - If dealing with private sellers, simply make sure you vest your purchase contract with your name (or the name of your entity) and add "And/Or Assigns" to it. This will simply allow you to assign the contract to another buyer for your fee. That buyer then takes on 100% responsibility and liability for the contract. Easy as pie on such a deal.
Property Management · Memphis, TN · Member since 2009 · 668 posts · 362 votes
14y
Originally posted by Will Barnard:
Simu closings are hard to come by these days. Most title companies will not insure the transaction so while they are not "illegal" they are hard to accomplish in most areas of our country.
Good point Will! The title company I use has no problem when its a all cash deal.
@Will Thanks Will my friend for your info! As far as the "assignment of contract" is concerned. I heard I could do one without having the fill out the "Assignment of Contract Agreement" form, just submit my sellers and buyers contract and specify where the funds should be distributed. Is that correct? Thanks!
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
I am not familiar with all states processes and rules, however, why not put itr all in writing with the assignment form, seems like the right thing to do in my opinion anyways. While you may or may not be required to do so, having it all spelled out in writing makes it all that much better for you and your buyer in my opinion.
Property Management · Memphis, TN · Member since 2009 · 668 posts · 362 votes
14y
Matthew in the past I have done a deal or two on the old contracts were I was on a line item as an expense to the seller. I don't really know if this can still be done or not.
Investor · Columbus , OH · Member since 2012 · 32 posts · 5 votes
14y
thanks for the info will, much appreciated. so if you are just dealing with motivated/private sellers and have an all cash buyer lined up, would you still use the land trust method?
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
Jonny, simu closings in CA are almost impossible, I heard of an investor on this board who claimed to have known a company that would, but never confirmed it was true (I really didn't care one way or the other as it is not something I need).
As far as assignments of contract, I don't see how a title company could refuse, it is not illegal or uncommon and it happens all the time here in CA, so to answer your question, Yes, you can find many title companies who can assist in the assignment of contract.
Goshen, KY · Member since 2009 · 835 posts · 683 votes
14y
Matthew - I am a full time wholesaler in Louisville, KY and I always do a simultaneous closing. I close right in the attorney's office. (I also buy and sell in a land trust.) It costs me a few hundred dollars to do it this way, but I don't like the aggravation of having the seller know what I am making on the transaction. I use the B to C funds to close the A to B transaction. It all happens within the span of a few minutes.
Transactional Lender · Covington, KY · Member since 2008 · 18 posts · 1 vote
14y
If you are selling to an end buyer who is getting financing their lender is not going to lend money for someone to purchase the beneficial interest in the land trust. The way I structure my deals is I have the sellers put the property in a land trust. The sellers are the beneficiaries of the trust. (I help them through the process.) The land trust then enters into a contract to sell the property to the end buyer. At the first closing I purchase the beneficial interest of the land trust with transactional funding. Then the second closing the end buyer purchases the property from the trust. The end buyer is on title as the owner at that time.