All Forum Posts by: Dawson Brewer

We do both net listings (in FL) and novation agreements. They are both very similar but they are not the same.

The true use of a novation agreement is to improve a property for the Seller without taking ownership. A great example of this is when we work with land owners and offer to develop the property further to resell paper lots or sometimes we go vertical with either a new home or a small multifamily building. In the easiest sense of doing a novation, you would just be doing a moderate rehab to get the property to ARV to sell.

We like offering an additional split to the Seller when we get higher returns than expected. Let's say a property is worth $250k and the seller is happy with $150k. It needs $30k in rehab and we pay all closing cost. We end up selling for $260k or $10k more than what we thought the property was worth. Any of those additional funds above our target mark would be split 50/50 with the Seller or sometimes we offer a more favorable share to the Seller to get the deal done.

Let’s say you build a house on a lot. How would you prevent a seller from changing their mind and not going through with the sale?

1 Vote

Austin, Texas

Quote from @Ken M.:

Quote from @Courtney Pollmann:

I having my first Novation experience this month, actually I am the Realtor who was hired to assist in the final sale of the property and we are currently under contract. It's been a great learning experience!

So, you're putting personal money into a property you don't own. What could possibly go wrong. Experienced investors won't do novations, they became "experienced" by doing novations. (far too risky and too much work)

Seriously though,
Why not protect yourself and just lend them the money instead with a Promissory note and deed of trust?

What happens if the property doesn't sell?
What happens if the owner changes his mind and doesn't list?

What if "life" happens?

Fix and flip: what happens if the rehab is more expensive? what happens if the contractors steals your money? what happens if the property doesn’t sell for what you thought it would sell for?

Wholesale: what happens if the property doesn’t sell? What happens if the owner changes their mind and doesn’t sell? What happens if the buyer needs it for less than what you have it locked up for?

Buy and hold: what happens if your renters doesn’t pay and you have to evict? What happens if your renters causes a lot of damage? What happens if you get sued by your tenants?

Lending money: what happens if you don’t get paid and have to file a lawsuit? What happens if they claim bankruptcy to avoid paying you?

I know plenty of experienced investors who do Novations and just like anything else in terms of making money, there’s always risks associated with it. I’ve put $600 in one deal and made $10k. I put 1k into another to make 6k. I’ve put $500 in one and made $0.

1 Vote

Austin, Texas

Quote from @Gary McKay:

What about if the property requires repairs? Novation here in the DMV is frowned upon; it feels to me to be unethical

You’d take care of that either in concessions or you’d address what you can.

0 Votes

Austin, Texas

@Don Konipol i never did a net listing, but from what i understand of what it is, yes the result is the same.

1 Vote

Austin, Texas

Here’s why I’ve started using novations over wholesaling.

1. Sellers Get More Money

With wholesaling, sellers often need to take a low cash offer. With novations, I can offer closer to market value by selling to retail buyers, making it easier to get deals accepted.

2. Bigger Assignment Fees

Instead of selling to investors looking for steep discounts, I market to end buyers willing to pay market price. This means I make more per deal than a typical wholesale assignment.

3. No Double Closings or Hard Money

Since the seller stays on title, I don’t have to use hard money or worry about double closing fees. I just facilitate the sale and collect my fee at closing.

4. More Buyers, Less Competition

Wholesaling relies on a limited pool of cash buyers. Novations open up the MLS and conventional financing, bringing in a larger pool of buyers and reducing competition from other wholesalers.

5. Easier to Scale

With less reliance on deep-discount deals and cash buyers, I can scale novations faster than traditional wholesaling.

Final Thoughts

I’m not saying wholesaling is dead, but novations have helped me close deals I would’ve lost before. Anyone else using novations? What’s been your experience?

3 Votes

Austin, Texas

Hey y’all.

I’m looking at purchasing a property in SA as subject 2. Just need some help getting my ducks lined up.

Interest rate is at 4.75% and the mortgage payment is slightly less than the market rent in that area. If anything, I’ll be coming a little out of pocket to rent it to set money aside for repairs.

I’ve thought of a few exit strategies: wrap, lease to own, air bnb. And thought of refinancing it.

What would a refi look like if I did it to fix up and immediately sell it?

1 Vote

San Antonio, Texas