Assign or Wholesale

Here is another one that Justin edited for me................

Assignment or Double Closing

There are two ways to sell a house to your buyer in a wholesale transaction; either Assign your Contract or conduct a Double Closing.

Basically, in an Assignment of Contract, you are assigning your right to purchase a property to another investor for a fee. This is one way to go with your transactions, but I think there is a little catch in there personally. I have always tried to be open with investors when selling properties, but it can come back to bite you. Ask yourself what amount you would be upset about seeing on the HUD if you were purchasing a property from a wholesaler.

The concept behind this part of the wholesale business goes back to the relationship part I talked about in the “Wholesaling 101” article. If you have built relationships with your buyers, you will know what they want and they will know how much you work to get them the deals that they are looking for, which justifies your fee. But human nature is to ponder on what ifs.

If you had not charged them 5k and only charged them 3k they would have made 25k instead of 23k. Woulda’, shoulda’, coulda’ syndrome right?

Your goal as a wholesaler is for your clients to appreciate what you bring to the table and for them to not be concerned about how much your fee is. This is done by only giving deals in the price range that they are looking for. If they are buying from you on the first few deals at 70% consistently, then they will expect that LTV, and at some point they will not worry about your fee, because they know where to come to get a house. Eventually their rationale will be if it is 70% who cares what you make.

This is a building situation, and will not happen in most cases on the first deal. A lot of investors must be conditioned to deal with wholesalers.

So here is my personal guideline on assigning fees, if my fee is under 5k on a house worth less than 80k then I assign the property. One clear cut advantage to assignments is the lack of costs to you the wholesaler. You will place your assignment fee on the HUD directly and that is what you will receive at the closing. No extras or hidden costs. Neat and clean, except for the part where you will sweat your butt off until the closing is over and you actually have the check in your hand.

On Double Closings, which is how we close most of our deals, you will close with the seller first and then the buyer next. This is normally done around the same time and in two different closing rooms to make it suspenseful. I actually prefer to do one of a couple of things; first I like to close my deals opposite from normal and make my buyer come in first and put his money on the table and then I bring in the seller later in the day. I do this because now the funds are liquid and my closing attorney does not make me bring in a cashier’s check for my part of the closing (I really like that part the best).

Next, I use a little trick my friend Scott Britton taught me and use a flying deed. No I don’t make it into a paper airplane, but I have the seller deed the property directly to the buyer! Think of it this way, if I would like I can add anyone in the world to a deed of a property that I purchase, for no reason, and without explanation. That being said what is different from just putting it straight into someone else’s name instead of mine, even though I am technically paying for the house. I have found that there is no need to go on title of a property unless you have to. Nothing good comes out of owning a property for an hour or two, except confusing tax situations and bills, etc.

Now what about costs though? Well you will increase your costs by double closing. You will have at least two closing fees and deed fees etc. however there will not be a disclosure on the HUD of what was paid for the property like there is in an assignment.

If you are in a disclosure state your client will eventually be able to find out what was paid, but at that point it will be over. Also unlike in an assignment, your seller will not know what you are making off of their house either. Sometimes that can be a barrier to completing a deal, when a seller sees that you are making a certain amount of money off of a property but told them you could not give them over a certain amount of money, you could have a problem. Remember, they don’t have to sign in the assignment closing, but they don’t know any better in the double closing. Your margin takes a hit, but it is easier to mark it up to a level that is better for you.