Markets go up, markets go down and sometimes they just lay there flat like a runny pancake. Either way, savvy investors can create huge profits and bail out sellers that can’t get out of their own problems.
In a hot market, a nice house may sell within a week at or above the asking price. Even in hot markets though, there are sellers who need to sell quickly and can’t afford to fix up a house to get it ready to sell. Most buyers want a house ready to move into and for a seller whose house needs some work, they may not get an offer in the time they need before risking getting behind on payments.
In this market we can pay a little more for a house, because we know if renovated property, the house will get at or above full market price and will likely sell quickly.
In a soft market the rules are different. Even in pristine condition, a seller may need to wait 6 months or more for a real buyer. If someone needs to sell quickly, they may not be able to wait and would take a hit on the price for a quick sale. In this case the investor can buy it better – farther below market, do the renvoation if needed or just clean it up in some cases and market at a “30 day price”. Often this is less than market value.
You see in either case, knowing what the market will pay and how quick they will pay it is all that matters. In the hot market a gorgeous 200k house may get 210k if is the nicest one on the block, staged property with every little minor ‘fix it’ item previously addressed. And it might go in less than a week. My first house I bought in Colorado Springs to live in 2000 I paid $3500 over the asking price of 149,000 to get it. I had already gotten 3 full price offers rejected because others had offered more. ( I still own that house and it’s now worth $209k and had paid down to around 122k – several years of positive cash flow – not a bad deal for over-paying)
To your investing success,
Udo Ginczek
Markets Go Up, Markets Go Down and Sometimes…
July 25th, 2010 by netbuc No comments »The Secret of Flipping Real Estate Contracts
June 10th, 2010 by netbuc 1 comment »There’s an inherent problem in using an assignment to flip a property. Unfortunately, I’ve yet to see midnight gurus (some of those who promote it on late night television and elsewhere) explain this. So here goes.
Almost all sellers have a kind of personal relationship with their buyer. They want to know who’s buying their property. (This is even the case with banks, which almost always insist on knowing exactly with whom they’re dealing.) When you assign the purchase agreement, you break that bond. Most buyer and sellers, nevertheless, are willing to go along provided the deal concludes in a reasonable fashion. After all, they’re still getting a purchase or a sale out of it.
However, when they discover that you’re reselling the property at a substantial profit, some are very unhappy. After all, they conclude, what are you adding to the deal? They feel that your profit should go into their pocket.
As a result, you could have an angry seller (or buyer) on your hands who at the least refuses to sign off on the deal unless he or she gets more money, or at the worst, takes you to court. Thus, to oil the waters, many investors who flip in this manner just don’t tell the buyer or seller. What they don’t know won’t hurt them.
Therein lies the rub. There shouldn’t be anything illegal or even unethical in flipping property, as long as all parties involved are made aware of what’s happening. However, when one party doesn’t know what’s going on, there are all kinds of opportunity for things to go wrong.
If they’re being frank, any good investor will tell you that flipping works best in secret. If the seller doesn’t realize you’re making a $30,000 profit on the sale, he or she isn’t likely to complain. But, in the same breath that good investor will tell you to bite the bullet and let the seller know. It will save you all sorts of trouble later on.
Remember, it shouldn’t make any difference what you do with property after you and the seller agree on price and terms. If you can flip it to another buyer for a better price, so be it.
Will the Buyer Get Mad at Me?
Probably not, if you handle it wisely by letting the buyer know what you’re paying for the property (and getting confirmation on a signed statement from the buyer). On the other hand, if you conceal the information, the buyer may discover it later on and think you were trying to pull a fast one, and go after you.
TIP: Don’t get greedy. Surprisingly, as long as you’re selling a good deal, most buyers won’t care in the least that you’re flipping or how much you’re making on the deal. As long as they’re assured they aren’t paying too much, chances are they’ll be happy.
Tip: Work with Buyers you know. Some lowlife investors may try to go around your back and deal directly with the seller and cut you out of the deal. I teach my Platinum Mentoring students how to circumvent this problem before it happens, no matter who you are dealing with.
What’s the Right Way?
The right way to handle a flip is to be sure that all parties know what you’re doing (and get it in writing in case someone should later have an attack of memory failure). Quite often when they learn of it, they’ll admire you for it. After all, remember that you’re providing a sale for a seller who wants to get out. And you’re providing a deal on a house for a buyer who wants to get in. Why shouldn’t you be entitled to a profit for that? It’s a win, win, win situation! (First-timers should get an experienced mentor to help with an assignment. Once someone holds your hand through your first deal, you’ll be off to the races on the next one.)
To your investing success,
Udo Ginczek
Assignment Of Purchase Really Works
May 9th, 2010 by netbuc 10 comments »Does an Assignment Really Work?
Certainly it does. However, you need to include at least one escape clause in the purchase and sale contract in case you can’t find a buyer in the short amount of time that you have, or in case that buyer for some reason can’t complete the purchase.
Escape clause? What’s that?
It’s very commonly used in most real estate sales transactions. It’s a clause that says the sale/purchase is “subject to” or “contingent upon” something. If that something happens, you can gracefully (without financial harm) back out of the deal. In modern transactions there are three widely accepted escape clauses that most sellers will agree to without blinking (and that won’t weaken the transaction). These are considered below.
1. Finance contingency–You have written into the contract that the deal is contingent upon your getting financing. No financing, no deal and you’re out without penalty. This usually runs for 30 days, but you must reasonably look for financing.
2. Disclosure contingency–You must approve the seller’s disclosures. If you don’t approve them, there’s no deal. But the time limit here is usually very short.
3. Professional inspection–You must approve a professional inspector’s report. If you don’t approve it, there’s no deal. Usually you have 14 days to get the report and then either approve or disapprove it.
The problem with these contingencies is that they probably don’t offer you enough protection if you’re doing an assignment. For example, in order to get the deal at a rock bottom price, you may have to offer the seller cash. In a cash sale, you don’t have the protection of a finance contingency.
You might rely on the disclosure and professional inspection contingency, but those usually run out after 14 days max. At that time you either agree to move forward without their protection, or back out of the deal. If you agree to move forward, and something adverse happens (for example, your buyer flakes out), you’re stuck for the house!
What About Other Contingencies?
As a result, most investors who are flipping using an assignment want to add other contingencies. These are easy to add, but not easy to get accepted.
You can make the sale contingent on anything: your uncle dying and giving you an inheritance, your great aunt coming from Australia to approve the deal, sun spots, anything at all. However, any contingency you add that’s not reasonable is likely to be considered frivolous by the seller and a reason not to sell to you. Thus, the more escape clauses to protect yourself that you include, the less likely you are to get the seller to sign. And the fewer escape clauses you include, the greater your risk in case you can’t get a buyer to close the deal.
Isn’t There Some Way To Limit My Liability Here?
There may be a way to limit your liability in case you can’t make the deal. Most modern purchase agreements include a “liquidated damages” clause. If you sign this (and the seller does, too), then the total amount of damages that you are likely to have to pay in the event you don’t (or can’t) make the deal, is limited to your deposit. If you only put up a $1,000 deposit, you don’t have a great deal at risk. There are ways around this too, though.
Some readers, I’m sure, are asking why are all these cautions necessary for an assignment.
The reason is that assigned purchase agreements can be iffy. There’s a lot that can go astray between signing them and actually concluding a sale between seller and new buyer. If the sale can’t be concluded, the seller is, of course, likely to get angry. And you want some good cover when that happens.
At our local monthly mentoring meetings we discuss things like a ‘catch all’ escape clause that is easy to get past a seller, ways to avoid giving a check for earnest money deposits, and much, much more to protect yourself and to ensure you get paid. If you haven’t checked out one of our meetings, you should stop by and see what your competition is learning!
To your investing success,
Udo Ginczek
