What’s an assignment fee — The wholesalers guide
Assignment fee:
The real estate wholesalers’ primary method of getting paid. It’s calculated by taking the difference between what the seller agreed on, and what the end buyer is paying for the house
For example:
Let’s call him Jim.
Jim is a wholesaler.
Jim finds a seller who’ll sell her house to Jim for $100,000 CASH.
Jim puts it under contract and takes it to closing.
Jim then finds another cash buyer during the closing process.
This new cash buyer will purchase the contract from Jim for $120,000.
Jim then ASSIGNS the contract to the new end buyer.
The new-end buyer closes on the property with his funds, and Jim pockets $20,000.
An assignment fee is a real estate wholesaler’s staple.
There are other ways to get paid as a wholesaler of course (which we’ll cover in this article).
But if you’re new into the whole world of assignment fees, wholesaling, and real estate, we’re going to give you a deep dive into this article.
Starting with …
Why use an assignment fee
Ever wonder why so many aspiring real estate gurus dive headfirst into wholesaling? Well, the allure of the assignment fee is undeniable. Imagine getting a slice of the real estate pie without having to fork out heaps of your own money to close a deal.
That’s the magic of assignment fees. Essentially, you’re not selling the house; you’re selling the contract to the house.
It’s like holding a golden ticket to a property and then offering that ticket to someone else for a higher price. And the best part? You don’t even need your own cash stack ready to go. You just need a savvy cash buyer with pockets ready to buy that golden ticket off you.
So, with an assignment fee, not only do you sidestep the heavy lifting of traditional real estate deals, but you also make a pretty penny without emptying your own. Clever, isn’t it?
NOTE: If you want to see how much flippers make check out his article.
Are assignments for wholesalers legal?
So, you’ve heard about this whole assignment fee thing, and it sounds pretty tempting, right? But you might be scratching your head wondering, “Is this even legal?” First off, if you’re thinking of jumping into the world of wholesaling, it’s a must to consult with a real estate attorney in your state. The landscape of real estate regulations can be as complex as a plot twist in a best-selling novel. Some states might give you the side-eye if you’re wholesaling without a real estate license. Why? Because in those states, you might be viewed as engaging in the business of real estate.
However, here’s the twist.
When you’re wholesaling or assigning contracts, you’re not truly the central character in this real estate story. You’re not the principle of the transaction. Rather, you’re like the supporting actor, selling the contract to the main star, the principal. But be wary of those gray clouds on the horizon. The industry has its share of posers—those who claim to be cash buyers but may lack the bankroll to close on a property if a real end buyer doesn’t emerge from the wings. It’s like holding a ticket to an exclusive show, only to find out it might be a no-show. So, while the allure of wholesaling is undeniable, ensure you’re on solid ground.
It’s always better to have a clear script before stepping onto the stage.
Do all states allow assignments?
Navigating the world of real estate assignments can sometimes feel like trying to complete a tricky jigsaw puzzle. So, you might be wondering, do all states even allow these nifty little things called assignments? While I’d love to give you a simple “yes” or “no”, the truth is, it’s a bit more intricate. Most states do permit assignments. In fact, if you peek into many real estate contracts, you’ll often spot a little line that reads: “this contract is assignable”. But, like any good mystery, there are twists.
Consider this scenario:
Jim, our wholesaler friend from earlier, isn’t looking to pocket a cool $20,000. Instead, he’s decided to buy a property under his name. But halfway through, he has an “Aha!” moment and realizes he’d rather have his trusty LLC purchase it. So, Jim goes ahead and assigns the contract to his LLC, changing the player in the game without altering the core deal. It’s not always about making a quick buck; sometimes it’s about strategy and structure.
But before you channel your inner Jim or dream up any other creative real estate ventures, it’s wise to sit down with a real estate attorney. Remember, while assignments are a powerful tool in the world of wholesaling, you want to ensure you’re building on solid ground and not about to stumble into any legal pitfalls. It’s all about playing the game smartly.
How to wholesale for assignment fees
(NOTE: we have a wholesaling guide here)
Wholesaling for assignment fees is like mastering a captivating dance, requiring both rhythm and skill. If you’re considering dipping your toes into this arena, understanding the core skills required is essential. Think of it as the choreography of a profitable dance. So, what steps does a successful wholesaler need to know? Let’s break it down.
1. Marketing: The cornerstone of wholesaling is finding those diamond-in-the-rough properties that aren’t on everyone’s radar. The ability to unearth these off-market deals means mastering various marketing strategies. From direct mail campaigns, cold calling, and digital ads, to networking at local real estate events – your marketing game needs to be top-notch. The goal? To get property owners considering selling to ring you up before they even think of listing their property.
2. Analyzing Deals: Not every property you come across will be a goldmine. Being able to evaluate the potential of a deal is pivotal. This means understanding local real estate trends, comparable sales, and having an innate sense of whether a deal is lukewarm or sizzling hot.
3. Estimating Repairs: The hidden costs in wholesaling often come in the form of repairs. Being able to walk through a property and estimate repair costs almost instinctively can be the difference between a lucrative deal and a dud. Whether it’s recognizing that a roof needs replacing, or knowing the ins and outs of foundation issues, your estimates can make or break a deal.
4. Negotiations: Ah, the art of negotiation. This is where you get to put on your diplomat hat. Striking a balance between securing a deal that’s favorable for you, while ensuring the seller feels they’re getting value is an art form. It’s not just about numbers; it’s about understanding motivations, reading situations, and sometimes, knowing when to walk away.
5. Sales: Now, once you’ve got that property under contract, it’s showtime. The sales process in wholesaling isn’t about selling the property itself but selling the idea of the deal. You need to convince cash buyers that your deal is their next big opportunity. Crafting a compelling pitch, building rapport, and understanding what your buyer is looking for are key components here.
In essence, being a successful wholesaler is like being a maestro conducting an orchestra, ensuring each section plays harmoniously. And with each mastered skill, the melody of your success in wholesaling for assignment fees becomes that much clearer.
Wholesalers toolbox for assignment fees
Navigating the world of wholesaling can seem like a maze, especially when you’re just starting out. The good news? There’s a toolkit for that. Just like a craftsman wouldn’t go to work without his tools, a real estate wholesaler needs specific tools and software to operate efficiently. Let’s dive into some essential tools that can help pave the path to your wholesaling success.
1. CRM (Customer Relationship Management)
Recommended CRM: RealEflow (see our review).
Think of CRM as your virtual assistant, keeping track of leads, deals, and interactions. RealEflow is a popular CRM tool tailored for real estate wholesalers. It organizes your contacts, reminds you of follow-ups, and ensures no potential deal falls through the cracks. Why is it essential? Because in the whirlwind of daily operations, a solid CRM ensures you stay on track, prioritizing relationships and fostering potential leads.
2. Website
Recommended and reviewed website builder: Carrot
In today’s digital age, your online presence speaks volumes. Investor Carrot offers tailor-made websites for real estate investors. These sites are not only aesthetically pleasing but are optimized for lead generation. It’s your digital business card, your portfolio, and your first impression rolled into one.
3. Data Provider
Recommended and reviewed data platform: PropStream.
Ever heard the saying, “Knowledge is power”? In wholesaling, it’s more like “Data is King.” PropStream provides you with a rich database of potential sellers. From foreclosures to probates, this tool can be a treasure trove of off-market deals waiting to be discovered.
4. Direct Mail
Recommended and reviewed direct mail company: Ballpoint Marketing
In an age of e-mails and instant messages, you’d be surprised at the power of a good ol’ fashioned letter. Ballpoint Marketing specializes in direct mail campaigns tailored for real estate. Their handwritten-style mailers stand out and often get opened, connecting you with potential sellers in a personalized way.
5. Cold Calling
Recommended and reviewed cold calling dialer: Batch Dialer
While it may sound old school, cold calling remains an effective strategy. Batch Dialer streamlines the process, allowing you to reach out to potential leads efficiently. It’s all about numbers; the more calls you make, the closer you are to landing that next deal.
6. Skip Tracing
Recommended and reviewed skip tracing tool: SkipForce
There’s a certain thrill in uncovering hard-to-find information. Skip Force helps you locate those elusive property owners who might just be your next seller. Think of it as your detective tool, unearthing potential goldmines.
See our top list of skiptracing tools and strategies for investors
7. Driving for Dollars
Recommended and reviewed app for driving for dollars: Deal Machine
When funds are tight, there’s one marketing technique that only requires some gas and keen eyes: Driving for Dollars. Simply put, you drive around, looking for distressed properties. And with the Deal Machine app, you can instantly gather details about a property, snap photos, and even send a postcard to the homeowner. It’s grassroots marketing at its finest.
Here’s another tool that works as a “driving for dollars” tool plus CRM: ReSimpli.
Remember, while tools can aid your journey, it’s your drive, passion, and dedication that will shape your wholesaling future. With the right tools in your arsenal, the maze of wholesaling becomes a well-marked path, leading straight to success. Happy wholesaling!
Avoid risks of Wholesaling
Whoelsaling does come with some risk.
And that’s NOT finding a buyer.
Then you have to either renegotiate or worse walk away from the seller in shame
There’s a strategy to reverse some risks. It’s called Reverse Wholesaling which you can read about it here.
Alternatives to Assignment Fees
Stepping into the world of wholesaling might feel a tad overwhelming, especially when you’re just finding your footing. Sure, we’ve talked about the assignment fee and the story of Jim, our savvy wholesaler. But here’s the catch: assignment isn’t the only dance in town. There are other strategies at play, and understanding them can open up a variety of options for your real estate deals. Let’s explore one major alternative: the double close.
Double Close Explained:
Imagine a sandwich. The double close, often called a “simultaneous close” or “back-to-back close,” is pretty much like that sandwich. Instead of assigning a contract, the wholesaler essentially has two closings almost back to back. First, they close the deal with the seller. Then, shortly after, they close with their end buyer. Unlike an assignment, the end buyer never sees what the original purchase price was, adding a layer of confidentiality to the transaction.
Pros and Cons to Assignment Fees:
Pros:
1. Simplicity: No need to go through two closings. Once you find a buyer, you assign the contract and collect your fee.
2. Transparency: Both the seller and the buyer are fully aware of the agreed prices and the wholesaler’s profit.
3. Low Costs: Since there’s only one closing, you generally have fewer costs to worry about.
Cons:
1. Profit Exposure: Because the end buyer sees the original contract price, they’ll know your profit. This might lead to some hard questions or even renegotiation attempts.
2. Buyer Restrictions: Some end buyers, especially institutional ones, might not be comfortable with assignment deals.
3. Limited Earnings: Your earnings are capped at the assignment fee. You can’t benefit from potential increases in property value.
Pros and Cons to Double Close:
Pros:
1. Privacy: The end buyer doesn’t see what you originally contracted the property for. This keeps your profit margin concealed.
2. Higher Profit Potential: If the property value increases between your two closings, you could make more than just your anticipated spread.
3. More Flexibility: Without the constraints of assignment, you can be more flexible in your terms, especially with end buyers who may be wary of assignment deals.
Cons:
1. Complexity: Juggling two closings can be intricate and requires meticulous planning.
2. Higher Costs: With two separate closings, you’ll have more fees to take care of, which could eat into your profits.
3. Funding Needs: You might need transactional funding to cover the first closing, especially if there’s a gap between the two closings.
In conclusion, while the assignment fee strategy is straightforward and popular, it’s not the only method in a wholesaler’s playbook.
Whether you opt for the assignment route like our friend Jim or decide to venture into the double close territory, what’s important is understanding the nuances of each and picking the strategy that aligns best with your goals and comfort level. And as always, a piece of golden advice: always stay informed and never stop learning.