Assign My Contract To My TB's
I got started in REI with sandwich lease options. I'm looking to raise some cash off these by assigning my contract to my tenant buyers.
First house: My option to buy is at $165k by 2007, my rent is $1000/mo. My tenant buyers price is $189900 and must buy by 2006, he pays $1200/mo. Price spread = $25000.
Second house: My option = $85000 by 2008, my rent = $700/mo. TB's price = $106000 and must buy by 2006, she pays $850/mo rent. Price spread = $21000.
I'm gonna ask each TB (both are great tenants, pays on time or before) if they'd like to take over my contract with owners by paying me $12000 now for first house and $10000 for second house.
Benefits to TB #1: $13000 discount on price, $200/mo savings on rent, extra year to exercise option.
Benefits to TB #2: $11000 discount on price, $150/mo savings on rent, two extra years to exercise option.
This sounds like a great deal to me. I think both TB's can come up with the assignment fee if it saves them this kind of money. I share this plan to see if any of you have done this before, or have any insite or selling points on this plan...anything you see that might bite me later, how to cover my assets with proper paperwork on this one. I figured a simple assignment contract would do the trick...then have owners sign acknowledging assignment.
I want to be done with these two L/O deals...plus I could really use the $ now.
Any thoughts much appreciated.
somoose
What have each of them paid in Option consideration? The extra time to exercise their Option is a big selling point (lower price plus appreciation). I see no immediate problems with this, but an assignment is close to looking like what a real estate agent does and can get the attention of the local licensing board if you do a lot of them (or get you into trouble in some states that have a law against being a "dealer of Options"
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I would discourage anyone from ever assigning a L/O to another investor, though, under any circumstances. Every Contract is assignable unless it specifically states otherwise (and every Lease can be sublet), but the L/O Agreement with the Seller should always give you those rights (so you are disclosing in writing everything you intend on doing).
The Contract should also state that if it is assigned, it will release the original T/B from liability and substitute the assignee in his place. In actuality, that is a bluff, because if it ever goes to court, you are fully liable for everything your assignee does. This would be a dangerous position to be in--full liability with no control over the outcome. You can assign a Contract, but you cannot assign liability.
In the scenarios you give above, since the T/B is already in the home, I see little concern, but do be aware that even though the Seller signs off on the assignment or even signs a release, you are still bound to each property IF it went to court. It's not likely anything would go wrong, but anything is possible; in other words, you can't just walk away (though the Seller will probably think that you are now free from the Agreement).
[addsig]
if you are "assigning the contracts. you have not ever actually owned the prop. have the contracts reflect you are assigning only and are not liable in any way and your covered.......km