Assigning A Property. My Responsibilities?
I am new to REI and have a few questions about assigning a property over to another investor.
My stategy for begining a career in REI is to start flipping properties to other investors in order to build some cash reserves. I am starting with very little money and want to know what costs I am expected to cover before I find a buyer for a property that I have locked up under contract.
So.... I have found a property that looks great. It has a FMV of $130k according to the comps. and I can lock it up for $100K. I plan on setting the closing 30 days from now, and giving myself 10 days to do my due diligence on the property. I have told the seller that I would do the inspection, check the title, and check with my partner in this time and that if any issues were to arise that would prevent me from buying the property, they would know in that time frame.
What I plan on doing is calling all of the investors I can find and offering this deal to them in that 10 day period. If I can't find anyone who is interested in the deal, I will walk away from it. If however, I do find an interested party, is that person responsible for doing his own inspection, title search, appaisal, etc?
If the new investor/buyer does all of those things then I do not need to put any of my money into the deal. If, on the other hand, I am responsible for presenting this type of deal to investors with all of those things already done, I will be spending a good bit of money without knowing If I can find a buyer, which in turn could force me to walk away from a deal.
I am going to be very up front with sellers with regards to my intentions on possibly handing the property over to another investor. I am just concerned with how I can do this transaction with the least out of pocket money spent.
Also if you see a flaw in the basic process I am wanting to follow, please let me know.
I appreciate any help anyone can offer and I hope that I am not being redundant to a post that has been covered on this board.
I am no expert on assignments but I'll give you my 2 cents.
I believe that the more work you do in a deal the more you are entitled to. If you birddog a deal and are just getting an investor very preliminary info (i.e. address, owner's name, owner contact info, price wanted by owner, motivation for sale, etc.) and you do no more, in my estimation that would get you somewhere between a $500.00 to $1,000.00 birddog fee.
On the other hand, if you are negotiating with the homeowner and placing the property under contract and then gathering the due diligence (i.e. comps, home inspection, repair costs, title search, loan status, etc.) then you are not birddogging at this point but are wholesaling. You either set your price for the assignment of the contract or you can at least require a reasonable fee of 10% of the anticipated profit in the deal.
In my opinion, birddogging requires very, very little money out of your pocket. Wholesaling requires more money from you but also means a bigger "cut" for you.
If you have no money, birddog a few till you can accumulate enough funds to wholesale a property. Wholesale a few till you have enough funds to maybe partner on a few. Eventually you will get to the point wher you can do one all on your own. Good Luck.
Dave
[addsig]
Dave,
Thanks for the response. What you say makes perfect sense.
I am a little nervous about bird dogging because I don't have any seasoned relationships with investors here in Austin. I would be nervous of just being cut out of the deal.
Wholesaling appealed to me for the simple reason, that I could lock the property up and be a little more in control of the transaction.
I was thinking, if I did all of the research on a property for the comps, inspection, repair costs, title, etc... wouldn't the new buyer/investor want to do his own research, with his own people. If that is the case it would mean that all of the work and money spent by me was for naught. It just seems like a waste of money to have two inspections done on a property. Two title searches, etc
It may be that there is no standard operating procedure for this scenario and I just need to reach specific agreements with the investors in my area.
I plan on doing my own due dilligence to make sure that I am locking up a good deal, but maybe waiting to put up the cash for a professional inspection until I find a buyer, because surely he would want to have his own inspection done by someone he trusts.
Thanks for the help.
Just my opinion on a couple of things.
1. If you plan on flipping the property, than you should need to do much in the way of inspections, appraisals, etc. Let the potential buyer/investor do their own (which they shoudl do anyway). You will at least want comps in the area and an idea of the amount of work required to bring the house up to sale-able or rental condition.
2. Getting a house worth $130k for $100k may, or may not be a good deal. It depends on what type of work the house needs (and what the buyer/investor plans on doing with the house after they purchase it).. If anything, that is at the high end of what an investor would spend to acquire a house. More likely, it would be that amount minus any repair costs the hose needs. Any chance you could get it for $100k less estimated repair costs?
John