4 Ways to Flip Houses and Make a Fortune!

How to Flip Houses – Two Types of Deals

In the business of house flipping, there are essentially only two types of deals. Those two deals are Wholesaling and Retailing.

Wholesaling is the business of locating distressed properties at bargain prices and turning them over to investors and bargain hunters.

Retailing is the business of locating distressed properties at low prices and selling them to end buyers.

How to Flip Houses – Assignment of Contract

Assignment of contract simply mean that you are creating an agreement between you, the buyer, and the seller that is assignable. When done properly, an assignment of contract gives you the right, but not the obligation to purchase the property.

This essentially means you then, resell your right to buy the said property. A new agreement is then drawn up between you, the buyer (who now becomes the assignor) and the new buyer (who now becomes the assignee) who pays you for your right to buy the said property. A fee (assignment fee) is negotiated on top of you purchase price.

Documents Required

1. Purchase and Sales Agreement
2. Authorization to Release
3. Notice of Settlement or Recorded Contract
4. Assignment of Contract

Things That Can Go Wrong

• Failing to purchase the property you are not liable for anymore than your binder deposit.
• Your contract is time sensitive (learn to protect yourself by clouting the title – Notice of Settlement).
• Turning – Approximately 65% of banks loaning on purchases via assignment of contract will kill the deal if they have dubbed assignment of contract flipping. Though it is not illegal, it is against many bank’s policies because people who have purchased properties via assignment of contract have a higher rate of default within the first year.
• 3 people at the closing table can present a problem. Seller and buyer may not understand why you’re making money and may try to cut you out.

When Assignment of Contract Should Be Used

This strategy works best in foreclosure situations where your contracted date exceeds the date of foreclosure of sale. Assignment when you are selling to cash buyers and banks are not involved.

How to Protect Yourself

• Through the liquidated damages clause. this clause state that the only recourse the seller has against you and/or your company is the retention of your initial binder deposit.
• To form a contract and/or agreement there needs to be some sort of exchange between the buyer and the seller.
• The seller must acknowledge the exchange in writing. The written words always supersedes the spoken word. If there is not an exchange, there is no contract. (It is recommended that not only is your binder deposit acknowledged in writing on your purchase and sales agreement, but it should also be given by check whenever possible.)
• Binding – any monetary exchange and in fact, any exchange that is acknowledged by the seller with a signature forms a binding contract and/or agreement. Even one dollar is binding.

How to Flip Houses – Subject To

Subject to is essentially assuming non-assumable loans. Purchasing property subject to means purchasing or taking over properties subject to all existing leans and/or judgements.

• Title is transferred via deed
• Deed is recorded at the courthouse. (You are now the owner in the public eye). Title is granted to your name, your company or a land trust. *Special wording for deed when taking title to a property subject to. [Clause: Mortgage amount in numbers, mortgage amount in letters. Of which sum represents the current outstanding principle balance of the mortgage, in favor of {The name of your sellers/seller} to which grantee is taking title subject to.]
• After recording, you are the new owner of title. Property can then be resold, and new financing is taken out, existing mortgage is paid off, and you convey title to new owner via deed.
• The buyer pays Transfer Tax upon recording.

Advantages

The seller transfers the title and then the seller is no longer required. You now have ownership of a house without using your own credit. The seller’s mortgage functions as no-recourse debt to you.

By selling one of these houses as a use and occupancy/rent-to-own, you are offering this home to 100% of the population of buyers. This is because 60-70% of people, cannot qualify for a mortgage.

Disadvantages

Some of the disadvantages include, 6-months to 1-year title seasoning. Chain of Title, because of this you are in fact the owner in the public eye and will be liable for property tax and insurance. As a result, you will have to pay transfer tax upon purchase and transfer tax upon the sale.

Required Documentation

1. Purchase and Sales Agreement
2. Authorization to Release
3. Letters of Agreement and Addendum
4. Deed
5. Seller’s Residency and/or Exemption Form

How to Flip Houses – Short Sale

A short sale is creating equity in a property that has little to no equity or negative equity. It is the process of getting banks to take a discount. In order for a bank to consider a short sale, the loan on the property must be at least three-months behind in payments. At that point, the loan becomes a non-performing asset. And the foreclosure process is initiated.

• You must be on the same team as the seller, as you will need to work hand in hand with them over an extended period of time to produce documentation required by the bank.
• After the property is three-months in default – contact first and second lean holders on the property and advise them that you are THE BUYER.
• Fax a cover sheet and an authorization to release form to the foreclosing banks. Request a payoff statement and a short sale packet.
• If the bank advises you that they do not do short sales or they say no, simply wait two weeks to one month and request a short sale packet again.
• Once you receive the short sale packet, you must fill it out in the required amount of time and return it to the bank’s loss mitigation department. Short sale packets will vary from bank to bank/lender to lender. It is your job to paint a bleak picture of the present situation using documentation from the seller. Documentation requirements will vary from lender to lender.

Process Continued

Once you return everything to Loss Mitigation Department and accepted, the bank will order a BPO (Brokers Price Opinion) or a bank appraisal. The number determined by the BPO will be the new value of the property. Usually, banks will accept anywhere from 80-100% of the price dictated by the BPO. You will then need to come to an agreed upon price with the loss mitigator. You will then receive an acceptance letter with conditions that you will need fill before closing at the newly determined value. Then you will have to purchase the property conventionally at the newly accepted purchase price, or purchase and resell it the same day to an end buyer via a simultaneous closing.

Disadvantages

• The Seller cannot legally make any money off the transaction. Furthermore, banks will not accept any short sale where the preliminary HUD dictates the seller is walking away with any monetary compensation.

Required Documentation

1. Purchase and sales agreement
2. Authorization to release
3. Escrow Letter
4. Letter of agreement and addendum
5. Power of attorney
6. Deed
7. Affidavit of title
8. Certificate of non-foreign status
9. Sellers residency
10. 1099

Additional Documentation

1. Hardship letter
2. Pay stubs
3. W-2’s
4. Credit report
5. Bank Statements
6. Listing agreement
7. Financial worksheet
8. Documents may vary from bank to bank

How to Flip Houses – Absolute Assignment of Rights

Absolute assignment of rights allows you to control and resell property as the seller.

• It does not trigger flipping or seasoning with your buyer’s lender.
• Absolute assignment of rights avoids three people at the closing table.
• You only have to pay one set of transfer tax.
• Avoids the chain of title, property taxes and homeowners insurance.

The purchase and sales agreement is drawn up between the new buyer and seller, it is technically considered a breach of contract because you still have the first purchases and sales agreement with the original seller in effect.

• You will essentially be breaking the terms of the first contract in order to put the second contract into effect. Buyer and seller both sign the 2nd agreement so the mortgage company will be relieved because they will see no flipping going on.

You will never take title to property, so you will only have to pay on set of transfer taxes. You will not have to worry about being in the chain of title, property taxes, or insurance.

All of your documents will have original signatures that buyers and sellers, attorneys, mortgage companies, and title companies will OK.

• When it comes time to close, a HUD statement will be drawn up. The HUD statement will have buyer and seller on it.
• You will sign the HUD using power of attorney. This lets you close the deal but not get the money.
• The absolute assignment of rights document allows you to get paid. It should be given to and approved by the buyers closing agent.

Required Documentation

1. Purchase and sales agreement
2. Authorization to release
3. Escrow letter
4. Letter of agreement and addendum
5. Power of attorney
6. Absolute assignment of rights document
7. Deed
8. Affidavit of title
9. Seller’s residency or exemption form
10. Certificate of non-foreign status
11. 1099
12. Notice of settlement

Conclusion

How to flip houses without using your credit or very little money can be done very easily by using any one of these strategies. Which works best always depends on your desired outcome and who you are marketing to.