949-392-1999
The assignment is by far the easiest of the Lease Purchase strategies and requires the least amount of investment and risk in order to do the deal and profit upfront. Instead of taking the property and subletting with an option or sandwich leasing you can actually sell the contract to another. You have created a valuable marketable commodity! You can sell and even create a note by financing the sale of the lease purchase agreement, too.
An assignment is when we negotiate the deal with the owner of a property and it contains all the terms of the transaction within the specialized written contract. We can then assign (which means to sell) the contract to a third party. This can be either the Tenant/Buyer or another investor. This is normally a lease purchase agreement which contains a specific assignment clause with the right to sublet, transfer or convey any rights within the original contract with the owner to another principal party.
Example: An investor finds a property in a good neighborhood/school district. The owner of the property had tried to sell it, had put up a for rent sign, since he’d be moving to a new state and didn’t want to get stuck with two mortgage payments. The property was worth $100,000 and the seller had a mortgage for $95,000. His payments were $1000 per month PITI (principal, interest, taxes, insurance). The real estate agents wouldn’t list the home because there was not enough profit to pay a 6% commission. The investor offered to lease purchase the home with the right to assign and purchase for the balance of the mortgage. The investor would also pay the $1,000 per month with a five year contract and would be responsible for any monthly maintenance/repairs under $100. And the investor would pay $1,000 down as option money and the first month rent with a 20 day lead before payments were to begin.
The owner agreed and the investor began calling all his tenant/buyers from previous ads. One tenant/buyer (with kids) had just filed a bankruptcy, but was looking for a home in a good school district and safe neighborhood. He knew that he would need at least 2 years before he would be able to get a new mortgage and save the down payment. He was perfect for this home. The investor told him he could move into the home, purchase it for the balance of the mortgage and that the investor would sell him the contract (assignment) for $6,500. He only had $3500, but he really wanted the home. The investor told him that he would take the balance of the assignment fee as a personal note (unsecured) at 0% if he paid on the first of the month. He could pay the investor $250 per month and pay off the note in 12 months. He agreed. The investor recovered his $1,000, made a $5,500 profit ($3,500 cash and a $3,000 note) and was out of the deal. Assignments are great for flipping homes without buying them. As usual, everyone wins in a lease purchase.
Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a real estate investing blog, newsletter and podcast for seniors and retirees. His personal real estate investing goal, which is being chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in 6 years. Prior to real estate, Bill and his family lived in Port-au-Prince, Haiti as missionaries, serving orphaned, abandoned and at risk children for their nonprofit organization Child Hope International.
