A title commitment is what the title company does here before they actually close. It is a title search that tells of all recorded documents up to a certain point. The title insurance covers you with an insurance policy from the day you close. When you get an abstract of title it will only tell you the status of the title but not give you any insurance. Same thing as you call a title search. You can also have the names of the seller checked for judgements. Title companies here are in the business of selling the insurance so you have to go to other companies to get an abstract. In states like Oklahoma an abstract compilies all documents from the beginning of history as they know it.
While you may not be responsible for making sure there are no defects on the title the end buyer is likely to be the one most concerned and won’t close until they can get a title policy. If you have flipped property to the same investor before you may get your assignment fee up front at the time you assign the contract. Others will want to close first with title insurance before they pay you.
Flipping and Assignment questions (semi long) - Posted by Eric(N.CA)
Posted by Eric(N.CA) on December 27, 2000 at 03:56:32:
Let me preface by saying I’ve been reading the threads for several months now and have also been diligently checking the archives (as far back as they go seems to be about Sept). So, please do not suggest I do this in your answer. Without sounding harsh, I’d prefer if you didn’t reply if that’s all your answer will be.
I’m considering doing flips with an assignment clause so I can do a wholesale transaction. However, I’ve never been able to get some needed “detailed” information about some real costs associated with it. Part of my problem is I’m trying to do this “under the radar” of my spouse since she has a full time J.O.B. and has never understood anything as risky as being self-employed and not having a steady paycheck. I would much rather do one or two deals and then be able to “Show Her the Money!”.
Are there any up front fees when you find a buyer and sign a Contract to Purchase with them? (ie Title Co. costs, filing fees, etc). I know that closing costs (if any) are tacked on at the end. What about with assignments? How much does a title check cost and can that be built into the backend by most title companies?
If you assign your contract to another investor or buyer, do you still go back to the original seller and close? or is that done only when you purchase and then sell to another buyer (non investor)? or does the new “buyer/investor” now take over from there? Doesn’t the original seller find out about it? Does this become an issue? Especially if they like you and think they are selling their house to you, not someone they don’t know. (people are attached to their homes after all, even if they are selling)
What is a good length of time to tie up the property? I’ve heard 60 days is good, but doesn’t that blow the “Fast close” usually advertised out of the water? Aren’t you being misleading if that’s the case?
Many investors recommend getting a home for about 60-70% FMV to make it a good deal. Homes around here are averaging about $165k. With a 65% factor, that would mean I’d have to try for $107.5. That’s a mighty big spread (almost $58k!). I know that hard money lenders will only go up to 65%, so that would only be a concern to me if I needed to take advantage of a loan from them for this purpose. When you’re dealing with lower value homes, 65% doesn’t mean that much of a difference. So my question is, with higher priced homes, what’s a little more of a realistic number to work with that I can factor on for an assignment so we both make money and I can still find more deals instead of waiting for the EXTREMELY motivated seller who will take $108k?
My major concern is up front money. If anyone can give me straightforward answers to these questions, I’d be most appreciative. I’ve been going crazy trying to figure these out.
Re: Flipping and Assignment questions (semi long) - Posted by Bob-TX
Posted by Bob-TX on December 27, 2000 at 11:46:31:
Good answers! I would add just a few things - I suggest running an ad in your local paper for a fixer upper, cash price to investor. Taking those calls will get you a bunch of investors looking for hot properties. Ask lots of questions (I know, you don’t have the house yet, but be up front with the callers, let them know you are building a data base of interested buyers for the houses you will be finding based upon their needs). Then go find what they are looking for.
Write your contracts up so that they are assignable…don’t worry, rarely will a seller question this.
When you have a buyer they should submit a full blown contract with earnest money. I take that to the title company along with a signed assignment agreeement. When your buyer goes in to close they will have him sign the assignment and then close on the original contract so there is no double close. I suggest you pick the title co. as additional control mechanism.
Re: Flipping and Assignment questions (semi long) - Posted by LeonNC
Posted by LeonNC on December 27, 2000 at 10:51:05:
Are there any up front fees when you find a buyer and sign a Contract to Purchase with them? (ie Title Co. costs, filing fees, etc). I know that closing costs (if any) are tacked on at the end. What about with assignments? How much does a title check cost and can that be built into the backend by most title companies?
If you really want to know what it will cost IN YOUR AREA you need to do your due diligence and get on the phone and call around to find out. I know the costs in some areas prohibit you from doing a simultaneous closing. When you get a property under contract and have the intent to wholesale it you should have a title search done first. In my area it’s about $100.00. You will have to pay an earnest money depost…as little as you can negotiate. I did it with $10.00 onetime. If I’m working with a realtor it’s usually $500.00.
If you assign your contract to another investor or buyer, do you still go back to the original seller and close? or is that done only when you purchase and then sell to another buyer (non investor)? or does the new “buyer/investor” now take over from there? Doesn’t the original seller find out about it? Does this become an issue? Especially if they like you and think they are selling their house to you, not someone they don’t know. (people are attached to their homes after all, even if they are selling)
If you assign your contract and you have the right to assign the contract you are not obligated to tell the seller you are assigning it but personally I’d feel kind of funny if I didn’t. I tell the seller and have them sign the assignment agreement and a release of liablity. Once everyone signs the assignment agreement and you get paid, your buyer takes over from there and you are out of the picture. Done!
What is a good length of time to tie up the property? I’ve heard 60 days is good, but doesn’t that blow the “Fast close” usually advertised out of the water? Aren’t you being misleading if that’s the case?
It’s good to tie it up for as long as you can. But, you need to put yourself in the sellers shoes and ask yourself would I let someone tie my property up for this amount of time. I usually go with 30 days. It usually doesn’t take that long to flip it if it’s a good deal!
Many investors recommend getting a home for about 60-70% FMV to make it a good deal. Homes around here are averaging about $165k. With a 65% factor, that would mean I’d have to try for $107.5. That’s a mighty big spread (almost $58k!). I know that hard money lenders will only go up to 65%, so that would only be a concern to me if I needed to take advantage of a loan from them for this purpose. When you’re dealing with lower value homes, 65% doesn’t mean that much of a difference. So my question is, with higher priced homes, what’s a little more of a realistic number to work with that I can factor on for an assignment so we both make money and I can still find more deals instead of waiting for the EXTREMELY motivated seller who will take $108k?
Don’t just use a number like 65% of fair market value or after repaired value. If you haven’t bought a course yet I would recommend doing so or at least buying some books and learning exactly how to structure an offer on these. You can’t worry about how low the offer is. You need to focus on what number WILL WORK for YOU. One that Ron Legrand uses is (Fair Market Value) X (70)% - (Repairs) - (Your Profit) = (Purchase Price). And remember you usually need to find a motivated seller to do this.
If you are dealing with sellers directly $10 if anything is all you need for earnest money on a contract. If you are dealing with the MLS world of realtors they want $500 or more. Motivated sellers want you to solve their problem and aren’t worried about up front escrow money. Realtors don’t understand flipping. Title companies around Texas will do a title commitment free based on the assumption that you are going to buy title insurance through them. Don’t abuse them. You can get an abstract of title in the $50-75 range.
If you are dealing with a motivated seller they don’t really care. If you don’t want your buyer or seller to know about each other you can close both ends simultaneously. While you can flip retail the profit may be bigger but it is much easier to work with an investor. Both from the aspect of finding them quicker and they will do their own due diligence.
If you are buying at the right price as you describe in your next item you won’t need 60 days. You will already have a list of potential investors that can buy. If you want to try and sell retail you may need all the time you can get. Retail buyers seldom have all cash and need to get a loan. This may take a month or two. While you may advertise a fast close unless you have the hard money lined up where you can do it yourself it becomes a little white lie. It that bothers you tell them up front this case will take longer.
When you hear about 60-70% fmv you are dealing with houses that need work. Maybe foundation work or a new roof besides paint and carpet. There is also some other type of motivation there- divorce, loss of job. Yes, it would be hard to find a nice house that did not need repair that someone would sell to you and you were into it for only 65%. On a rehab the end figure is more likely 75% so you almost have to have some capability for the extra money. You always look for vacant or run down houses in older areas that can be fixed up. In newer areas there is probably not the equity build up that they will sell to you for these low prices. You then have to adjust your approach to use subject to, L/O or Pactrust type arrangements. I get numerous leads of high end houses that someone wants to flip. There is 50K possible profit but they contracted to give the seller $200K cash. If I contacted a seller like that there may well be a 125K mortgage and 25K work needed. I could arrange to give them 10K now and 40K when it was fixed and sold. However, there are many more pretty houses that need no work that has 20% equity that I can buy with the existing mortgage in place and have to give the seller very little if any cash.
You do need to find sources of money. Other peoples IRA’s, investors and maybe even a relative. You also need to accumulate some funds to start some marketing. You can skimp and do a lot of cold calling but post cards/letters and advertising will be needed. Education is also needed. Without it no one would recommend striking out on your own. You will also need the right mindset to succeed. Overcoming yourself may well be the biggest obstacle.
Can you clarify a few points please? - Posted by Eric(N.CA)
Posted by Eric(N.CA) on December 27, 2000 at 12:20:23:
Bud,
First off, thank you for your time in responding in depth. I have a few follow up questions.
On number one, can you explain what a Title Committment really means? What about an abstract title.(new term for me) How is that different than a title search?
On number 2, the investor I may flip to then does “Due Dilegence”. Aren’t I responsible for making sure it has a clear title first before I flip? What other due dilegence would they need to do after that?