Posted by Russ Sims on May 20, 1999 at 12:03:48:
This is my understanding of it: You lease/option a house, no money down, and agree on a $100,000 purchase price. In your contract with the seller, you’ve guaranteed the “right to assign” your interest to an asignee of your choice. Now you find someone who will pay you for your contract. It’s a marketable commodity. You sell the contract for whatever the market will bear. Let’s say $5000. Now they step into your shoes and you are released from the deal. Your contract should state that you have no further liability to the seller once you do this. Now you have your cash and no further responsibility. It’s a get-in-get-it-get-out type of deal.
This is preferred to the simultaneous closing methods by some investors for this reason; let’s take that $100,000 home and assume you are going to flip it on a L/O. You find a tenant/buyer who will agree on a $110,000 purchase price.Cool. A $10,000 profit.Except for this;unless you are very deft at passing the closing costs (there will be two sets of closing costs in a simultaneous close) on to the seller and your buyer, you may wind up paying a few thousand for them (in my state, there is an excise tax of 1.7% due at closing.There goes nearly 2k of my profit) Convincing the seller and buyer to pay these is not impossible, but it makes the deal harder to put together, and less likely to happen.In all, once your costs are subtracted from your profit, you wind up with $5,000 or $6,000 anyway. Why not forgo the hassle and simply sell the contract for that amount. It’s faster and easier.