Questions on contract assignments - Posted by Owen

Posted by Owen on May 27, 2006 at 09:07:25:

Thanks very much for you input- very helpful.

Questions on contract assignments - Posted by Owen

Posted by Owen on May 26, 2006 at 09:01:11:

I have experience in rental properties and rehab projects, but I am very intrigued by contract assignments. I have some questions about the mechanics of how they work, and I am hopeful that some of you may be able to answer them.

  1. Am I correct in thinking that you must include the clause “and/or his assigns” in the purchase agreement in order to flip a contract? What if you have a signed purchase agreement, but did not include this clause?

  2. How do you actually get paid by the buyer of your contract? Do they actually come to the closing with a cashier’s check for the seller and one for you? For example, let’s say I have a purchase agreement for $80K on a property. I then find a buyer that would like to purchase the property for $100K… How does the closing work (I live in Iowa, if that is relevant), and how do I get paid?

  3. What would be the tax circumstances on a $20K contract assignment like this one? Can you do a 1031 exchange on the profits?

Thanks in advance for your advice!

Re: Questions on contract assignments - Posted by lukeNC

Posted by lukeNC on May 26, 2006 at 17:57:10:

  1. and/or assigns can work…

  2. you get paid when the guy buys your contract. Basically buying your “right to purchase” at that price you negotiated. you get paid upfront and they close directly with the seller. in your example, the buyer pays you $20k and then settles with the seller for $80k. Now, this is very rare because most people are not going to pay $20k cash. Most assignments are around $3k to $5k

  3. you could roll that in a 1031 exchange or throw it into another deal.

Re: Questions on contract assignments - Posted by John Corey

Posted by John Corey on May 28, 2006 at 14:23:49:

1031 and assigning a contract is not going to work.

Assume that any money made on an assignment is going to be taxed as ordinary income. If that means it is not worth doing the assignment then structure the deal differently.

John Corey