Stealth Contract Flipping: Are Florida real estate attorneys the only ones that know about this?

While most everyone is familiar with typical real estate transactions, where a homeowner sells a home to a buyer, who agrees to a contract and purchases the home, those of us in Florida’s legal profession are noticing that our clients have become interested in another type of real estate transaction that can be quite lucrative: contract flipping.

To put it simply, with contract flipping, also known as wholesaling, the home buyer transfers the rights of the purchase contract to another buyer.

Contract flipping is an attractive option for many interested in taking advantage of the current brisk-paced real estate market, as it has relatively low risk, and you don’t need good credit or a lot of upfront cash. Basically, all the contract flipper needs to do is find a property, negotiate and sign a contract, and then flip that contract to a new buyer to make a profit, which commonly take an assist from his or her real estate attorney.

Unlike house flipping, you are not actually buying the property or doing any renovations. All the contract flipper does is secure the right to sell the home to someone else who will do those things.

This is advantageous for all involved. You are helping a distressed homeowner unload a potential financial burden, and you’re connecting investors, pressed for time, with a suitable property absent the considerable research legwork involved.

While it sounds easy, contract flipping is not without its pitfalls, and it takes a lot of time and skill to do it profitably. Here is how to wholesale like a pro.

Step One: Find a Property

The first step in a successful contract flip is finding the right property. This usually means a distressed property or a motivated seller. Motivated simply means they are eager to sell. They might have received the home as an inheritance from a deceased relative. Maybe they’re going through a divorce or facing foreclosure. Or perhaps they lack the time or funds to make needed repairs.

To locate these motivated sellers, check your local courthouse for recent lis pendens or notice of default filings. To save time you can also purchase a list of delinquent homeowners.

Step Two: Contact the Owner

Once you have identified a suitable property, it’s time to contact the owner. Be up front with your intentions. Some flippers will not reveal the fact that they are wholesalers and identify any buyers they’ve lined up as their partners, but this is disingenuous. You’ll need to explain what wholesaling is because it’s likely they’ve never heard of it. If they don’t feel comfortable working with you walk away.

Step Three: Determine the Property’s Value

They key to profitable real estate contract flipping is getting homes under market value. Just as you would in a traditional real estate transaction, review properties in your area with a similar square footage, number of bedrooms and bathrooms, and other amenities. Determine the average selling price and time on the market. You need distressed properties at rock-bottom prices to make wholesaling work.

Step Four: Write the Contract

Now it’s time to negotiate contract terms with the homeowner and get them to sign. The legal term for this is what is known as an assignment agreement, which gives you the right to sell the contract to an end buyer. Once the seller assigns you that right, you will sign a separate purchase agreement with the buyer.

Step Five: Find a Buyer

Finally, when you have a property under contract, it’s time to find a buyer. Ideally you should have one lined up already, so to make things easier you might want to start building a list of potential buyers before you start scouting for properties. With more buyers to choose from at once you might get a better deal, and you can close and get your money faster.

How Much Money Can You Make Flipping Contracts?

There is technically no limit to the amount of money you can make as a real estate wholesaler, but it depends on the amount of work and effort you put into it. Running down suitable properties takes a lot of time and legwork, which impacts your income. Some well-established contract flippers make over 6 figures, working less than 40 hours per week, while others struggle to close one deal. Experienced wholesalers can make between $5,000 to $10,000 per deal, but it can take a lot of hours to track down those deals. Grow your network of property owners and investors. Make friends with house-flippers. If you can locate new deals consistently, you might be able to negotiate minimum fees or per-deal agreements with them.

Contract-flipping isn’t for everyone, but it’s a great way to get started in home investing for the right person. If you’re savvy, love making deals and have a strong network, you have a solid foundation for success. Familiarize yourself with the laws concerning wholesaling in your state, and you’ll be off to a good start.

Assignment agreements, just like any type of real estate contract, are best constructed by a real estate lawyer. The Florida Bar Board-Certified Attorneys David E. Klein, Esq. and Guy Rabideau at Rabideauklein.com help ensure your interests are protected and you are in compliance with all local and state ordinances in the Town of Palm Beach, South Florida and throughout the state. You are welcome to contact Rabideau Klein when you’re ready to enter into any Florida property contract.

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