There's an inherent problem in using an assignment to flip a property. Unfortunately, I've yet to see midnight gurus (some of those who promote it on late night television and elsewhere) explain this. So here goes.
Almost all sellers have a kind of personal relationship with their buyer. They want to know who's buying their property. (This is even the case with banks, which almost always insist on knowing exactly with whom they're dealing.) When you assign the purchase agreement, you break that bond. Most buyer and sellers, nevertheless, are willing to go along provided the deal concludes in a reasonable fashion. After all, they're still getting a purchase or a sale out of it.
However, when they discover that you're reselling the property at a substantial profit, some are very unhappy. After all, they conclude, what are you adding to the deal? They feel that your profit should go into their pocket.
As a result, you could have an angry seller (or buyer) on your hands who at the least refuses to sign off on the deal unless he or she gets more money, or at the worst, takes you to court. Thus, to oil the waters, many investors who flip in this manner just don't tell the buyer or seller. What they don't know won't hurt them.
Therein lies the rub. There shouldn't be anything illegal or even unethical in flipping property, as long as all parties involved are made aware of what's happening. However, when one party doesn't know what's going on, there are all kinds of opportunity for things to go wrong.
If they're being frank, any good investor will tell you that flipping works best in secret. If the seller doesn't realize you're making a $30,000 profit on the sale, he or she isn't likely to complain. But, in the same breath that good investor will tell you to bite the bullet and let the seller know. It will save you all sorts of trouble later on.
Remember, it shouldn't make any difference what you do with property after you and the seller agree on price and terms. If you can flip it to another buyer for a better price, so be it.
Will the Buyer Get Mad at Me?
Probably not, if you handle it wisely by letting the buyer know what you're paying for the property (and getting confirmation on a signed statement from the buyer). On the other hand, if you conceal the information, the buyer may discover it later on and think you were trying to pull a fast one, and go after you.
TIP: Don't get greedy. Surprisingly, as long as you're selling a good deal, most buyers won't care in the least that you're flipping or how much you're making on the deal. As long as they're assured they aren't paying too much, chances are they'll be happy.
Tip: Work with Buyers you know. Some lowlife investors may try to go around your back and deal directly with the seller and cut you out of the deal. I teach my Platinum Mentoring students how to circumvent this problem before it happens, no matter who you are dealing with.
What's the Right Way?
The right way to handle a flip is to be sure that all parties know what you're doing (and get it in writing in case someone should later have an attack of memory failure). Quite often when they learn of it, they'll admire you for it. After all, remember that you're providing a sale for a seller who wants to get out. And you're providing a deal on a house for a buyer who wants to get in. Why shouldn't you be entitled to a profit for that? It's a win, win, win situation! (First-timers should get an experienced mentor to help with an assignment. Once someone holds your hand through your first deal, you'll be off to the races on the next one.)
To your investing success,
Udo Ginczek
http://www.netbuc.com
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