Quote Originally Posted by Chrisopher Moltisanti
Hello Michael,

It's Chris from RE forum. I've been on the forum now for a while and have read your posts. Yours seem to be detailed unlike the others who only give one or two sarcastic quips.

I wanted to ask you if you personally have any experience flipping contracts? Can you tell me if I have this correct:

Years ago, the overpriced program I bought naturally, never told me how I made money by flipping contracts. All I could deduce myself seemed to be: the more I lowered the asking price the more money I would make as a finders fee IF the buyer/investor agreed to that price of course. BUT.

I located a FSBO in a rich neighborhood in New Jersey, where I used to live. I convinced the seller to let her house go for 20% less than what she was asking. She was literally in the process of moving when she agreed.

On the contract, I put the house's original asking price because I thought that's how it was done. Now when I presented the contract to a prospect, with the original asking price, the seller saw the original asking price and grabbed the contract and ripped it up. She ripped it up because she knew that I was going to flip it.

However, if she hadn't and I flipped the contract to a buyer, I don't understand how that 20% would have become mine. The buyer would have agreed to the original asking price and that money would have gone straight to her bank account. I wouldn't have gotten any of that.

This scenario wasn't bird-dogging: I was simply looking to flip the contract to the first available and qualified buyer. I had six months per my contract to locate a buyer too. I wasn't working for a firm or an investor is what I mean.

Any thoughts would be greatly appreciated.

-CM
First, I hope that I am not over-stepping my bounds when I pull this question from a private message into the forum, but since this is a pretty common question that I get, as well as a great teaching topic, I have decided to do so.

Chris, well you did a couple of steps wrong, which were putting the original asking price on the contract, as YOU are not buying the house for the original asking price, but you are buying at the 20% discount... You need to realize that the P&SA (offer to purchase) is a CONTRACT, and it is a legal and binding contract, something that is enforceable in a court of law. If the seller would have signed that contract, YOU WOULD BE OBLIGATED to pay the contract price (good thing they did you a favor and ripped it up,) as they could have sued for non-performance, though that is usually limited to any earnest monies that were given... Unless you are writing your own contracts, where this limitation is not specified.

Basically, this is the process for wholesaling, which is when you don't do any work on the property, though work is needed, and all you are doing is being a middleman. Of course if the house is in great condition, and no repairs are necessary, then the flip might fall into retailing, but that is probably not the case, and why introduce another topic in this one, so I will stick with wholesaling.

Step 1: Find the prospective property.
Step 2: Negotiate a purchase price with the seller.
Step 3: Bind the agreement with a P&SA.
Step 4: Find a investor/rehabber that is interested in paying MORE than what you negotiated with the original seller.
Step 5: Bind the agreement with the investor/rehabber with a P&SA.
Step 6: Go to closing and use the funds from the investor/rehabber to close on the original P&SA, and you keep the margin.

There is another way, which is simpler:

Do Steps 1-4 above.
Step 5: Assign the original P&SA to the investor/rehabber for the difference in what you negotiated and what the purchase price is. Therefore you don't need to close, and you get the margin right away.

That is a very high-level view of how flipping is done. Have any other questions, or are there any areas that are not clear?

Let me know!

Later!

Michael