Assignable Contract: Everything You Need to Know
An assignable contract is an agreement that lets the owner of a particular asset transfer the rights and obligations to someone new.3 min read
2. Assignable Contract and Real Estate Investments
3. Tips for Making the Most of Assignable Contracts in Real Estate
Updated July 13, 2020:
An assignable contract is an agreement that lets the owner of a particular asset transfer the rights and obligations to someone new. This new owner will reap the benefits of the assets before the contract closes. In most cases, assignable contracts are used in the futures market. However, not every contract in the futures market is assignable, so you need to pay close attention if you are planning to invest in this way.
Examples of Assignable Contracts
To better understand how assignable contracts work, here are three examples that show how a contract holder can lock in a profit before the contract expires.
- Mary Beth is a coffee trader and has a contract to buy from a certain producer for a set price until the end of June. Because of poor growing conditions, the price of coffee has gone way up, meaning that Mary Beth is underpaying and can make a big profit if she sells her coffee purchasing rights. Therefore, she sells her contract to someone else, and this other party now holds the value of the contract until it expires in June.
- Another example is an investor that has a futures contract. If the security on this contract appreciates before the contract expires, the investor may wish to assign the contract to someone else. This way, they'll be able to make a profit on the appreciation.
- A third example is in the corn industry. If you have a contract to buy corn at a certain locked in price, and the cost of corn increases, you can easily sell your contract to someone else. They'll pay you in cash, and from that point forward, they'll be responsible for any responsibilities of the contract until it expires.
Assignable Contract and Real Estate Investments
Assignable contracts are a great tool in real estate investments because they allow you to pass your purchase rights along to anyone you might choose.
In a typical purchase contract, you'd be limited to rehabbing the home, renting it, flipping it, or other strategies that involve assuming ownership of the home.
However, with an assignable contract, you can immediately pass ownership to someone else without ever technically buying it yourself. This process means you'll be passing along your purchasing rights as well as any obligations outlined in the initial purchase contract. After transferring over all of this, you'll no longer be involved in the transaction at all. Whoever you assigned the contract will now be in charge of:
- Making sure the deal closes
- Actually buying the property
- Making any claims against the seller if there are problems
If you were looking to make a profit through an assignable contract, there is one downfall. You'll have to wait until the deal closes to collect your fee.
Therefore, it's crucial you choose buyers who are serious and ready to close. To make money off the deal, find a property you know someone will like and then charge them a referral fee for your involvement in the process.
This is a foolproof process, as you never have to put up any collateral or down-payment for the mortgage. Instead, all you have to do is pay a money deposit for the initial contract to go through.
Converting a normal real estate purchase contract into an assignable one is easy. All you have to do is add a few extra words to indicate the nature of the contract. For example, under the "Buyer" part, where you typically list your name, simply add the phrase "and/or assigns." That way, you can transfer ownership to anyone you'd like without having to alter or rewrite the contract.
Tips for Making the Most of Assignable Contracts in Real Estate
If you'd like to use the assignable contract method to make a profit, here are some tips to utilize.
- Know who your buyers are before you begin, as this lowers the inherent risk.
- Build an active investor buyer list so that when a property comes up, you have a good selection of candidates to offer it to.
- Include both rental property investors as well as flippers on your list.
- Learn to locate great property deals before they hit the general market.
If you need help with an assignable contract, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.