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Last Updated: May 14th, 2012 - 22:24:01 |
Ask the Expert ?You have found an investment home that you can flip (buy and resell at once) so what are some avenues that you have to choose from to categorize your type of closing?
Ask the Expert ?Questions are answered weekly by Real Estate expert Donald W. Gomez Jr. of Tropical Paradise Realty in Miami, Florida (786-202-0203) Better known as Donny. He specializes in investment property and mortgage investment. He has been writing for companies like DWGMEDIA CREATIONS for over 25 years.
READER
What type of closing method can I use?
DONNY
There are four types: assigning the contract, using one closing, using collapsed closing or having a under option closing. All four methods can make you equal profit since you are flipping the sale. In the first method, you flip your investment properties by “assigning your contract?to the second buyer before any secured loan of your own is spent.
READER
That sounds good for my, but bad for my mortgage broker. How much should I make?
DONNY
Suppose, you go to the seller and get a contract for say $350,000. Next, you go and find an investment property buyer, offering to pay you $420,000. So, buyer pays for your contract and you get $70,000. The contract says, “I assign this contract, the right to buy the house for $350,000, to you.?I advise this type of closing for your deal tomorrow.
READER
What are the other three types of closings? And, since you are a Licensed Realtor and Investor, what is your favorite type of closing?
DONNY
A common technique is called “one closing.?This is preferred by the mortgage franchises because they hate investment homes going trading ownership twice in a day or a week This way, you are not in the one deed that goes from the seller to the buyer. Instead, you simply get a finder’s fee. Some mortgage brokerages hate the middleman making a flip fee, due to some past cases of fraud. Okay, simply call it a finder’s fee, marketing fee or consulting fee, saying that you get $70,000 for your fees.
I have connections with countrywide mortgage for my deals, but I have known investors that have the seller sign a lien on the house for the $70,000. Then, the lien is paid off by the buyer at closing.
READER
What was that Option contract that you had mentioned?
DONNY
Some when flipping properties work the courthouse angle debt free. This technique is like the assigning the contract method. You seldom spend your home loan, and there is less risk. I do not recommend this one to you tomorrow; because, sometimes the option contract is not honored and the buyer and seller cut out the middleman. The contract says, “I’ll give you $10 for the right to buy the house for $200,000; I option it.?Meaning, if you do not buy the property, you only lose $10. Yet, if they skip you, the middleman, your probate lawyer might only gain $10.
READER
All right, cut to the chase. What is your favorite type of closing?
Donny
A “Collapsed closing.?With this route, I buy a property; say for $400,000 and my real estate lawyer deeds the property to me. At the same instant, through a wired in transaction or a cashiers check, my buyer’s secured loan money of $450,000, is given to my real estate lawyer. And then, within half an hour the second closing is done to give my buyer the property. And now, I can collect the $50,000 from my lawyer’s escrow account via a second check he gives me.
I, being a Realtor, love having two closings in one hour through this collapsed closing method. Why? Because, I also collect 6% Realtor fees paid by the seller from the 1st transaction’s closing costs, and then, 3% is paid by the buyer out of the second transaction’s closing costs. As I said, I let my real estate lawyer handle all of the paperwork, that way, if there’s a mistake, he is to blame, not me.
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