Real estate assignment, flipping your contract or shadow flipping…on the surface this sounds like an exciting and sexy way to make a fast $100,000+ in the current BC real estate market. However, is it as easy as it sounds?
Here are some pointers for you, if you want to purchase somebody’s contract on a newly (to be) constructed home:
1) Many of the big lenders will not provide you a mortgage when presented with this type of purchase contract – it’s considered riskier than a regular real estate purchase agreement (contract).
2) A few big lenders will still consider this but only provide you a mortgage based on the original contract price. Therefore the extra amount added to the assignment contract needs to be paid in cash. That’s right, if you are purchasing a new property and the assignment fee is for an extra $100,000 over the original purchase price, you will need $100,000 cash in addition to the down payment required on the original purchase price.
3) Some of the smaller and less regulated lenders will consider an assignment. However these lenders may charge you a higher interest rate, a possible administration fee and may request you bring as much as 35% equity to the table.
4) Did you talk to your lawyer? Has your lawyer reviewed your assignment contract to make sure it secures you from losing your money? Many contracts have loopholes in them that can expose you to the possible loss of the deposit you hand over to the seller (and then the seller can take the contract elsewhere and sell it to another person, legally).
5) The government may soon step in. In an attempt to curtail the rapid increase of property values in BC, the provincial government is considering restricting assignment contracts.
If you want to complete your due-diligence and still entertain the possibility of an assignment contract, I look forward to advising you from a mortgage-broker’s perspective.