We all want to get ahead in life, and real estate is a wonderful way to do it. There are many strategies you can employ to create quick cash in real estate, or a lot of cash a little slower, and there are many real estate investor gurus out there that will teach you the mechanics of how to do it. Many of their methods work. I should know, I have employed most of these strategies investing in real estate myself.

I am providing opinions in the rest of this article. Please do not act on these without getting legal and financial advice, as I am not versed in or qualified to give legal or financial advice. I can not be held responsible for the way you use this information.

Everything is just like the gurus told you, except if a mortgage is necessary somewhere in the transaction.

Lenders are not risk takers. They are not real estate entrepeneurs. They have complicated risk models that tells them probabilities of default which makes them decide if they will do a loan or not, and/or what the interest rate will be. There is something called layering of risk, which essentially means if there are several risk factors in the loan decision, then one plus one does not equal two, but could equal four or more.

Because of so much mortgage fraud in the market nationwide, they have made up some rules to avoid losing money. In the process they have made it very difficult for those of you that are legitimate and fair to be a real estate entrepeneur. In the end, it is still possible to make a lot of money in real estate, but you have to play by the rules.

Assigning contracts

Youve heard the strategy. You sign a purchase contract with a seller where you or your company is the buyer. This gives you an interest in the property. Your interest in that real estate through the contract has value. You can assign the contract to a buyer that wants to buy the house and collect a fee for it. Where there is owner financing or cash purchasing involved, there is absolutely no issue. The strategy works fine. When your buyer is getting a mortgage loan to buy the property, you may have a problem.

Here is what I ran into trying to close a transaction like this.The lender will not accept the assigned contract. They want the buyer and the seller to sign a purchase and sale agreement, with no third party in the middle. This is not necessarily a problem. All you have to do is have the buyer sign a contract directly with the seller so that the principals in the transaction have a valid contract. The problem is that now your seller knows what you are selling the property for, and there is a chance that the buyer may not pay your assignment fee.

If you are a legitimate and ethical investor, you would have told your seller exactly what you are doing, and there will be no problems with you finding a buyer and the seller knowing that you are making money. If you tried to hide that fact from the seller, you may run into issues with the seller. Since the contract is between the buyer and the seller, you have nothing to enforce your assignment fee with the buyer however. You can enter into an agreement with the buyer to make the assignment enforcable, but cant realistically expect the buyer to pay your assignment fee until at or after the closing.

If you show your purchase contract (between you and the seller) to the closing attorney or title company handling the transaction for the buyer and seller, they will not close the transaction between the buyer and seller. The reason is they are representing the lender, and that contract gives you an interest in the real estate and they can not guarantee the lender that there will not be issues with the title, since you have an interest in the property. (The seller cant have two binding agreements for selling their home, it is not allowed in real estate law. You would have to cancel your contract in writing, signed by you and the seller, and present it to the closing attorney or title company so that they can close the transaction between the buyer and seller - you must declare your interest in the property).

As long as you do the above, the transaction will close just fine. You may have to think carefully how you are going to hold the buyer responsible for your assignment fee however.

Flipping a house

Entrepeneur thinking: a house is worth what the market will pay for it, and that value in turn is determined by the use of recent comparable sales in the area. You buy a property below market value, and sell it at market value and make a profit.

Lender thinking: The market value of a house is what a buyer pays for it, if the value is supported by recent comparable sales in the area. Very subtle difference. With huge implications. If a house is worth $150,000, supported by comparable sales, and you just bought it for $80,000 and try to sell it for $150,000, the bank will think the house is worth $80,000, not $150,000. Why? Because they believe a house is worth what a buyer pays for it, and you just paid for it. They will always take the LOWER of the two. They will consider exceptions:

If you bought the house for $80,000, spent $25,000 on fixing it up and can prove that you actually spent the money and did the work, then they will believe it is worth $105,000 if the appraisal supports it. Unless you owned the property for twelve months or more, then it is worth what the comparables say it is worth. Strange, but true. If you work with a competent loan officer, they will know which lenders will accept the higher value without waiting twelve months. There are lenders that understand capitalism, but you have to know who they are. Expect a field review appraisal from the lender to confirm the value though if you recently bought the property. If the value is really there, you should have no problem.

Special note: if your buyer needs a sub-prime loan because of bad credit, you need to have been on title at least 6 months. I personally spoke to the account executives of 7 large sub prime lenders. This is their golden rule. One of them will consider the transaction on a case by case basis, but then the appraisal needs to come back strong, and they may lower the LTV.

Double closings.

Oh boy, youre in for a ride on this one. This used to be no problem, until the bad guys got involved and messed it up for the rest of us. If you approach the average closing attorney or title company with a double closing, the will hold their fingers up in a sign of the cross and tell you to go away it is illegal. There is nothing illegal about it if done correctly. They just got exposed to too many communications from lenders explaining how the bad guys do things, and they associate double closings with the F word. Flipping. In attorney or lender speak, flipping is a four letter word - dont use this term.

Here is the general idea: You put a contract on a house for x price. You then find a buyer for the house at x+y price where y is your profit. You then schedule your closings one after the other, where your buyer comes in and signs the papers and provides the funding in escrow, and you use that money to pay for buying the home and keep the difference. Voila. You just created money out of thin air. All you need to do is have a savvy closing attorney or title company.

Here is the problem. IF you find the rare, enlightened closing attorney or title company that read up on this matter and realize there is nothing intrinsically wrong with the idea and will do the closing for you, they will generally want you to pay for buying the property using your own money, and close with the seller first, and will then do a closing with your buyer back to back. Problem here of course is that you need to come up with the money.

Here is why they want you to close first and pay with your own money. If your buyer comes in, signs the papers, and puts the money down, they expect to actually own a home since they went through all the motions and legal stuff to buy a home. Funny that they should have such an expectation. (Just kidding).

If, for whatever reason, the seller decides not to sell anymore, who do you think has a problem? Not the seller. You have a problem. Since you just attempted to sell something you never owned and cant deliver it. Now your attorney will probably have papers explaining to the buyer that he/she is closing in escrow. Problem is, your buyer probably has the moving truck that came from out of state with their life belongings unloading already. Since they made all their arrangements to buy and move based on your contract, you have now not been able to perform under the terms of the agreement. Not only is their earnest money refundable, but they may sue you for specific performance and their costs.

A legitimate double closing therefore involves you buying and paying for the property, holding title for a few minutes, and selling to your buyer. If the seller does not show up, there is no transaction, no problem. If the buyer doesnt show up, you own the home, no problem. (For the buyer and seller of course). If your buyer is paying cash or there is owner financing involved, no problem. If your buyer is getting a mortgage, you are going to have some issues. Here they are:

1. The lender wants to know that the seller is on title when they underwrite the transaction. Youre not. Deal is dead. 2. IF they were to be okay on the above, remember what we discussed in flipping a house? You just paid for it, therefore it can not be worth more than you just paid for it since you did nothing to increase the properties value. Deal is dead since you are not going to be making a profit.

There is a far better way to achieve the same result without doing a double closing. It is legal, it is accepted by the lenders, it is accepted by the closing attorneys and title companies, you dont have to buy the house and you just created money out of thin air. I will disclose how to do it in a follow up article.