Flipping real estate contracts is a strategy that has become increasingly popular among real estate investors due to its relatively low risk and minimal upfront costs. Unlike traditional property flipping, which requires significant capital to purchase properties and fund renovations, flipping real estate contracts involves securing the rights to a property under a contract and then selling that contract to another buyer for a profit. This approach allows investors to profit from real estate deals without ever taking possession of the property itself.

In this article, we’ll walk you through the concept of flipping real estate contracts, how to do it, and whether it’s the right strategy for you. Additionally, we’ll address common questions about contract flipping and provide insights into the potential benefits and drawbacks of this real estate strategy.

What Does Flipping Real Estate Contracts Mean?

Flipping real estate contracts means purchasing the rights to a property under a contract (often through a process called “assignment of contract”) and selling those rights to another buyer before the closing of the deal. Essentially, you’re not buying the property outright, but instead, you’re entering into an agreement with a seller that you can transfer to another buyer for a fee or profit.

For example, let’s say you find a property where the seller is willing to sell for a price below market value. You enter into a contract with the seller, agreeing to buy the property at that price. Instead of actually purchasing the property yourself, you find another buyer (often an investor or rehabber) willing to pay a higher price for the property, and you “flip” the contract to them. In return, you make a profit based on the difference between the price you negotiated with the seller and the price the new buyer is willing to pay.

How To Flip Real Estate Contracts In 8 Steps

Flipping real estate contracts may seem like a complex process, but it can be broken down into manageable steps. Here’s how you can get started:

1. Research and Identify Properties

Begin by identifying properties that are being sold below market value. Look for motivated sellers who are looking to sell quickly due to financial distress, inheritance, foreclosure, or other reasons. You can find these properties through online listings, auctions, or by directly contacting owners who may be looking to sell.

2. Enter into a Contract with the Seller

Once you find a property that fits the bill, negotiate with the seller and enter into a purchase agreement. This agreement should include specific clauses that allow you to assign the contract to another buyer if necessary. The contract should also outline the price and terms of the deal.

3. Add an Assignment Clause

Make sure your contract includes an assignment clause. This clause gives you the right to assign the contract to another party (the buyer) before the closing. Without this clause, you won’t have the legal right to flip the contract.

4. Find a Buyer

After securing the contract, your next step is to find a buyer who is willing to pay more than what you’ve agreed to pay the seller. This is often done by networking with other investors or buyers looking for deals. You can also advertise the property online or through direct outreach.

5. Assign the Contract to the Buyer

Once you find a buyer, you’ll assign the contract to them. This involves transferring your rights and obligations under the contract to the new buyer, usually for a fee. The assignment fee is your profit.

6. Ensure the Buyer Understands the Deal

Make sure your buyer is aware of the terms of the contract and fully understands the process. They should also be ready to close on the deal as quickly as possible to ensure you both get paid.

7. Collect Your Profit

After the buyer agrees to take over the contract and the deal closes, you’ll receive your assignment fee. This is the difference between the price you agreed to pay the seller and the amount the buyer is willing to pay.

8. Repeat the Process

Once you’ve successfully flipped your first contract, you can repeat the process. With each deal, you’ll gain more experience, expand your network, and increase your chances of making bigger profits.

Pros and Cons of Flipping Real Estate Contracts

Like any real estate strategy, flipping real estate contracts comes with its advantages and disadvantages.

Pros:

• Low Startup Costs: You don’t need to buy the property or invest significant money upfront, which makes it an accessible strategy for beginners.

• Quick Profits: You can often flip a contract within weeks, generating quick cash without the long-term commitments of traditional real estate investing.

• Minimal Risk: Since you’re not actually purchasing the property, you don’t assume the risks of ownership, such as market fluctuations or unexpected repair costs.

• No Need for Renovations: Unlike traditional property flipping, you don’t need to renovate or repair the property yourself.

Cons:

• Finding Buyers Can Be Challenging: Finding a buyer willing to pay more for the property can take time, especially if the market is slow or competitive.

• Legal and Contractual Challenges: If you don’t understand contract law or fail to include the proper clauses, you could run into legal issues.

• Potential for Small Profit Margins: While the profits can be substantial, they’re often smaller compared to traditional property flipping due to the lack of renovation work.

Do You Need A License To Flip Contracts?

In most cases, you do not need a real estate license to flip contracts. However, some states have specific laws that may require you to hold a license if you flip multiple contracts within a certain period or if you are engaged in other real estate activities. It’s important to familiarize yourself with the local regulations to ensure you are compliant with the law.

Flip Real Estate Contracts: Is This Strategy For You?

Flipping real estate contracts can be an excellent strategy for those looking to break into real estate investing with limited capital. However, it’s not for everyone. If you’re not comfortable negotiating contracts, have no experience with real estate, or lack a strong network of potential buyers, this strategy may be more challenging. On the other hand, if you have strong negotiation skills and a keen eye for undervalued properties, flipping contracts could be a profitable venture.

Conclusion

Flipping real estate contracts is an exciting and profitable way to invest in real estate without needing large sums of money or property ownership. By understanding the process and carefully following the steps outlined above, you can enter the world of real estate investing with minimal risk.

If you’re considering flipping real estate contracts, you might want to check out Dwanderful’s services. Dwan, the owner of Dwanderful, is not only a seasoned real estate investor but also a podcast host who shares valuable insights for both novice and experienced investors. She offers a free book titled “Real Estate Lingo” and a paid one titled “Five Pillars of Real Estate Investing“, both designed to help you master the basics of real estate investing. Additionally, Dwanderful has a fun and insightful quiz game where you can discover how you could potentially generate six figures in the next six months—whether you’re buying your first property or your next one. It takes less than a minute to complete, so give it a try! Contact us now!

Frequently Asked Questions:

Is Contract Flipping Legit?

Yes, flipping real estate contracts is completely legitimate as long as you follow the legal procedures and have the proper clauses in your contracts. Always consult with an attorney to ensure compliance with local laws.

How Much Money Can You Make Flipping Real Estate Contracts?

The amount of money you can make depends on the properties you are flipping and the profit margins you can secure. Some investors make a few thousand dollars per deal, while others make tens of thousands depending on the property and the market conditions.

Can You Flip Real Estate Contracts With No Money?

Yes, you can flip real estate contracts with no money down, which is one of the main benefits of this strategy. However, you do need to invest time into finding good deals and networking with potential buyers.