Download (direct link):
The primary benefits for you are that you make a very quick profit and you can avoid all closing costs. In many standard contracts, the language will refer to “the ‘Buyer’ (and/or assigns and nominees).” This automatically grants you assignment rights. If it’s not in the contract, you can add it by putting “and/or assigns” where you fill in your name on the contract.
If the contract comes from the seller, read it carefully to make sure it doesn’t have a clause forbidding assignment of the contract without the seller’s written permission.
Besides the ability to assign the contract to another buyer if the opportunity arises, the assignment clause will also enable you to take on a partner for the property after you get it under contract—if you should decide to do so.
For example, let’s say you find an absolutely screaming deal. You can buy it for $250,000 and you know it’s easily worth $325,000. And it’s got great rental value in relationship to the price so that—even financing 90 percent of the purchase—it will kick off cash flow at $250,000 like a slot machine.
Only problem is . . . it’s a bit out of your reach. You’ve got the financing contacts and qualifications to qualify for a $150,000 property only. So what do you do?
Go ahead and make the offer to get the property under contract. Just make sure the contract has a standard clause making it contingent on your obtaining financing within a certain period of time. Even though you probably can’t get the financing on your own, because of the assignment clause you can get the next best thing: an equity investor.
How Not to Flip a Property
Flipping real estate can lead to quick and sizable profits when you find the right property. But these deals are not always a sure thing, and
Step 4: Radically Increase Your Personal Income 165
inexperienced investors often lose money. Remember the lessons you just learned in this chapter—and keep the following three points in mind.
1. If you have to rehab the property, remember that this is not the time to create your dream house. Focus only on the areas that would bring up a red flag at closing and the relatively inexpensive things that will help the house show better—such as fresh paint, new windows, landscaping, and a thorough cleaning.
2. Don’t get emotionally caught up in a fast-rising market. The most common mistake people make when they lose money flipping a property is that they pay too much for it, expecting that the price will skyrocket. If prices stall and you don’t have a rental yield to cover your costs, you could be looking at a loss.
3. Don’t be looking to flip properties if you are always in a crunch for money. You could become a desperate investor— and you never want to buy or sell in desperation.
If you follow the rules I laid out regarding buying the property at a discount to its true market value, and if you are certain that in a worst-case scenario the rental yield would still create a positive cash flow, you have a comfortable margin of safety. And flipping real estate might just be your key to automatic wealth.
PLAN YOUR SUCCESS
Set specific objectives in terms of both learning about real estate and then investing in it. Make these specific (e.g., “become the marketing manager for my company’s hair products by the end of the next fiscal year”; “start one side business within six months”; “invest in one potential flip within three months”). Then incorporate these objectives into the yearly, monthly, weekly, and daily task lists that I showed you how to do in Chapter 2.
At first, your plan will be somewhat general. But as you spend time thinking about it and working on it, you will come up with countless ideas that will help sharpen your vision and spur your personal progress.
166 AUTOMATIC WEALTH
Some of these ideas will be large, some small. Some will be solo efforts. Others will require the help of colleagues. Some will meet with success and some will meet with failure. Most—in the early stages of your learning—will fall somewhere in between.
But the more you work at your plan, the easier it will get.
If you want to become wealthy in a short to moderate amount of time, you will need a six-figure income. The higher you get your income, the faster you can achieve wealth. This chapter has discussed several ways to boost your income:
• Make a higher (possibly radically higher) salary.
• Become a freelance consultant.
• Start your own income-generating side business.
• Invest in income-producing real estate.
Think of each of these four methods as separate streams of income. You can start each stream flowing simultaneously. By this time next year perhaps you can be depositing four separate paychecks into your personal account each month—each making you wealthier and better able to accelerate your wealth in the future.
All these income streams stem from the same wellspring: knowledge. And the knowledge that they require is fundamentally the same: how to create, develop, and sell products and services.