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Did you know you could wholesale commercial real estate? Don’t worry most people don’t either so there’s no competition in this arena and the pay days are much larger. Wholesaling and Flipping Commercial Real Estate is like wholesaling and flipping houses on ROIDS. This video is a step by step explanation on how to take advantage of Single Tenant Net Lease opportunities in any decent size market of the U.S.
Part 1 – Assignment Rights and Damages.
Recently, a couple of our law firm’s clients entered into flipping transactions for commercial real estate. In each instance, our client was dealing with the “original buyer” (or “flipper”). The original buyer tied up the property and sought to make a profit by assigning their purchase agreement to our client, who would become the “ultimate buyer.” In one transaction, the original buyer was successful flipping the real estate, making nearly $200,000 with zero money down, but, in the other transaction, the original buyer lost its $150,000 earnest money deposit. How To Flip Commercial Real Estate – Vacant Building Gold
A flip transaction generally takes one of three forms:
1) Assignment. The original buyer (a) enters into a purchase agreement with the seller, and (b) prior to the closing, assigns the purchase agreement to the ultimate buyer who closes the transaction.
2) Double Escrow. The original buyer (a) enters into a purchase agreement to buy the property from the seller, (b) enters a second purchase agreement to sell the property to the ultimate buyer, and (c) closes both transactions simultaneously.
3) Buy/Sell. The original buyer (a) executes a purchase agreement with the seller, (b) closes the transaction, (c) increases the property’s value, and (d) promptly resells the property.
This series of articles focuses on flipping by assignment, and will look at (a) the contract provisions an original buyer should include in its purchase agreement with the seller, (b) defensive provisions a seller should include in its purchase agreement with the original buyer, (c) the mechanics of the flip transaction, and (d) contract provisions and issues for the assignment agreement between the original buyer and ultimate buyer. Part 1 of this series focuses on contract provisions benefiting the original buyer.
Purchase Agreement Provisions for the Original Buyer.
To be able to assign the purchase agreement and protect its downside risks, the original buyer should focus on the assignment and damages provisions in its purchase agreement with the seller.
Assignment. As a general rule of law, purchase agreements may be assigned unless the contract contains a provision that limits or prohibits the right of assignment. Notwithstanding this general rule of law, many purchase agreements identify the buyer by adding the tagline “or assignee” after the buyer’s name. The addition of the “or assignee” tagline confirms the intentions of the contracting parties and the general rule of law favoring unrestricted assignment rights. But, buyers beware: inclusion of the tagline and the presumptive right to assign may be subject to other contract provisions that limit or restrict the buyer’s right to assign. Such restrictive provisions must be analyzed to determine if the addition of “or assigns” truly gives the buyer an unfettered right to assign the contract. If not, the original buyer should address these provisions to its satisfaction. As will be discussed in a subsequent article, adding “or assigns” may also help satisfy the ultimate buyer’s closing requirements in a manner that increases the odds for a successful closing. How To Flip Commercial Real Estate – Vacant Building Gold
Damages. The assignment of the purchase agreement to the ultimate buyer will not release the original buyer from liability unless the contract contains a provision specifically releasing the original buyer from liability upon assignment, or the seller subsequently agrees to release the original buyer from liability, both of which are very rare occurrences. In most instances, therefore, the original buyer will remain liable under the purchase agreement for breaches by the ultimate buyer.
The original buyer should seek protection against two primary liabilities:
1. Damages in the event the ultimate buyer breaches the purchase agreement and fails to close; and
2. Damages to the property or personal injuries caused during the ultimate buyer’s inspection of the property.
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