[JNT53186]

I am looking to start off my REI career at the wholesale level within NY, NJ and CT. I'm pretty familiar with the process but I've gone to a few seminars with various local "gurus" saying what to and not to do. One thing I was told is that in order to get around the no assignment clause was to form an LLC (or Trust), then sell the entity to my end buyer. In what instance would I have to do this and is it even necessary to do with each deal? Also, what other circumstances should I be aware of in order to avoid any legal issues?

Thanks!
Jessica
Bronx, NY

[John_Corey]

Speakers from stage will tell you thing that sound black and white or which make them sound like the experts they want to be.

The logic of what you highlighted is a deal agreed with the buyer which has specific language in it preventing an assignment can be dealt with if you sell the buyer and not the property. You buy with an LLC and then sell the LLC as the buyer is still the same.

It can be a bit harder than it sounds if the LLC needs to do something else like obtain financing as lenders will generally not fund the deal with an LLC as the borrower.

Alternatively, strike the no assignment clause and see if the seller will still agree to the deal. You can then buy in your name and assign the deal. Or you can buy in the name of the LLC and assign the deal.

There are some business & tax reasons to conduct short term deals (wholesale deals, etc) using a company (LLC, S or C). The logic is the type of income, the ability to deduct some certain expenses as a company, etc.

[JNT53186]

First off, thank you for your response!

So that I am 100% clear, you are saying that I DO have to create an LLC in order to avoid the non-assignability clause.

Also, when you say "strike the no assignment clause and see if the seller will still agree to the deal", are you implying that if my seller is already aware of my intent on flipping the property to someone else, I can still utilize the once standard assignment clause?

[John_Corey]

Originally Posted by JNT53186

First off, thank you for your response!

No problem. That is the great thing about the forum. Folks share what they know. Good questions help. Thank you for posting the question to kick off the conversation.

Originally Posted by JNT53186

So that I am 100% clear, you are saying that I DO have to create an LLC in order to avoid the non-assignability clause.

No. It is a valid alternative and might be best in some circumstances.

I was also trying to say that there could be benefits other than the assignability. Note that if you are selling off the LLC each time you do a deal you will have to create an LLC and pay what ever costs are associated with it. There could also be tax returns due for the period you own it.

If you want to keep a business entity longer term, do not put deals into is where you expect you will be forced to sell the entity to get the deal done. Only put in deals where you can sell the contract for the property (assigning the contract).

Originally Posted by JNT53186

Also, when you say "strike the no assignment clause and see if the seller will still agree to the deal", are you implying that if my seller is already aware of my intent on flipping the property to someone else, I can still utilize the once standard assignment clause?

Just because a standard contract has a clause does not mean you need to use it. Just because a seller wants to sell does not mean they fully expect you to hold or even complete the purchase. It will depend on the situation and how concerned the seller is about you specifically completing on the deal vs. selling on your rights in the deal.

It is a dance or a negotiation and different people will be open or closed to different things. It is not a fixed formula that always works. Better to probe a bit than to assume each deal will always follow the same formula.

[John Merchant]

Today I'd venture a guess, with 99% of all loans although having DOS (due on sale) clauses, those lenders are totally unconcerned about who pays the loan and as Moderator Bronchik has said well, there's "No Due on Sale Jail".*

Ergo I'd say don't worry about that DOS or Non Assign't language and take over whatever loans you can, then pay as original borrower agreed to do.

*If you'll Google this you'll find BB's article somewhere on line.

[Shepnerd]

Jessica, what kind of deal are you looking to do?

You are getting two answers here for two different scenarios.

It sounds like you are looking to do a wholesale deal(?) and are worried about assigning the sale to the real buyer- is that correct? Some of the answers are going to be state specific, but if there is a no assignment clause then yes, you could form an LLC and sell the LLC or form a land trust and sell the beneficial interest of the trust. I used to do some of that to avoid seasoning requirements from the lenders.

What makes sense will depend greatly on what you are trying to accomplish and who you are buying from. Like was previously stated, you'll have trouble borrowing money that way- not because banks wont lend money to an LLC or trust, they are just going to qualify that entity like any other and if the only assets and income in the LLC is the property, then the LLC doesn't have any way to pay a loan back.

The due on sale clause is talking about subject to deals, which doesn't sound like what you are looking to do.

Some of this is going to have to be learned by getting your feet wet- get a good deal under contract and figure it out from there, worst case as a buyer is you lose your earnest money, which almost never happens if you write the offer up right.

If you are doing a wholesale deal and buying from a bank or something and cant assign the contract, you can do a double closing and get transactional funding- someone basically loans you the money to buy it for the few hours until you can sell it to your buyer. Its kinda like a hard money loan, simplified qualifying based on the equity in the property and short lifespan of the loan.

Again, if you'll describe the scenario better, we can give you clearer advice.

LLC's and trusts have a lot of uses in this biz, but usually aren't really necessary for wholesaling.