What Is A Novation Agreement In Real Estate?
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- Опубликовано: 18 окт 2021
- In this video, I will teach you what a Novation Agreement in real estate is, since I get this question asked a lot, so if you were ever wondering what a novation agreement is this is the video for you.
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Real novations can be done for millions of dollars. I did novations for a commercial developer who specialized in adding retail Marijuana licenses to properties. We would get a property licensed and use a novation agreement to minimize the risk to the investor.
Please do not stop this series...so much value...presented in a very digestible way
Happy to hear that you're enjoying the content and gaining so much value. Feel free to subscribe and hit that notification bell to get the most out of my content!
Nice! However, I’ve noticed that people are shown favoritism and newbies are looked over on the Tuesdays Q&As. Can’t those students who have spent the night at your house or who can simply call you have their own separate zoom so that you can focus on questions that the new students have? I’ve been to 3 Q&As since joining, get there right at 7 to raise my hand to sit there for hours to never get called on. Am I missing something? Ok. ✌🏻
Good stuff Pace!!
I'd still still seek a title policy. Took me two months to close on a cash purchase due to title issues...estate sales often hold these deals up more people can have interest in the deal than you can know. This is awesome idea.
When acting as a RE Broker ( 20 years) and I would run into a stubborn seller who wants "X" way above market, I always asked them this question...."Is Elvis buried in the backyard? No? Then, your house is not worth anywhere near what you want, nor what you will get."
Sometimes it worked sometimes it didn't but I always liked watching their faces when I hit them with that question.
Another AMAZING video Pace… Thanks
Glad you enjoyed it!
Pace when I 1st started to learn wholesaling and learning how sellers in pre forclosure are motivated sellers. I was like I would rather partner with the seller to sell the home. thinking I created a new strategy 🤣🤣🤣🤣 I continued to hear the word novation agreement and could not grasp what it was. Smh this video was perfect
Great Video! Love this option!
Thank you bro! Glad you enjoyed this video. Feel free to check out my other videos and hit the subscribe button so you don't miss out on any future videos!
Novations even sounds cool! Thanks Pace!
Glad you like them!
The problem I would have, as a seller, is… what motivated you to sell for a high price rather than take the first offer given after listing the home?
Oh so it's the same as a " Partner with the Seller" or .... " a price lift the property ". At least that's how I've heard it explained from another creative finance educator
We getting rich together. Yeaahhh 🎶
Let’s say seller decides not to sell, doesn’t like the final sale price, passes away, etc. I assume the contract you have has some sort of protections in it, but we all know you’d have to enforce the contract and win a judgment. If you won a judgment against the seller I assume the court would allow the judgment to be paid over a period of time, not to mention the time period of the litigation. During that time period which could be years you’d be racking up interest on the hard money. Seems quite risky. Any thoughts on this?
Interesting
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Does the Novation agreement require the seller not to backout of the sale after renovations are complete? Does the agreement require them to sell through only you so they don't get an agent or some other person to buy it out from under you? Would you put a mechanics lien on the property before starting renovations? Should you have a title search done to make sure their are no other potential issues with ownership? This is an excellent way to get owners out of the house to make sure they don't become squatters after the closing as I've seen happening around the country.
Is the agreement set up so that if owner passes you can still close on the home?
How would I fund that renovation though? Is this assuming that you have $100k in cash to reno? Or should I take out a hard money loan?
I'm gonna put this out there in practice.. I believe I have a potential deal that can work for this...
Al, that's awesome. Let me know how it goes!
Gotta love it. This guy is trying to change the definition of novation 😂😂
What happens if the Market plunges and now the House you Renovated is worth 25% less of your Original ARV? How do you get out of that situation and get your money back?
Pace I just came to dead end on a lead as a wholesale strategy. I know there are several other options and exit strategies. The house is a 5/3 w/ 2 living rooms and 2 Dining @2,400 SQFT. This is the only house on the block above 2,400 sqft living space. Any ideas ???
Pace.. who pays the mortgage during renovation period?
Sounds great but a high renovation budget is where most investors gets stuck at.
can you do this with realtors involved...and if so how?
Not how I've heard novation explained before... I thought novation was a way to list someone else's house with a realtor, by passing your liability of the purchase contract onto the end buyer. That's what I'm looking to do. From what I know there's no way of doing it. And this video was talking about partnering with someone. Now like most people, I'm confused. If anyone can explain a legitimate method of assigning/wholesaling on the mls, let me know.
Hey bro! Feel free to join the free Facebook group! There are tons of students in there that would be more than happy to answer your questions, help, and network with you!
shor.by/8vxk
It's not a novation without all 3 parties having signed the contract.
The original contract is void in a novation. You're selling your "equitable interest" established in contract 1, to the end buyer. If this was a real novation, you'd have no qualms about terminating contract 1. (None of you ever will, though 😊)
Why 15k is that the return on your 100k Renovation that you need to make the deal work ?
Pace....
I have questions concerning how the renovation costs are calculated.
I know you're a former Contractor.
Do you still have your Contractor's License?
Are you listed as the Contractor for the renovations?
Do you still have a Contruction Company, and does your company get paid for the renovations?
Do you pass along your trade discounts to the Seller?
Do you charge the Seller your (wholesale) cost, or do you charge her retail cost, which includes your profit margin?
Do you use your personal Title Company in the transaction?
I'm trying to determine how these renovation and closing costs are calculated, and deducted from the Sales Price.
It seems to me, that there may be A LOT of hidden built-in profit to you in these types of deals, that the Seller may not be aware of, that could be deemed as a conflict of interest if not fully disclosed to the Seller - depending on your State.
1) Novation Agreement Fee ($15,000) ( profits you)
2) Realtor Fee (profits your wife)
3) Your Constuction Company (profits you)
4) Your Title Co. (profits you)
5) Business Tax Benefits / Write-offs, etc. (profits you)
6) Other Unknown Fees and Benefits not mentioned above (that may profit you)
Can you make a video describing all the ways you/you wife/your companies are able to profit on deals like these, and how they are calculated and deducted from the Sales Price, and what Disclosures (if any) are made to the Seller.
Great questions. Did you ever get an answer?
when it comes to the renovation.
Does it have to be completely remodeled? Or can you keep it really simple, more like a light clean up, yard work, maybe pressure wash the house, just basic stuff?
Hey Ben! Thanks for being a subscriber. Great question! It really depends but I usually hire a property manager to do that.
Does the saler... have any say of the house sits for up for a year or two before the sale? Do they keep the payments up? So they could have 2 mortgage for new house and this home?
Hey bro! Feel free to bring this question up inside the free Facebook group! There are tons of students and investors in there that would be more than happy to help you and answer your questions regarding this.
shor.by/8vxk
I might just make a video on this.
I just finished talking to a seller and hes open to a Novation Agreement in Lake Elsinore CA. Just before he started the rerenovation. How can I find a novation buyer? Or flipper?
Hey out of curiosity, was you able to get a cash buyer or did you get a hard money lender and fix n flip yourself?
What do you do when the property does not sell for the price you are aiming for? Do you take the loss on the profit and potentially your reno cost as well or the contingency is to hold the property until the market recovers?
the contract says you get paid either way. The loss is theirs.
@@geevesnc3008 thanks for you reply. So it’s basically a reno contract then? Lol
what if the seller backs up of contract after renovations is done? how do you protect yourself?
I am guessing there's gotta be a lien on the home from the investors end to protect their interest
Do you have a sample contract for these Novations?
So are you saying this can work whereby the property still has a mortgage? What if the property sells for less than what the seller has his mind set on? Will he challenge the power of attorney? Are you saying you are going to get your guaranteed 15k before the mortgage holder who is in the first position?
Hey Robert! Yes, a novation can work where a property has a mortgage. I go in depth in my mentorship on novations with my students.
What happens if you do a renovation and later on the seller decides the how's is now so nice that they refuse to sell any more?
Great question! I’d like to know the answer as well
It's all in the contracts and how you structure the deal. I go in depth in my mentorship on this strategy.
does the subject property need equity in order to do a novation agreement
It does..that's how you get paid..that's just another way to help get more deals..have done a few and are very cool
@@germansuarez3580 ah makes sense! considering you’ve done a few, Im wondering where the owner of the property stays during that renovation period?
@@germansuarez3580 can you assign a novation agreement?
@@InfamousInvestments if you have that in your contract, yes.
@@InfamousInvestments if you have that in your contract, yes.
How do I get a copy of a Novation Agreement?
Reach out to my students inside the free Facebook group! They have a copy and would be more than happy to help you out drafting one bro!
shor.by/8vxk
I'm going to renovate YOUR house using MY money AND put a cap on MY profits...in the example, why borrow hqrd money to payoff the debt already on the house? only bring cash to make the improvements and add value to the deal
Hey there! Usually we don't bring in our own money on creative deals.
I'd be open to this. I have about 10 properties I'd do this on
Amazing. Would love to hear all about it! And thanks for being a subscriber!
@@PaceMorby who do you recommend I reach out to?
@@michaelbatista2869 where are the properties located? Let's work
@@joellawrence1949 are you open to do a deal in tampa ?
Is there a mechanics lien for renovation?
Yes. That is one way you can set it up. If you have more questions about it, drop them in the Facebook group! shor.by/Si74
Oh, that's bad. A real estate agent is not supposed to give out seller contact information to the potential buyer.
Seems like this would take lots of time😅
WHY would you put in all the work and risk for $15k? WHY?
Good info, irritating distracting background music.
I wonder if they make a Novation Agreement for marriage?... Oh wait that's called a prenuptial agreement
🤣🤣🤣watttt !!!
Pace, I would never do that deal, ever. If you're investing $100,000 out of your pocket only to be guaranteed just $15,000, the return on capital is astronomically low. That's a terrible cash on cash return. That's only 15%. I hope folks are not actually doing this. Instead, take your renovation agreement and list the house on the MLS. Don't do any renovations, just list the thing by using a limited power of attorney that allows you to control the house to be sold. That is a much better return because you're only paying for renovations to get the house in financial condition.
That’s a 15% ROI how is that low, that beats the stock market.
Who would do all that work for 15k ? Waste of time
Helps the seller out, and you get something. Something is better than nothing. Win Win situation...
Why are you calling this model a “novation”? I don’t see how the name you’re using has anything to do with a “Novations.”
This sounds like you are acting as a real estate agent without license
completely the wrong way to structure the deal using novation, you can absolutely sell, buy or hold the property at the lower agreed to wholesale price
The novation agreement allows you to get the seller to sell you their property to you at a substantially reduced wholesale purchase price ie. $ 320, 000 , because the property requires a extensive amount of remediation costs ie. $ 180,000 ( a Fixer property ) that you agree to invest in the seller's property for mutual benefit , that first purchase contract locks in the purchase price relative to you and the seller and your negotiation with the seller ends in the first purchase contract. Which then gives you the legal contractual right for you to sell the seller's property as a retail sales price on a property that you don't even own at the After Renovated Market Value Sales Price ie. $ 850,000 .through a second purchase contract that " NOVATES " ( replaces the first Purchase Contract) which produces a $ 350,000 retail gross profit of 194 % that represents the return on the capital you have invested ie. the $ 180,000 that the seller was unwilling or unable to invest. The Novation Agreement structure is designed for you to offer a " Fair Market Value " based on the " As is Fixer Condition " of the Seller's property in one purchase contract in which the Seller has already given you the legal rights to buy his property at a reduced wholesale price and then to legally resell the Seller's property at the substantially higher Retail Market Value in a second purchase contract, in which the seller has already divested himself of any legal right for him to determine the new Retail Sales Prices which the seller has already contractually and legally conceded only to you to determine. there is no need for you to agree to invest $ 100,000 of your own money to renovate the property, then spend 3 months to finish the renovation and another 30 to 45 days of our life to sell the property just to earn ie. a $15,000 prenegotiated profit with the seller which generated only a 15 % return on your invested time and capital versus ie a $ 350,000 profit and a 194 % return on your invested time and capital, which equals 13X times more profit on every deal. By the way the numbers in this post I used was a real property transaction that I completed about a month ago in California. Please do not ever pre-negotiate the profit with the seller ever if you can buy the property at the reduced " as is Fixer Fair Value, because using the Novation structure in the optimum way , you dont have to. Thank you for your attention.