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What Is A Novation Agreement In Real Estate?
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2 жыл бұрынIn 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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❎ I am not a CPA, attorney, insurance, contractor, lender, or financial advisor. The content in these videos shall not be construed as tax, legal, insurance, construction, engineering, health & safety, electrical, financial advice, or other and may be outdated or inaccurate; it is your responsibility to verify all information yourself. This is a KZfaq video for entertainment purposes ONLY ❎
@dahyeshaouudoo-ing1463 3 ай бұрын
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.
@ttownsupreme2183 2 жыл бұрын
Please do not stop this series...so much value...presented in a very digestible way
@PaceMorby 2 жыл бұрын
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!
@mrsj6347 2 жыл бұрын
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. ✌🏻
@ElSalvador1919 2 жыл бұрын
Another AMAZING video Pace… Thanks
@PaceMorby 2 жыл бұрын
Glad you enjoyed it!
@markmcmahon 9 ай бұрын
Good stuff Pace!!
@brebre09shana 2 жыл бұрын
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
@andyscorner101 Жыл бұрын
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.
@THEREALCLOSER 2 жыл бұрын
Great Video! Love this option!
@PaceMorby 2 жыл бұрын
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!
@BeyondTheBoundsOutdoors Жыл бұрын
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.
@steveh1460 2 жыл бұрын
Novations even sounds cool! Thanks Pace!
@PaceMorby 2 жыл бұрын
Glad you like them!
@thesnyderteam-lasvegas6614 Жыл бұрын
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?
@newsouthhomebuyers4328 2 жыл бұрын
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?
@oscarrobertson2257 2 жыл бұрын
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
@aledmondson4616 2 жыл бұрын
I'm gonna put this out there in practice.. I believe I have a potential deal that can work for this...
@PaceMorby 2 жыл бұрын
Al, that's awesome. Let me know how it goes!
@lasttake3820 11 ай бұрын
We getting rich together. Yeaahhh 🎶
@DrDsIT 6 ай бұрын
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.
@essmatrt393 Жыл бұрын
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?
@Rence38 2 жыл бұрын
🔥🔥🔥💯
@AngTheRealtor Жыл бұрын
Is the agreement set up so that if owner passes you can still close on the home?
@Jean_mcnasty Жыл бұрын
Gotta love it. This guy is trying to change the definition of novation 😂😂
@paolop8093 Жыл бұрын
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?
@brackenbudge3918 2 жыл бұрын
Pace.. who pays the mortgage during renovation period?
@lennycoco Жыл бұрын
Interesting
@Gxctor Жыл бұрын
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 ???
@abrahamtorres4932 2 жыл бұрын
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?
@brebre09shana 2 жыл бұрын
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?
@Youregirlfriendsbarman 2 жыл бұрын
can you do this with realtors involved...and if so how?
@alext3437 2 жыл бұрын
Sounds great but a high renovation budget is where most investors gets stuck at.
@paulthompson8642 2 жыл бұрын
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?
@PaceMorby 2 жыл бұрын
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.
@bryanbell9103 2 жыл бұрын
Why 15k is that the return on your 100k Renovation that you need to make the deal work ?
@cheddarback5327 2 жыл бұрын
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.
@PaceMorby 2 жыл бұрын
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
@dymetz 3 ай бұрын
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 😊)
@Cali_Girl1 Жыл бұрын
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.
@albaarroba2880 Жыл бұрын
Great questions. Did you ever get an answer?
@benhorton2081 Жыл бұрын
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?
@PaceMorby Жыл бұрын
Hey Ben! Thanks for being a subscriber. Great question! It really depends but I usually hire a property manager to do that.
@krzyhrse456 2 жыл бұрын
what if the seller backs up of contract after renovations is done? how do you protect yourself?
@AlexAK Жыл бұрын
I am guessing there's gotta be a lien on the home from the investors end to protect their interest
@hsuping7995 Жыл бұрын
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?
@geevesnc3008 Жыл бұрын
the contract says you get paid either way. The loss is theirs.
@hsuping7995 Жыл бұрын
@@geevesnc3008 thanks for you reply. So it’s basically a reno contract then? Lol
@brutusempire 2 жыл бұрын
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?
@ElChingonRon 2 жыл бұрын
Great question! I’d like to know the answer as well
@PaceMorby 2 жыл бұрын
It's all in the contracts and how you structure the deal. I go in depth in my mentorship on this strategy.
@connectingheartsandhomes1288 6 ай бұрын
Do you have a sample contract for these Novations?
@Mi-T-life 2 жыл бұрын
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?
@PaceMorby 2 жыл бұрын
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.
@tima6774 2 жыл бұрын
How do I get a copy of a Novation Agreement?
@PaceMorby 2 жыл бұрын
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
@nerdyANDREA 2 жыл бұрын
does the subject property need equity in order to do a novation agreement
@germansuarez3580 2 жыл бұрын
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
@nerdyANDREA 2 жыл бұрын
@@germansuarez3580 ah makes sense! considering you’ve done a few, Im wondering where the owner of the property stays during that renovation period?
@InfamousInvestments 2 жыл бұрын
@@germansuarez3580 can you assign a novation agreement?
@michaelfoster7824 2 жыл бұрын
@@InfamousInvestments if you have that in your contract, yes.
@michaelfoster7824 2 жыл бұрын
@@InfamousInvestments if you have that in your contract, yes.
@oldstocks 2 жыл бұрын
Is there a mechanics lien for renovation?
@PaceMorby 2 жыл бұрын
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
@michaelbatista2869 2 жыл бұрын
I'd be open to this. I have about 10 properties I'd do this on
@PaceMorby 2 жыл бұрын
Amazing. Would love to hear all about it! And thanks for being a subscriber!
@michaelbatista2869 2 жыл бұрын
@@PaceMorby who do you recommend I reach out to?
@joellawrence1949 2 жыл бұрын
@@michaelbatista2869 where are the properties located? Let's work
@virallifehacks534 Жыл бұрын
@@joellawrence1949 are you open to do a deal in tampa ?
@alexanderpitman9433 Жыл бұрын
Oh, that's bad. A real estate agent is not supposed to give out seller contact information to the potential buyer.
@Warriorfund Жыл бұрын
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
@PaceMorby Жыл бұрын
Hey there! Usually we don't bring in our own money on creative deals.
@HairMana 4 ай бұрын
Seems like this would take lots of time😅
@GordonGreenCincinnati 4 ай бұрын
WHY would you put in all the work and risk for $15k? WHY?
@jonathongeiger27 2 жыл бұрын
I wonder if they make a Novation Agreement for marriage?... Oh wait that's called a prenuptial agreement
@chinelorita5658 2 жыл бұрын
🤣🤣🤣watttt !!!
@viktorrybachuk6748 Жыл бұрын
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.
@theredditshow8951 9 ай бұрын
That’s a 15% ROI how is that low, that beats the stock market.
@MP-tf7cc Жыл бұрын
Good info, irritating distracting background music.
@davidstojkovic3546 2 жыл бұрын
Who would do all that work for 15k ? Waste of time
@IndieBassJA26 2 жыл бұрын
Helps the seller out, and you get something. Something is better than nothing. Win Win situation...
@patrickbowers3134 26 күн бұрын
This sounds like you are acting as a real estate agent without license
@gurv1968 Жыл бұрын
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.”
@cesarnavas1993 Жыл бұрын
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.
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