You may have heard the term “novation agreement” thrown around a few times in the real estate world. But what does that even mean?
Though it sounds like you’re saying “no” to innovation, a novation agreement is a powerful document you can leverage when closing deals to make sure that all parties involved are happy with an agreement.
A novation agreement is just another creative way to fix and flip real estate.
These agreements don’t work in every circumstance, but when you find the right situation to use them, you’ve struck gold.
Novation agreements make it possible to transfer property from a seller to a buyer who is not included in the original contract the seller signed to gain their property.
I took a call earlier that explained novation agreements and a perfect circumstance to use them in.
Like I said in the call, instead of buying a property the traditional way that banks want you to, these agreements let you obtain property to do what you want with it without an official transfer.
So, if you want to fix and flip a property that someone owns, renovate and add a tenant, you can.
That’s what these easy terms set in a contract can do.
These agreements are not only important for protecting your assets, but also ensure sellers and buyers are actually happy with their terms. These agreements are legally binding and lay out openly the terms that both parties agree with.
I hate to be redundant, but I’ll quote myself when I say, “Think of novation like a contract that guarantees you the profit from selling the house, as well as receiving payback for the amount spent on renovating their home.”
This saves everybody money if done the right way because it ensures your costs are covered and that sellers make more money that if they had sold the traditional way. It’s a win-win and creates a partnership with the seller.
Sellers are often emotionally invested in their property. They might ask more money for it than it’s actually worth because it’s worth more to them in sentimentality, but not to some Joe on the street.
When you partner with a seller through a novation agreement, you can ensure they get the price they want for the property – even if it’s more than it’s worth! – and you get your hands on the asset.
A novation agreement can promise the seller that if the home is worth more than you and they think, you split a profit so everybody benefits. Or, if the house sells for less than they think, you can still give them profit while you gain the property.
Now, there are more nuances to these agreements, but we walk through them all the time in the SubTo community. I would even say some people in our community are novation experts – and they can help you become experts, too.
(That means you get to make a lot of money.)