Am I in the clear?

Question

I'm new to real estate investing and I am closing on a property tomorrow. I should be excited but I'm more nervous. This is the second wholesale deal I have completed on my own however this one is different. The property was brought to me by another wholesaler. I did not tie it up myself but I passed it along to another invetsor. The investor is paying me 13k which is awesome. I was speaking to a friend that is a Realtor and he told me to be careful I might be breaking the law. He stated I cannot broker a deal unless I have ownership rights via the contract. Although I did not negotiate terms or price am I still liable by collecting a fee? The investor had me send her an invoice and she has also placed me on the hud. Feedback would be appreciated. Thanks.

Bill Gulley · Answer

Well, since you have a fake user ID and no profile showing where you are, we cant say if it's legal, but probably not if you aren't on the contract, why are you getting a fee......yes, you appear to be brokering the deal. No need to worry now, worry after you take the money. And you sent an invoice......for what? Never count your chickens before they hatch, sounds like it would be pretty easy to cut you out of the deal.

Didn't read the replies until after I posted.

"skirt the law" LOL, and the law won! :)

Chris Campbell · Answer

You're real estate agent friend is probably not familiar with wholesaling. Your friend is familiar with the real estate laws in your state, but he's probably not familiar with ways to skirt the law (which is what wholesaling is).

If he contacts the real estate commission they're going to tell him wholesaling is illegal. They love scaring people into obtaining a real estate license. Of course, we all know it's not.... yet.  Selling properties is illegal in most states if you don't have a license or some form of equitable interest(i.e. ownership or a contract to purchase). The good thing about your transaction is the fact that your fee is being disclosed on the HUD Statement. The bad news- you don't have any contract to claim equitable interest so you're acting as a third party broker. You know the saying if it looks like a duck, walks like a duck.... . Do a simple purchase contract between you and the wholesaler and/or at the very least have him sign a joint venture agreement. Also, consider a double close. You could close out the first transaction with the seller and wholesaler. Then close out the second transaction later in the day(or even a few minutes later) with your buyer. You would need a transactional lender- I use my private money guy, but look around your town for one. I'm sure you will find a private lender or hard money guy willing to help you for a small fee(2%-3% of what you borrow). Know your business- you're selling contracts NOT real estate. Make sure you connect with a good real estate attorney and pay them to create a solid contract that you can use for every deal. Best of luck to you.

Chris

Russell Brazil · Answer

Colorado

Craig Smith · Answer

LOL. Just curious. Anyone know what state he was from?

Russell Brazil · Answer

We didn't mean to scare you off the site

Account Closed · Answer

Thank you all for the feedback. I believe contacting the commission directly for answers would be best. Also, in light of avoiding this issue all together I am going to reach out to an attorney and put together a legitimate contract before moving forward with any transactions.

Russell Brazil · Answer

Every state is going to have different laws.  What you did may be perfectly legal in one state, and completely illegal in another state.  What I would suggest is even beyond googling is to actually contact the Real Estate Commission for your state and ask for guidelines on what is and is not legal in your state.  Quite often what is illegal may actually be hard to find, as it is something not necessarily denoted by a law, but rather by a rule that the commission has that bears the same weight of law.

Wayne Brooks · Answer

You should probably learn, or at least read, your state real estate licensing laws for yourself.  Google is pretty handy for this.