FAQ Forum Question: Is Wholesaling Legal?

[Mindy Jensen]

Hello BiggerPocketeers!

In an effort to clean up the forums, we're creating an FAQ Forum, where the most-asked questions will be prominently featured, along with some really great answers.

I need your help!

Please take a moment to give me your very best answer to the question: Is Wholesaling legal? 

Once I have some really great answers to this question, I will create a new thread in the new FAQ forum, and through the magic of computers, make it appear as though these amazing answers all came in order. So please give me your best answers to this very frequently asked question!

Thank you!

***Please keep this thread civil. There are some pretty strong opinions on this topic, and I welcome your comments but please remember this is for the FAQ Forum.***

[Rick Stein]

Putting the arguable legality aside for a moment, let's talk ethics. I have been a real estate broker for 31 years and been an REO agent for about 25 of those years. I have been an investor for about the same length of time. I am on the board of directors of my local REIA and we hold numerous education sessions for wholesalers or wannabees.These sessions are always packed!! Yes, it is true that the vast majority of people entering the real estate investment industry do so because they do not have the cash to purchase a property.

  Many of these people, although perhaps well intentioned, are dangerous because they do not know what they are doing. They do not do  proper due diligence. They knowingly or unwittingly inflate the retail value, understate the rehab costs, have no ability to close on the deal if they do not find an assignee, who often times are as ignorant as they are, and, in short, give a very bad name to the industry as a whole. 

  On the other hand, there are many very successful wholesalers, licensed or not, who enter into a contract, make an earnest money deposit with their title company so they have an equitable interest, do their homework property, disclose to the seller exactly what they are doing, find a knowledgeable assignee who closes the deal and every one is happy. In my humble opinion, the latter example is perfectly ethical and does a service to investors such as myself. I recently was the assignee on a property that I closed on. I was happy to pay the assignment fee as I was getting value greater than the fee I paid. I did a nominal rehab and have rented the property to a lovely family generating a nice cash flow.