Wholesaling in Ohio - illegal without a license, correct?

[Jill Tiger]

I initially signed up for a wholesaling workshop in Ohio, and I did pay money for this real estate investing workshop. I had been reading and listening to wholesale-related info to soak up as much information as possible when I first signed up. In that week and a half before the workshop was to happen, I found BiggerPockets. I started searching wholesale information here as well, including setting keyword alerts. It was at BiggerPockets where I encountered the legality question. That was something I didn't look up prior to coming on BiggerPockets. The information for wholesaling is so prevalent out there in every state, along with workshops in my own area explaining how to work in this particular  "niche", that I didn't think to question it (I don't know what I don't know).  Nor were the keywords I was using crop up any immediate results regarding the legality issue.

This particular company stated you could do these wholesale deals without a license specifically with "motivated" sellers that have a "pain point" - house never got finished renovating, water damaged, a divorce, death/sickness, etc wherein your seller needs to sell the house sooner than later, helping where they otherwise might not be helped. You buy low and sell low, and thus come away with a smaller, but decent profit (average 5-7K)."More efficient, less time."  This seems reasonable as you aren't earning a million dollars a year or some crazy thing like that. They state to treat the private homeowners well, with respect, and exceed their expectations.

The idea is you secure a contract with the seller for a purchase price that would cover any outstanding mortgage, unpaid taxes, repair expenses, your fee, etc., without going over 70% of the market value.  So long as expenses have been properly calculated and you write the offer correctly, it should be pretty easy to sell to a rehabber.  The company will provide proof of funds paperwork for your deal once they've reviewed it and make sure it complies with local contact law. Since the company is providing the proof of funds letter, you aren't using your own money, and since you are selling to a rehabber, you don't have to worry about paying an appraisal fee, etc.  Be sure to make the contract selling to you or "assignable", and close within 2-3 weeks (which should be ample time to find a rehabber).  Meanwhile owner cannot sell to anyone else once you have them in a contract. For the company to do this for you, their cut is 1.65% + $495. They are checking your groundwork to ensure it is a good deal, which is, of course, to their benefit and seemed like a Win-Win. Seemed logical if they checked the deal, had access to all the house's info, that they would provide the "covering/electronic funding" of proof of funds since it'll only be a sort of digital hold of money until the deal is done. 

The example they gave in the 90 min presentation was a house you told seller you'd purchase (or assign) for $255,000, and resale for $285,000.  Fees/escrow ~ $5000, leaving your "gross margin" of $25K.  They only take their fees out of the purchase price, which when calculated, is pretty generous (about $4700).  But, if you are making $25K, $5 seems alright to give up and still walk away with $20K.  Finally, I suppose the thing that got me was if you did one deal, you would earn your "workshop tuition" back (quickly running numbers in my notebook, I understood they'd earn the tuition money back, plus more in future deals).

The BIggerPockets person stated on one of the forums that in Ohio it is NOT legal to wholesale without a license, and encouraged others to check the Ohio Dept of Commerce, Real Estate division (ODCRE). Sure enough, on ODCRE on the lower left side of the page there is a link regarding laws pertaining to wholesaling in Ohio. It linked to a video that had the General Counsel of the National Real Estate Investors Association with 2 of the state's top regulators -- the Division Counsel and Staff Attorney. The video had a format of the General Counsel asking the regulators questions in layman's terms (for the most part) and trying to encompass all possible deviations that could be made to skirt the law -- like calling received monies a compensation or some other term rather than a fee, doing it under an LLC instead of individually, etc, but what they come back to over and over again is that trying to sell or market a property that you personally do not already own, but are representing someone else, and getting into a contract without the intention to buy it, but rather look for a buyer, is illegal without a license, period. All roads led to the same place. On top of that, you could be fined $1,000/day. The rules fall under OH Law 4735.01,4735.02.

That was enough for me.  I was now past my 3 days buyers regret period, but before the training, if only a day or two. I requested a refund and was told I would be called by quality assurance, as they handle that.  The QA called me in the middle of work and I missed it. Because it was Friday, I can't call him back until tomorrow.  His voice mail said we are allowed to do it in OH, others have done it here, it just depends how you do it. However it was outlined [not to do] it in OH laws, you cannot do it that way, but can be done in other ways. Wholesaling is just one strategy we teach and we show other ways to do it that are perfectly legal and don't fall into a gray area.   

There is no other way to interpret this law, or strategy by which to enter into a contract, marketing, or otherwise bringing together a seller and buyer without a license, correct?  Just want to make sure I got that straight.

Any suggestions other than the above information that may be helpful when talking to them? I realize if I lose this money, it will be because while doing my due diligence my knowledge came after the 3 day return period (and thanks to this site).  I could swallow if they said from the beginning that you would have to have a license to employ the teaching, I'd be fine with that. But, they are purporting this activity as legal, which doesn't seem right. I could instead use that money to get a real estate license and be above board. 

Thanks in advance for any suggestions or confirmation!

Sincerely,

Jill

[Jay Hinrichs]

Yup going to be interesting to see how  the HOW to wholesaler guru's handle the anti wholesaling laws sweeping the land.

IL just made it very clear you need a license.. also generating a POF when you really don't have funds that's just flat out fraud.. I bet the attorney General in Ohio would be interested in that one.. :)