How To Wholesale Legally In North Carolina

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I am not an attorney and am in no way providing any legal advice. Be sure to consult an attorney prior to attempting any of these deal structures.

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Wholesaling is the sexy way to get started with real estate investing. New investors flock to it since the barriers to entry are low and the skills required can be taught relatively easily. That being the case, a lot of people come in "guns-a-blazin" and start flipping contracts after attending a seminar or reading a few posts here on Bigger Pockets. Some succeed, some get bored and move on, and others get in trouble and give us a bad name.

Through my experience, I've learned a thing or two about wholesaling here in North Carolina and now that I'm a Realtor I find myself navigating the law and calling the Real Estate Commission any time I have questions regarding the legality of my operations. I operate well outside of the gray area, and so should you. To help you do that, here are three ways to wholesale legally here in North Carolina.

Double Close

A double closing is, in my opinion, the best way to wholesale here in North Carolina. The reason is that there's no ambiguity with the process. You purchase the property, the deed is recorded, and you sell it immediately for a spread to the end buyer. You've taken title, albeit for a matter of hours, and then you sold it. Simple and effective.

The downside to this process is that you'll be paying more of the closing costs. Normally a wholesaler will pass on the seller's costs to the buyer, but since you are the buyer you're eating those costs. Just take them into consideration when you're structuring your offer and sale price to the end buyer and you'll be fine. Using a Transactional Lender is a great way to navigate these deals so that you don't have to bring any of your own money to the table!

Trust Interest Buyout

Okay, so I have not used this myself yet but when I heard about it I started investigating it. This is a very creative way to manage a wholesaler deal, but it takes a fair amount of specialized knowledge concerning trusts to pull it off. From what I can tell, this is primarily used when you're purchasing a property that does not allow assignment.

The idea is that you go under contract to purchase a property and subsequently start a trust of which you and the end buyer are a beneficiary and assign the contract to that trust. The buyer brings the money to the table on behalf of the trust, the property is purchased by that trust and then the end buyer buys you out of your interest in the trust (i.e. the "assignment fee"). It's pretty freaking brilliant and you're buying the property. The assignment shouldn't be an issue because you're a beneficiary of that trust it's being assigned to. I'm honestly excited to use this one.

Assignment

We've come to the gray area of wholesaling. Under North Carolina State Law, when you're assigning a contract you are technically connecting a buyer and a seller when you assign your interest in that agreement for a fee. That said, the NC Real Estate Commission told me that assignments are fine, but there are not a lot of court cases that back the legitimacy of assigning contracts. I prefer to stay well outside of that gray area, so I decided to get my Real Estate License in order to operate, what I consider to be, fully in the green. They also told me that I needed to...

HAVE MORE SKIN IN THE GAME. That's what the NC Real Estate Commission told me, and that's what I do. When I first started out, I was putting $10 earnest money down and assigning the contract. If I backed out, I owed the seller $10. Well, that pissed off one of the sellers we were working with and they reported us to the Commission. After a couple of months of back and forth, they confirmed that we were fine to assign contracts so long as we put more skin in the game. After speaking with our attorney, we settled on $500.00 being the minimum earnest money we put down.

A lot of you will say "that's a lot of money" and shy away from it, but I say it's completely worth it. I'll cover why in a future post.

In closing, I would say that you should absolutely consider getting your license if you're going to make a career out of wholesaling contracts. If you'd prefer not, consider using the techniques above which (while not guaranteed) can help you operate outside of that gray area. Don't be the guy who makes legitimate wholesalers, like me, look bad.