Is Wholesale Real Estate Investing Legal?

The short answer is yes! Wholesale real estate investing is legal. In recent years, rumors spread that wholesale real estate investment was illegal. This false information created confusion for real estate investors. We’re here to set the record straight!

Like with any type of real estate transaction, you need the right information about the industry, process and the law to conduct legal transactions. Specially with wholesale real estate investment, state laws establish guidelines to ensure all parties have protection throughout the transaction.

Don’t fear wholesale real estate investment. When you follow the legal processes, wholesale real estate produces a quick and easy profit. Ignore the rumors and get accurate information from industry experts.

What is Wholesale Real Estate?

With wholesale real estate the investor acts as an agent to find a buyer for the seller. The way it works is the investor signs a contract with the seller but never actually takes possession of the property or control of the title. Instead, the investor looks for real buyers for the property. Once a buyer is located, the contract transfer to that new buyer.

The seller is completely aware that the transaction is a wholesale deal. In fact, the real estate investor makes a profit by including a fee in the contract for locating the new buyer. Make sure you understand the state laws before you start the deal. Each state’s laws vary slightly for real estate wholesaling.

To find buyers for wholesale deals, work from your buyers list. Your buyers list is a list of qualified buyers, including detailed categories for the types of deals they prefer. A solid buyers list ensures quick access to locate the right buyer for your wholesale deal.

The Pros and Cons of a Real Estate License for Wholesale Deals

In most states, you don’t need a real estate license to invest in wholesale deals. A real estate license is what real estate agents must acquire before they provide real estate services.

Pros to Becoming a Licensed Real Estate Agent

Licensed real estate agents have access to information the standard person can’t view. For example, a real estate agent can access to the MLS (Multiple Listing Service). This is a listing of active properties. When you have a license, then you aren’t dependent on another agent to see the data and tools on the MLS.

Obtaining your real estate license means you’ve received training on local laws and procedures. This establishes credibility within the industry. You also gain access to networking events and associations solely for licensed agents. This access helps build your network and exposure.

Plus, as a real estate agent, you can collect a commission for real estate transactions. Instead of paying an agent to help with a deal, you may act as the agent.

Cons to Becoming a Licensed Real Estate Agent

Becoming a licensed real estate agent means you are held to certain standards and must follow certain procedures. When you choose not to obtain a real estate license, you have more freedom to manage deals for your benefit.

Licensed real estate agents risk audits of their deals. If you aren’t a licensed agent, you have a lower risk for audits and even lawsuits. If your state doesn’t require a real estate license for wholesale deals, you may find it’s easier to operate without one. In the end, you must decide whether the pros outweigh the cons.

Wholesale Real Estate Laws Vary

While wholesale real estate is legal, it isn’t as easy to understand as some other types of real estate investing. State laws exist to protect all parties involved in the wholesale transaction. However, since the laws vary by state, you must determine the specific laws for each state where you conduct wholesale deals.

Wholesale real estate is perfect for virtual real estate investing since you don’t take possession of the property. But, if you don’t follow the law, you risk fines and lost profits. Plus, your reputation will suffer.

To stay compliant with the law, you must disclose to buyers that you don’t currently own the property but that you do hold the contractual right to purchase the property. Ensure that the buyer you’ve found to take over the contract knows you aren’t the seller. This isn’t just about following the law, it is also good business practices.

Stay Legally Compliant for Wholesale Real Estate Deals

Contact the real estate commission for each state where you invest in wholesale real estate. Also, you can’t rely solely on the knowledge and advice of attorneys or real estate agents because they may have personal interests that skew their advice.

Ultimately, if you break the law, you are accountable. Plus, you hurt the entire industry when you don’t respect the processes and rules in place. Wholesale real estate is a great way for real estate investors to make money quickly. Stay compliant so that this lucrative investment strategy remains a legal method of real estate investment.

Ways to Ensure Legal Compliance

While the following information is not legal advice, these steps provide basic guidance conducting wholesale real estate deals.

Act as the principal buyer with the seller. When you locate the seller, clearly communicate you are simply the principal buyer and not the property owner. Use the required contracts, forms or agreements based on the state laws to avoid errors and legal risks. Also, ensure you understand and follow the specific laws for the state where the property exists.

Finally, always communicate with the buyer that you don’t hold the title. Transparency is the key to a successful deal. Plus, it is the new buyer’s responsibility to obtain title insurance to determine if the title is clear for transfer.

Overall, you want to follow the rules so that you make a profit and don’t get stuck in a legal hassle.

Wholesale Real Estate – A Solid Investment Strategy

Wholesale real estate investing is a smart and fast way to make money. In fact, when done by the law, it’s like a personal ATM. Take the steps to understand the best methods to make wholesale real estate investing work for you.

Don’t let the rumors keep you from making money and growing your real estate investment business.