Real Estate Wholesaling

Warning: New Wholesaling Law Enacted in Illinois (& Why Your State Might Be Next!)

Expertise: Personal Development, Real Estate Wholesaling, Real Estate Investing Basics
91 Articles Written
indecision

I am no different than a lot of you reading this post. We were all intrigued by the concept of “no money down” real estate investing. It’s one reason many people look to enter into the real estate industry via wholesaling.

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However, with new revised state regulation, I really would like to revisit the discussion: Is wholesaling illegal?

New Wholesaling Regulations

This topic has been discussed for years on BiggerPockets, and with new legislation being passed in August 2019, I would like to get some feedback from you.

Full disclosure: I am a licensed Realtor (in Arizona), so you may believe this will be a biased article. Hear me out before passing judgement.

If you’re wholesaling in Illinois, you should know exactly what I am referring to—and this may sweep the nation. SB1872 is a revision to the Illinois Real Estate License Act.

wholesaling-too-hard

Part of this act is simply clarifying what is the true practice of facilitating a real estate transaction. You may not act in the capacity of a broker.

This is not a new law. Again, it’s clarifying the roles in a transaction.

Related: Warning Newbies: Stop Wholesaling Now!

I’m sure I will hear from many of the readers trying to refute what is stated in law. However, the law is clear on this topic.

As a licensee in the state of Arizona, I understand clarifying the legalities around the law. I am not an attorney, but in speaking with my attorney, it’s clearly stated. Anyone conducting more than one transaction yearly is coordinating or structuring transactions without a license. That individual can be fined $25,000.

That is enough clarity for me to understand what the law is stating.

Why Should Wholesalers Be Concerned?

You maybe wondering by now why am I concerned about it.

I currently virtual wholesale, and one of my markets is Illinois. As such, this does affect business operations.

Although licensed in Arizona, it was always a part of the plan to become licensed in Illinois. With this bill, it will expedite my timeline on completing the course work to become a licensee in Illinois, as well.

Will Other States Follow Suit?

You may be asking yourself that question. You maybe thinking, I don’t wholesale in Illinois, so why does this matter?

I bring this up because this revision in SB1872 was initiated by the Illinois Association of Realtors, which is part of the National Association of Realtors (NAR).

dont-wholesale

NAR is a very strong lobbying body. This is just my opinion, but I believe this will be an effort the association will look to institute on a national level. If not now, in the future I’m sure.

Related: The Ultimate Beginner’s Guide to Real Estate Wholesaling

A Word of Caution

Wholesalers are hustlers by nature. I know many of you will try to find a loophole or some gray area in the law.

Again, I am not too far removed from having a similar mindset in the past. People will believe, I’ll just double close all transactions. I’ll find a way to make some provision in the contract with creative verbiage. Or I’ll use multiple LLCs to contract and close the deal.

This is totally up to you to take the risk.

I would love to hear your feedback. Is wholesaling illegal? Is it about to be?

Let’s have an open discussion in the comment section below. 

Marcus Maloney is a value investor and portfolio holder of residential and commercial units. He has completed over $3.3 million in wholesale transactions. Currently, Marcus is a licensed agent who wholesales virtually in multiple states while building his investment portfolio. He has also converted some of his deals into cash-flowing rentals. Marcus holds seven rentals, two of which are commercial units. He’s even purchased a school, which was converted into a daycare center. His overall goal is to turn what is a marginal profit into a significant equity position. He leverages the equity by using the BRRRR (buy, rehab, rent, refinance, repeat) strategy to increase his portfolio without any money out-of-pocket. Marcus has been featured in numerous podcast such as the Louisville Gal Podcast, The Best Deal Ever Podcast, The Flipping Junkie, and many others. He contributes content regularly to his YouTube channel and blog.

    Brian Gibbons Investor from Sherman Oaks, California
    Replied 3 months ago
    Buy any property on terms and sell for cash, For instance buy on land contract, get on title and sell for cash. If you act as a principal you’re always in good shape.
    Rob Cook Real Estate Entrepreneur & Coach from Powell, Wyoming
    Replied 3 months ago
    Yep, it is just a matter of time. I got my Real Estate sales license in 1978. A lot has changed in the last 41 years! We have only had smartphones for the last 14 years after all! I also own over 50 rental units and for many years. I also hold a Law Degree and have owned businesses, a brokerage, and residential construction companies for over 30 years. I am a bottom feeder in RE investing. I buy residential properties nobody else wants. That is my method/strategy and has been for decades. So my experience has been very similar to what is now called Wholesaling, although I never sold a contract as far as I can recall, I just owned them myself. All of that is to say that the way wholesaling is presented and practiced so widely these days, has always smacked to me of being borderline illegal in many if not most cases. It literally is acting as a broker/agent when the wholesaler never takes title. So those who obtain the licenses see their turf being encroached on by non-licensed practitioners, have a legitimate complaint. Nothing stopping any wholesaler from obtaining their own RE License, except themselves. That is a simple solution. We would not tolerate people practicing medicine, law or food manufacturing without the appropriate oversight and licensure/approvals from the appropriate authorities, so why should a regulated industry like Real Estate wholesaling be any different. The very reasons for any agent and broker being required to become licensed, i.e., for the protection of the public, exists for wholesalers too, and therefore should be treated the same.
    Jack Eyer Rental Property Investor from Birmingham, AL
    Replied 3 months ago
    A bit more clarification on this subject of diing things only a licensed realtor are allowed to do: advertising, co tracting a 3rd party property without real intention or proof of financing/funds. We need a nymber better that one per year imo. All of us though would like the ability to hand off a property when overloaded. Will not bother if u Buy it, then resale same day. So well financed/funded investors wont miss a beat!!
    Chris Kendall Rental Property Investor from Ripon, WI
    Replied 3 months ago
    I'll admit, I'm far from an expert, and only recently started learning more about wholesaling, but the way it was explained to me: I enter into a contact with a seller. I am the buyer. I put money down to make the contract valid and binding. I then find another buyer willing to pay me more for the property. I then assign my equitable interest as buyer to the other new buyer. When the deal is closed, I get the difference between the amounts. No broker is ever listed as a "party" on a contract, which is why this is not brokering without a license.
    James Green Wholesaler from Waldorf, Maryland
    Replied 3 months ago
    Chris, brokering real estate, doesn't mean that there is a "broker listed as a party on a contract". Brokering means - "arrange or negotiate (a settlement, deal, or plan)". It has nothing to do with whether one of the parties to a deal has a license. I do wholesale, ....but if that statute came to my area, I would have my license asap (or look for more creative financing deals). I wouldn't want to try to tell a judge that because I'm not a real estate broker, I was not "brokering".
    Tom Hastert from Topeka, Kansas
    Replied 3 months ago
    I wish you would quit doing these articles. Contract law of the of our great United States of America will not be overturned by any Realtor Association. If you have a contract to purchase, you are a principle with equitable interest.
    Barry Pekin Specialist from Purcellville, VA
    Replied 3 months ago
    This seems simple enough. If it turned out I needed a license, I'd do it immediately. Heck, it only offers you more options. You can still wholesale as an agent, you just have to do it right. Yeah, what happened in IL may fly in the face of federal law to be able to sell your equitable interest in a contract, but you are also facing a powerful lobby. Whatever direction it goes, just be prepared. If they pass a law that says I have to wear a blue tie while I'm wholesaling, I may just invest in a blue tie company and get a few for myself.
    Paul Smith
    Replied 3 months ago
    This is simply a bunch of employees in a failing industry trying too create a monopoly, by saying the RIGHT TO CONTRACT is not real. Its absurd. The first time someone tells me that a contract I make is not valid they get sued. I see the realty association going out of business after being sued for collusion with politicians to create a monopoly at the expense of Americans Rights. I am not subject to the realty assoc simply because I did not get a license. I have a right to contract even if only for a second. This will not withstand even the mildest resistance. Must be a bunch of democrats in the state needing campaign funds otherwise known as bribes for the 2020 election.
    Khanesia Washington Real Estate Agent from Arlington, Texas
    Replied 2 months ago
    Great article. Im a licensed realtor and the earning opportunity as a wholesaler is far greater. @Paul i do not believe a monopoly is the intention with enforcing such laws.