How To Wholesale Ethically & Legally
The community of Biggerpockets has changed quite a bit in the past 5 years I've been investing in Real Estate.
When I started out on here helping newbies get started in wholesaling was a VERY common practice. The past several years BP has become less "wholesale" friendly and I understand why. So many people are pushing the "take action" approach without actually understanding what they're doing.
States like Ohio and Florida have also made it pretty much illegal if you don't close on the property prior to advertising. (Not that it doesn't happen still)
Ohio: Ohio Law Firm
Florida: Florida Law Firm
Some people make the argument that you're not brokering without a license because you hold an equitable interest in the title. I'm not going to go down that road and I don't think you'd win on the "I advertised my contract not the property" angle in a court of law.
Wholesaling is the practice of buying low and selling high which is as old as humankind.
Real Estate is particularly well suited to this because of its imperfect nature. The cost of repairs, analysis of comps, and value are up for individual interpretation. This is why you can have two appraisers come back with wildly different values or contractors come in with crazy different bids.
So how can you do it ethically and legally?
First option: Close on your properties (whether or not you can find a buyer) and resell them.
This could be using hard money, private money, or your own cash. If you don't do any work to them this is known as "wholetaling". Often when we wholetale we will do a trash out and/or very light work.
Second option: If you're financially in the place that I was in back in 2014 and no one in their right mind would give you a loan... You're going to reverse wholesale with full disclosure to the sellers you're talking to.
Reverse Wholesaling works like this:
- Get in front of sellers
- Get pictures of the property
- Let the seller know you will run the deal by your partner and have an offer in 24 hours
- Run the deal past your legit buyer whom you have a relationship with
- Let them tell you what they would pay
- Go back to the seller and see if you can get the deal done building in some margin for yourself
A lot of people talk about "bird-dogging" which is basically just passing leads to an end buyer. However, you're not really in the deal at all and it's totally up to the end buyer to negotiate, get the deal to closing, etc.
As a community, I think that we can do a better job educating newbies to keep them out of hot water, help them make money, and in return get good deals out of it.
LOTS of investors want good deals but don't want to put in the work to find them. If that's the case, encourage those willing to do the sweat equity and establish mutually beneficial relationships with them. If you're in the camp of struggling to find deals and not wanting to become a marketing expert here's what you should do.
- Network on Biggerpockets with all members in your area using Network - Members
- Do the same at your local Reia
- Let all of them know that you're happy to give them a # that works for you on anything they're looking at
- Support/Encourage them (so many guys treat wholesalers with disdain and then try to get them to sell them deals)
- Check in often to remain top of their mind
- Even offer to run appointments with them
Real Estate is a belly to belly business. You're not going to get good deals if you're not building relationships. No one likes the troll under the bridge (or touch guy behind the keyboard for that matter)
Another Path: You can absolutely always get your real estate license and do the whole "agent" thing. I believe every single person who's interested in investing should get their license (this includes folks looking to wholetale/reverse wholesale). It blows my mind that there are investors who can't run their own comps, buy deals without an agent, sell their own properties without paying a listing commission.
I'm also not going to get into the whole sellers should just list their properties debate. I have bought, sold, and wholesaled a LOT of properties where sellers tried to list the property with no success.
Just my $0.02.