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.
See below Oregon no like marketing properties you don't own.. and equitable interest theory is just that a theory its not based in fact..
they usually just paddle your butt first offense after that though it gets real. I have had clients in Mississippi get turned in and fined as well.
all states definitions of real estate brokerage are the same.. its just if they want to enforce them or not. Like ORegon says its complaint driven..
State of Oregon - Real Estate Agency
Frances Hlawatsch | Financial Investigator
Thank you again for the information, if I have further questions for you during the investigation I will certainly reach out.
The Agency is well aware that unlicensed “wholesalers” are rampant in our jurisdiction. Addressing the problems is like trying to put out small individual fires in a forest that is burning. The Agency’s investigations are complaint driven, so we rely heavily on the public, and our licensees to bring these individuals to our attention.
Thank you for getting back to me. The advertising copy you attached to your email came out perfectly and will be very helpful. Thanks!
Totally agree. Which is why people need to either have a legit buyer/partner lined up (reverse wholesale) or close on the properties themselves prior to it.
The guys/gals at: https://www.simplewholesaling.com/
Embody this model to a T!
PS: Good to hear from you Jay!
@Ryan Dossey First i have to say, great podcast. What you are doing is awesome! Second, I'm glad you wrote this article. My wife and have talked at length about this very topic recently, and there is a tremendous amount of grey area.
I agree completely with double closing. If you actually have an equitable interest in the property, you have the right to sell it. That's pretty straight forward.
I also agree with you regarding the contract as equitable interest aspect. People will always argue that a signed P&A is considered equitable interest, which may be true to an extent. However, the very moment that you advertise a single thing about that property this isn't already on the contract (pictures, etc.), you are then marketing the house itself to potential buyers. Clear violation of agency law. So i'm not sure how "marketing the contract" will get you a buyer without advertising the property itself.
I don't necessarily agree with the second option though. How is that any different? Whether you are acting in the interest of the seller or not, it seems to me that you are marketing a property to potential buyers. Bringing buyers and sellers together. To me that is acting as an agent.
@Ryan Dossey Good post...thanks for taking the time to draft that up. Do you have an opinion on the consumer protection issues related to wholesaling...consumer with a 6th grade education works for 30-years, pays off her mortgage and hasn't a clue about the power of equity in her home...in comes a wholesaler promising the world and negotiating away the equity she has built up....seems to me the Attorney General's would want to take this on at some point...
@Sterling Fields How I recommend folks reverse wholesale is basically finding a guy like me to give them a price on every lead they get. If they can get the deal done and build in margin sweet! I have zero issue with this approach. They know they have a legit buyer and the seller knows they have a done deal. Lastly, thanks for the kind words!
@Brandon Sturgill Great question. For starters, I think this all falls back on the individual. I don't operate with even a hint of impropriety. I'm a licensed broker and do not mislead anyone. In fact, we often tell people that they should list their house and not sell to us. If we have a lead where someone doesn't appear to be educated or is elderly we often loop in their legal counsel and/or family to make sure everyone is on the same page.
@Ryan Dossey This excellent to read. It's unfortunate that integrity and attention to legality are so elusive in wholesaling. I suppose the silver lining is that a wholesaler can really benefit from building a reputation for integrity.
(P.S., your podcast was one of my favorites).
@Maximilian Marck Anytime you have a way for people to make large amounts of money you have bad actors. Thanks for the kind words on the show! I'm glad you enjoyed it.
Great article and podcast! Guess it’s a state by state scenario. Btw CallPorter seems very legit, like an ISA sales force on steroids!
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