Hello Bigger Pockets Universe,
My question is regarding the legality of wholesaling. I would like to start wholesaling to raise capital to fund my own fix and flips, and even finance buy and hold deals, however, in Illinois, the laws recently changed where wholesalers and flipper would be required to get a real estate license. Im not opposed to the idea of getting my license. What I would like to know is, are wholesalers held to the laws of the state of the buyer, or the state that the property is located in? I am thinking about going into other wholesaler friendly markets and wholesaling virtually.
Feel free to chime in with thoughts and advice.
The Illinois law requiring a broker's license to wholesale is applicable to properties in Illinois. It's meant to protect Illinois property owners. If the transaction/closing doesn't occur in Illinois, you should be all good.
Investors in Illinois do not need a license to wholesale real estate; they merely need to be the principal buyer in a wholesale transaction. However, having the knowledge and skills of a real estate broker will have additional benefits for investors interested in wholesaling, including gaining access to property sale forums and networking opportunities.
The venue of the sale determines jurisdiction - which is a lawyerly way of saying that you're bound by the laws of the state the property is in. So, if you're looking at property in Illinois, there are a few other things you should think about. For example, Double closing is illegal in Illinois. Double closing is a tool used by some wholesalers to buy and sell properties more quickly. It is the process of buying and taking possession of the property and then selling the real estate property to another buyer simultaneously. Back-to-back closings, however, are legal. Back-to-back closings are two stand-alone closing transactions funded independently of each other. This strategy is less common and only utilized when a wholesaler finds a buyer who is willing to pay a lot more for the property.
Long story short, make sure you have the help of a local attorney for at least the first few wholesaling transactions you do in a new jurisdiction.
Updated almost 2 years ago
If you're interested in learning more about double closings vs. back-to-back in Illinois, check out this thread: BP forums: https://www.biggerpockets.com/forums/88/topics/339781-double-closing-title-companies-in-illinois.
The IL Legislature has defined recently amended the real estate act of 2000 so as to define wholesaling as broker conduct (this conduct was previously undefined and thus there is safe harbor for prior acts).
These days, Wholesaling is impermissible and a violation of the real estate act of 2000 (which carries high penalties + potential jail time) unless you are a licensed realtor/broker and you make disclosure of that fact.
I am also looking at out-of-state markets. It is my understanding that I would be governed by the laws that said property is located. Is this correct?