Brand spanking new to the forum- Confusing question...

9 Replies

Good afternoon.

My name is Larry. I'm brand new to this forum and REI in general. I've been studying the work of Sean Terry for a couple weeks now and I'm ready to make my first move. However... my father in law, a real estate agent for 25 years, has told me that I will end up in federal prison if I don't get a license before doing any wholesale transactions. I've talked with him till I'm blue in the face, and yet he still insists that I should not proceed forward and that what I would be doing is illegal unless I actually PURCHASE the house before selling it. He said that I cannot bring a seller and a buyer together legally. Should I listen to his advice or is Sean Terry right? Is there any diplomatic way that I could explain the legality of this to him without sounding like an idiot? I'm green and wet behind the ears and he's seasoned with a quarter century under his belt. I'm very deflated and discouraged at this point.

Thank you so much in advance and I'm sure that this question has been asked many different ways and a "newb" is often looked down upon, but what I'm asking you to remember, is that everyone was "new" at one time and I'm trying to figure out how to do this correctly and LEGALLY. I'm a police officer and a father of a small child and the last thing I need is to break the law trying to make a career change. Thank you!

You have federal laws and then state laws regarding licensing and transacting for fees.

In your situation you might want to get a legal opinion (attorney) on how you are going structure wholesale deals for guidance.

In order to represent 3rd party in a transaction you most certainly need a license. If your wholesale deal looks like you got paid to bring the seller and buyer together, and have done so without a license, then you will be breaking law.

How do people do it - by being contractual principal in the transaction. Last I checked, it is not illegal to sell that which you own. Contract is key...

@Larry Hill - First, disclosure. I am not an attorney.

But I know of no Federal law that requires licensing for real estate brokerage. Also, most (if not all) states do require licenses for brokerage, but there are legal ways to "wholesale" a property without practicing brokerage. For example, you could buy the house using some sort of seller-financing (several possibilities here, including buying the house "subject to" the existing financing). If you look at a standard HUD-1 settlement statement (your father-in-law will be very familiar with this), there is a standard line item for "subject to". Also, many wholesalers will take out an option contract with the seller and then sell their option contract to another buyer. Or, they take out a purchase and sale agreement with the seller, and then sell or assign their rights under the p&s to another buyer.

@Larry Hill I'll give you a scenario that might help make it clear for you.


Lets say, while you are sitting waiting for an oil change, someone told you about a house they wanted to sell at a great price. And you've been wanting to get started in real estate investing, so you know it's a no brainer of a great deal! Then you went and took a look at it and it was in perfect condition, so you agreed on the price and when you would close the deal on a written contract!

The day after you agreed to the deal, you ran in to Bob, the real estate investor at the café and you told him about the great deal you just agreed to. Bob says, I'll give you $10k more than that right now. Wow, you decide that's the fastest 10k I've ever had a chance to make! So you agree on an assignment contract to "assign" Bob your contract for an assignment fee of 10k and he buys the property for the price you originally agreed to pay. That's totally legal most places. (Check with an attorney in your state.)

Sometimes for different reasons, you would have to do a "double closing" where you actually buy, like your agreement stated, then sell to Bob the investor. That's just another way of accomplishing the same thing that may involve a little more closing costs.

Sometimes when new investors talk about wholesaling they miss steps and talk about making a "commission" and describe it in a way that would be illegal. The key that I mentioned in the scenario is that you had the property under contract to purchase it. You weren't just trying to "connect a buyer and seller for a fee."

Is that about as clear as mud?

you guys are great! I truly and genuinely appreciate you taking the time to respond to my newbie question on a Sunday afternoon. This forum is a gold mine of info! Thanks again!

@Larry Hill

Larry, go to the IL Real Estate Commission site and look up the requirements for an agent. There it will state under what conditions an individual will be required to hold a license.

Read it very carefully. Some states use the word "facilitate" a transaction and will have other qualifiers such as facilitating with the expectation of receiving a profit or fee. Wholesaling can be facilitating the transaction regardless of how you got into the transaction. Other states may use language you can pull a mobile home through.

Doing one option contract and assigning it on one property isn't going to land you in prison, probably not even in front of a judge. Usually if all goes south for some reason the RE Commission sends you a cease and desist letter, if they want to be nasty the will assess an administrative fine, but rarely, the usually give you a verbal slap and say stop it, get a license.

Now, if you go out and do 40 deals and the 41st deal blows up and the RE bunch find what you've been doing, it's viewed under a different eye, you're "in the business" of doing that. This is what your father-in-law is seeing I'd bet.

Your FIL has your best interest at heart, your guru or mentor won't suffer at all if you got hung. My suggestion is to study the matter on your own, see exactly what contracts and steps this Terry guy suggests, don't bring it up any more with your FIL, it will just make for a bad dinner conversation, and go see a RE attorney before you jump in!

Being an LEO you have to know some attorneys who are approachable, they usually don't charge for an initial consultation, especially if you ask them about doing an LLC for you and being their RE attorney.

Don't take legal advice off the internet! There is a saying that all RE is local, that goes to state laws, local customs, what the local judge thinks and political flavors of the day. Your local attorney will be aware of what opinions will be, follow that advice.

Good luck! And remember me if I pass through going 46 in a 40! LOL :)

Great advice from Bill. Google up Your state's RE licensing laws. Read through to see if it includes "selling contracts or options" or something similar. Some states do include that, right or wrong. Then, you and your dad can sit down look at it, as that is what he lives by in the RE brokerage biz.

@Larry Hill

Welcome. Time to build the legacy. 35 years in LE here. Talk to the best real estate attorney get the advice you need. The REIA club president can make a referral.

Check out the Start Here page

Check out BiggerPockets Ultimate Beginner's Guide - A fantastic free book that walks through many of the key topics of real estate investing.

Check out the free BiggerPockets Podcast - A weekly podcast with interviews and a ton of great advice. And you get the benefit of having 60 past ones to catch up on.

Two Great reads, I bought both J. Scott The Book on Flipping Houses,The Book on Estimating ReHab Costs

Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and all the cash buyers (rehabbers) you will need.

You might consider Niche or Specialized Housing like student housing. Rents can be 2-4 times more. Remember you don't have to own a property to control it.

Good luck


What a plethora of knowledge here! Thank you gentlement for such great and sound advice. I know many want to jump in without knowledge and "get rich quick." I am not expecting that not do I want to jump in blindly and make foolish mistakes. I am just trying to fact find and gather info before I exhaust anymore precious time into wholesaling without a license. It really seems like a gray area (wholesaling) with regards to state law. I have some time recovering from a serious work related injury and that her that zone out and watch television, I'm trying to better myself and get involved in something that I've always had an interest in yet no real time to pursue.

I also don't want to insult any people like many of you on here who have been song this since I was essentially in diapers, (I'm 40 now.). I'm a go getter and I generally don't get interested in something only to quit or fail. I give it my all and become rather obsessive about it. I've read two books on REI in the last week while the baby napped or after the family went to sleep at night, and also read so many articles and blogs (hence how I found all you wonderful people!)

You only have one life to live and it would be in my best interest to try to do something for the betterment of my family and general well being! Two surgerys and 9 years later while being a big city cop has me hungry to learn something new that I could really hone in on and learn a craft and business.

That being said, I really really enjoy all the Terry material I've read and he makes a lot of sense, I just want to make certain that what I do and how I do it follows the letter of the law and that am ethical and not being shady, and that I will be offering a service to people, not just making money at any expense. This shouldn't be difficult for me as I already have a good paying job. I want a better lifestyle but I'm not desperate to make a quick buck the unethical way.

Thank you for the warm welcome and I look forward to learning and being a productive contributing member of BP.


Updated over 5 years ago

I'm sorry for the ignorant typos. I thought I caught all of them in editing. My apologies and I shouldn't post from my Iphone anymore, haha.

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