Real Estate Investor mentor tells me it's illegal to wholesale

[Seldon Rios]

Hello everyone!

I have recently been in contact with a local real estate investor who's been investing for over 25 years. He agreed to take me in as an apprentice. I asked him that I would like to get into real estate investing by wholesaling. He claims that wholesaling is illegal in New Mexico without a real estate license. He says the only way to invest without a license is by purchasing the property and selling it afterwards; or a double-close.

I have read Brandon Turner's The Book on Rental Property Investing, and The Book on Investing In Real Estate with No (and Low) Money Down, and have listened to hours of podcasts since last year. I don't have any experience in real estate investing, but my mentor has over 25 years; so I don't want to overstep my bounds. 

Does anybody know if wholesaling (assignment contracts) are illegal in New Mexico without a real estate license?

Thank you all!

[Chris Seveney]

@Seldon Rios

Most states it’s illegal based on the way people wholesale because the moment they market a property (or what they say contract) to third parties is not legal as it falls under brokering.

Chances of getting caught are probably slim to none and slim left town.

[Jim Pellerin]

@Seldon Rios

It's not illegal as long as it's done right. Like @Chris Seveney said, most people market the property, which IS illegal and not the contract.

But a lot of states are changing and if you are going to focus just in New Mexico then I would recommend you get your license.

Here's a detailed article that references the actual law

https://www.realestateskills.c...

[Seldon Rios]

@Chris Seveney

When you say "market a property"; is that advertisement to the general public or is that selling the contract in general?

Is there a way to wholesale legally?
 

[Chris Seveney]

@Seldon Rios

I am not a wholesaler so I am not up to speed on all the laws surrounding it - a double closing I believe may alleviate any legal concerns

[Seldon Rios]

Thank you for the responses.

[Will Cahillane]

Attorneys are important 

[Robert Carmody]

As others have stated, it can be done and it's important to not overlook the technicalities or accidentally overstep the boundaries, finding yourself brokering transactions when you didn't intend to. Most contracts have an assignment clause, so you may want to work with a good real estate attorney initially and have them review documents, provide representation, or possibly prepare a statement or addendum for you to use on any wholesale deal that you are participating in. Practicing attorneys can assist clients purchase or sell property for a fee in NM. 

The practice of wholesaling is not new here, but also not widely known about or understood, and is an idea or approach to investing that many dabble in, but few stick with it. Be proactive about connecting with experienced professionals, whether legal, real estate or otherwise; and stay in your lane. That can be easier said when there aren't a lot of clearly defined rules. Over the years, I've been contacted a few times by homeowners who had been in contact with wholesalers, who had definitely overstepped boundaries and were offering services that require a real estate license or other professional services. I don't think it was due to bad intentions on the part of the wholesaler, but that they found themselves working with a willing homeowner with some hurdles to clear. Without intending to, the wholesaler was in the position of having to help the homeowner find housing to move to or was handing out legal advice in instances where the homeowner had a financial hardship or when the property was part of an estate with beneficiaries that had differing opinions. Obtaining your real estate license in NM, if you planned to mostly invest here, can help expand the boundaries that you can legally work within, but does not eliminate them or the related risks altogether. 

1) In order to activate your real estate license, you'll be required to purchase an Errors & Omission Policy, which is insurance coverage for agents and brokers and is intended to help pay most legal fees and claims made against you by a third party for damages and malpractices. Most E&O policies do not provide coverage for an agent's personal dealings outside of their personal property that they occupy. Sometimes additional coverages can be purchased, and I'm not sure if or how this might impact a licensed agent who was wholesaling their own deals. Claims made against agents, related to personal dealings, have an average award or settlement amount that is 5 times greater than claims made against an agent, related the property of a 3rd party. That is why there are limitations or exclusions on coverages there, and also why there is a greater financial risk for continuing to handle them yourself when you don't actually have E&O coverage.

2) You will also be required to "hang" the license with an actively licensed qualifying broker and brokerage in NM, who essentially oversees your real estate transactions and is responsible for making sure that you are practicing real estate within the state & federal laws & regulations. Brokerages have policies on handling personal transactions and dealings, so you'll want to explore options there and be upfront with how you intend to use your license. After a couple of years and certain amount of experience, combined with additional training, testing and fees, you can become a qualifying broker yourself, and have your own brokerage, but initially you are required to work at a brokerage, for another broker. There are continuing education requirements and fees to maintain and renew your real estate license, as well as fees to join the local Realtor associations, MLS, etc.

If you are mostly interested in becoming an investor, and using wholesaling as your way of getting there, I'd start by connecting with a good real estate attorney first, and then there is lots that can be learned online as far as best practices. 

[Eliott Elias]

Incorrect. Your mentor is leaving a lot of money and opportunity on the table. Please send me the deals you’re not wholesaling 

[Henry Lazerow]

The wholesaling thing is a get rich quick scam for the most part, the money made is in selling how to courses and books not actually wholesaling. Theres a small percent succesful at it but it's minimal and those people tend to be great at lying and scammy sales tactics to the elderly. It's not legal in many states but people still do it. 

[Katherine Blazer]

Quote from @Seldon Rios:

When you say "market a property"; is that advertisement to the general public or is that selling the contract in general?

Is there a way to wholesale legally?
 

Some states it is, and it is a very thin line. I agree with everyone that says you are leaving money on the table if you do not know how. Wholesaling allows you to help people move on to the next step of their lives when you do not have the funds, ability, or capacity to take on the rehab or rental at that time. You do have to make sure you are doing it correctly, though. Go to a local REIA and see what they are doing. We have specific wording in Florida, you are not marketing a property you are marketing your right to buy the property. 

[Seldon Rios]

Quote from @Robert Carmody:

As others have stated, it can be done and it's important to not overlook the technicalities or accidentally overstep the boundaries, finding yourself brokering transactions when you didn't intend to. Most contracts have an assignment clause, so you may want to work with a good real estate attorney initially and have them review documents, provide representation, or possibly prepare a statement or addendum for you to use on any wholesale deal that you are participating in. Practicing attorneys can assist clients purchase or sell property for a fee in NM. 

The practice of wholesaling is not new here, but also not widely known about or understood, and is an idea or approach to investing that many dabble in, but few stick with it. Be proactive about connecting with experienced professionals, whether legal, real estate or otherwise; and stay in your lane. That can be easier said when there aren't a lot of clearly defined rules. Over the years, I've been contacted a few times by homeowners who had been in contact with wholesalers, who had definitely overstepped boundaries and were offering services that require a real estate license or other professional services. I don't think it was due to bad intentions on the part of the wholesaler, but that they found themselves working with a willing homeowner with some hurdles to clear. Without intending to, the wholesaler was in the position of having to help the homeowner find housing to move to or was handing out legal advice in instances where the homeowner had a financial hardship or when the property was part of an estate with beneficiaries that had differing opinions. Obtaining your real estate license in NM, if you planned to mostly invest here, can help expand the boundaries that you can legally work within, but does not eliminate them or the related risks altogether. 

1) In order to activate your real estate license, you'll be required to purchase an Errors & Omission Policy, which is insurance coverage for agents and brokers and is intended to help pay most legal fees and claims made against you by a third party for damages and malpractices. Most E&O policies do not provide coverage for an agent's personal dealings outside of their personal property that they occupy. Sometimes additional coverages can be purchased, and I'm not sure if or how this might impact a licensed agent who was wholesaling their own deals. Claims made against agents, related to personal dealings, have an average award or settlement amount that is 5 times greater than claims made against an agent, related the property of a 3rd party. That is why there are limitations or exclusions on coverages there, and also why there is a greater financial risk for continuing to handle them yourself when you don't actually have E&O coverage.

2) You will also be required to "hang" the license with an actively licensed qualifying broker and brokerage in NM, who essentially oversees your real estate transactions and is responsible for making sure that you are practicing real estate within the state & federal laws & regulations. Brokerages have policies on handling personal transactions and dealings, so you'll want to explore options there and be upfront with how you intend to use your license. After a couple of years and certain amount of experience, combined with additional training, testing and fees, you can become a qualifying broker yourself, and have your own brokerage, but initially you are required to work at a brokerage, for another broker. There are continuing education requirements and fees to maintain and renew your real estate license, as well as fees to join the local Realtor associations, MLS, etc.

If you are mostly interested in becoming an investor, and using wholesaling as your way of getting there, I'd start by connecting with a good real estate attorney first, and then there is lots that can be learned online as far as best practices. 

 Thank you very much for the details and suggestions!

[Nathan Gesner]

Quote from @Seldon Rios:

Contact an attorney and ask. They'll probably give you the same advice. Contact the state commission and they'll say the same.

The law allows you to write contracts for property you are buying/selling. But you have no intention of buying the property.

The law also does not allow an unlicensed person to receive a commission for a real estate transaction, yet that's exactly what you're doing.

People do it all the time. They don't get caught. That doesn't make it legal.

[Jerryll Noorden]

Just do a double close.

[Seldon Rios]

Thank you all for the responses and suggestions. It seems the opinions on the matter are somewhat diverse.

I'll continue to learn and gain experience until I find out what works best for me.