I've read a lot of stuff about real estate wholesale being illegal with out a licence. This is an excerpt from Havard graduate John T. Reed:
I suspect that much of what is advocated as flipping is really unlicensed brokerage. Indeed, the two actual-case-history articles I wrote about real flippers both involved real estate brokerage firms that did flipping as part of their overall activity.
I have heard gurus say words like, “You’re really just bringing a buyer and seller together.†On page 2 of Flipping Properties, the authors say, “Investors who flip houses accomplish the same basic tasks that real estate agents accomplish.†Their point is how easy it is. My point is that if you are just bringing a buyer and seller together, you are not an investor, you are a broker.
It’s not just a semantic issue. Brokers are licensed and heavily regulated. If you are engaging in brokerage without a license and without complying with the various regulations, you are breaking the law. In some states, a lawyer can broker real estate deals without getting a real estate sales or brokers license.
Also, i read elsewhere that "bird dogging" is illegal w/o a real estate liscence. Is all of this true? How can i find out?
Thanks!
~Noob
Shanae Banks you are replying to a thread that was like active 8 years ago. Lol but I recommend you seek out a real estate attorney in your area and see if they could help.
The difference is that when you're wholesaling, you're a principle to the transaction. Depending on exactly how you do it, you have a contract to purchase a property, an option on the property, or ownership in a company that has one of these two. Bird dogging, on the other hand, looks a lot more like brokering to me.
Hmm, i don't think i quite understand the phrase "principle to the transaction". Can you elaborate, please? Also, do you, by any chance, know how i can get my hands on this wonderful "contract" everyone is speaking of? I've heard of the clauses and such and the "and/or assigns" deal, but I don't exactly know how to get the contract itself. Should I hire a lawyer? And also....one more thing (sorry my post is so long): I thought bird dogging and wholesaling were interchangeable terms.
When you sign a contract to purchase a property, you're now a "principle" to the transaction. A broker never signs such a contract.
If you buy an option to purchase a property, you now own that option. So, you're a principle to that transaction.
If you actually buy a property, you're the owner. You can turn around and sell it to anyone for any price you like (notwithstanding some state laws) and pocket the gain (less taxes.)
A broker, on the other hand, markets the property. He or she brings the buyer and seller together, but is not involved in the buy/sell transaction itself.
This "contract" is a purchase contract. Goes by various names in various places. Every real estate broker has a stack of them in their briefcase or on their computer. If you've every bought or sold a property, you've signed one. They vary from place to place, and for different purposes. So there is no "the contract".
Bird dogging is different. Here you just find properties, then give the info to someone else who will wholesale it or buy it themselves. I'd suggest you do some reading here in the "Wholesaling" forum. You can learn a lot about this business reading here.
If you are not licensed and are a principal in the transaction, as Jon said above, you can:
* Sandwich Lease option (Lease Option and Sublease suboption
* Master Lease and Sublease
* Cooperative Assignment (Lease Option then sell-assign the contract
* Land Contract purchase and sub lease option
* Seller Carry back purchase and lease option
* Straight Option and Assign the Contract (flip)
* Contract with a conditional S&P and then Double Close - Double Escrow (need full transparency with Seller and Escrow)
I am not licensed and have been doing the above since 1986.
Being licensed, with all the regulation, well, that is another discussion!
Thanks so much guys! I really appreciate the help! I've been doing hours of research on wholesaling on different websites and they all say different things most of the time, so i get really confused. I just found this site today, and i'm glad i can get "person to person" advice~ again, thanks!!
To Brian: I don't know what any of those transactions mean... I guess it's back to google for me! (I'm such a noob---)
Oh! I still don't know how to obtain those contracts. Would it be wise to get an attorney to compile one for me? Or can i go to office depot and use those (although, i've read that they are quite unprofessional as well as inadequate for wholesaling...)?
You don't say where you are, but its likely there's a Real Estate Investment Association somewhere near you. Try our list. Find one, go to it, and talk to other members. Someone will likely be able to point you in the right direction for forms.
You want local forms. Here in CO, there are some very specific laws about foreclosures, for example, using the wrong form can land you in "font size jail". I'd sure hate to tell my cell mate I'm in for using the wrong font on a contract, but that's the way the law reads.
No, I've not done a wholesale transaction. I'm focused on REOs, at the moment. I am on the buyers list for a number of local wholesalers, though, and have spoken with quite a number of them. Its a fairly common topic at our REIA, so I've heard fairly thorough descriptions of various forms of wholesale transactions.
I'd recommend getting a few books on RE investing, and start reading. "Flipping Properties" that you mention above, for example, walks through the process.
"I'd sure hate to tell my cell mate I'm in for using the wrong font on a contract, but that's the way the law reads."
Hahaha! that was funny! anyway, I did research some REIAs, but I don't know how much it costs to join yet (I'm in GA by the way). Well, thanks for your advice; I'm definitely going to put it to good use!
You don't say where you are, but its likely there's a Real Estate Investment Association somewhere near you. Try our list. Find one, go to it, and talk to other members. Someone will likely be able to point you in the right direction for forms.
You want local forms. Here in CO, there are some very specific laws about foreclosures, for example, using the wrong form can land you in "font size jail". I'd sure hate to tell my cell mate I'm in for using the wrong font on a contract, but that's the way the law reads.
No, I've not done a wholesale transaction. I'm focused on REOs, at the moment. I am on the buyers list for a number of local wholesalers, though, and have spoken with quite a number of them. Its a fairly common topic at our REIA, so I've heard fairly thorough descriptions of various forms of wholesale transactions.
I'd recommend getting a few books on RE investing, and start reading. "Flipping Properties" that you mention above, for example, walks through the process.
Jamie,
Google Assignment Contract. There are a ton of them out there. Wholeselling is a loose term many of us in the business use for having a property under contract (thus having the controling interest in the transaction). Assignment of the contract is what a "wholeseller" does. They assign the original contract over to the end buyer. Some call wholeselling when they get a property dirt cheap and put it back on the market with out doing anything to it and make a bit of profit off of the turn.(selling at a wholesale price)
Flipping can mean a few things as well. Such as "Flip This House". Buy low with enough equity to cover your rehab and to turn a few bucks after you rehab and place back on the market. I have heard some refer to "flipping a contract" such as what a wholeseller does so make sure you are on the same page with those you communicate with because it seems that terminology can get a bit muddy.
To Robin Vidovich
Hi! Thanks for the advice! For you, as an experienced wholesaler, do you get your contracts checked out by lawyers/attorneys (what's the difference anyway?) I've heard that it's safer that way, but is it necessary? I don't want to blow off a couple of hundred dollars if I don't need to...
If anyone knows, please help me out!
Also, does anyone know a $ amount (or an estimate) of how much it would cost to hire a lawyer to go over contracts with you?
You could save a lot of time and money by connecting with your local REIA...they will have all the forms you need that other investors have used.
If you are really worried about the legality of the form, then you could always buy one for your first deal...I did a google search and clicked on the first item that came up:
http://www.uslegalforms.com/Georgia.htm
There are a number of different types of contracts that you can use to accomplish the same thing..option, earnest money, purchase and sales etc...all you need is an ownership interest, or as jon said to be a "principle" to the transaction. Overall, if you want to find an end buyer before you actually take title, you need to have the legal right to market the property as the seller and enter into a contract with said end buyer.
Thanks so much Mitch! I never thought to get forms from other investors... Okay, so signing up for an REIA is the first thing i'm going to do!
But I don't quite understand what you mean when you say that "you need to have the legal right to market the property as the seller and enter into a contract with said end buyer", does that mean just get the contract of assignment with the seller and then make a contract with the buyer? I thought the title company tied up the loose ends with the buyer. Do you need another contract? I'm lost.
* Cooperative Assignment (Lease Option then sell-assign the contract
* Straight Option and Assign the Contract (flip)
These look interesting. I spoke with a guy today who is doing these in orange county. I answered his "Rent to own" ad on craigslist. Next thing you know I am telling him I want to do what he does and he's telling me he'll walk me through a couple deals for a 50/50 split. Sounds good to me. But I am trying to learn a little more before hand. The way he described it it did not sound like a typical sandwich lease option. Any recommendations on books/resources that cover these two?
Sorry Jamie, not trying to hijack your thread. Great thread by the way.
Depends on your state laws and how the state sees it.
If your state has laws outlining what they consider brokering, simply announcing "I'm a principle" and throwing out a bunch of contracts doesn't equal a "get out of jail free" card.
The best advice in answering this question is talk to a legal advisor in your state concerning the matter. A couple of hundred dollars to get some knowledge in the matter is a lot cheaper than thousands in fines and/or jail time because one took the advice of "armchair lawyers".
EDIT: By the way....John T. Reed. Smart man.......always liked reading his articles. I recommend him.
I am a newbie and this is my understanding of the licensure requirements for practicing real estate as it applies to investors.
If one is not a principal in a transaction, one has to have a license in Illinois. You are putting buyers and sellers together in a property transaction and getting paid for it. This requires a license.
When you are wholesaling a property - assigning or " selling" the contract to a buyer - technically you are not a principal in the transaction because you have not closed with the seller. So long as you close and are a principal, you do not require a license.
With regard to bird-dogging. the " Real Estate Act of 2000" in Illinois, talks of words like " customer" versus " client" etc. and, talks of " activities not rising to the level of 'agency' or brokerage" .
I would think that wholesaling and bird-dogging does not rise to the level of " agency" or " brokering" a transaction.
But the prosecutors at the department of professional regulation or someone sueing you for it - which like the others say is unlikely, to which I agree - can probably get you with the technicalities of the law.
If you get a sales license then you have to work with a brokerage and give them their cut of the commission. Now, after this, if you find a property on your own and, do the analysis on it for a buyer and, the buyer is willing to pay you the fee for it - either by putting together a contract with an assignment clause - wholesaling, - or simply giving the information to the buyer, bird-dogging - technically, the fee the buyer would pay you, would have to be routed thru the broker and the broker must get his cut. The salesperson must be paid thru a broker. Am I right ?
This defeats the purpose of setting up business as an investor i.e. of doing wholesaling and bird-dogging. And, if one wants to do wholesaling and bird-dogging one would have to be a broker and get a brokers license, not just a sales license - this in my opinion is an overkill to do the investor activities of wholesaling and bird-dogging.
It seems like I will have to get a sales license first. Then I can bird-dog and wholesale along with my broker - right ? Please correct me if I am wrong.
It doesn't make any sense to get licensed to do bird-dogging or wholesaling but since it is regulated the way it is, we have no choice but to work with a brokerage with a sales license or get a brokers license, which one cannot get until you get a sales license.
The crux of the matter is, can wholesaling and bird-dogging be technically differenciated from " agency" or " brokerage" . I mean in the event you get sued if the deal goes sour with the buyer or seller, can you win the case by changing lets say your job title and things like " customer of a business person" versus " client of a broker or sales agent" and saying things like " I am not an 'agent' of this principal - my intention is to 'be' the principal" - wholesaling - & " I am in the business of giving information - bird-dogging" and the " buyers are my customers not my clients to whom I have a fiduciary duty towards" etc etc.
I am trying to see if I can do wholesaling and bird-dogging without a license. I have not as yet enlisted an attorney to work on this in detail in Illinois to find out whether the specific activity of wholesaling and bird-dogging can be exempt from licensure - I have only spoken to an attorney and I was told that to be safe I should get a license. But in terms of time, money and effort of getting a sales license first and the outcome i.e. having to work with a broker should have a pay back that is proportional to the work you put in as a wholesaler or birdogger.
I mean is it worth it to get a sales license and then, if so, how do you setup the agreement with the broker for your wholesaling and bird-dogging activities ? That is, in terms of pay and agreements etc. Is it worth it ?
Has anyone checked with an attorney with regard to this and got a precise answer ?
Depends on your state laws and how the state sees it.
If your state has laws outlining what they consider brokering, simply announcing "I'm a principle" and throwing out a bunch of contracts doesn't equal a "get out of jail free" card.
The best advice in answering this question is talk to a legal advisor in your state concerning the matter. A couple of hundred dollars to get some knowledge in the matter is a lot cheaper than thousands in fines and/or jail time because one took the advice of "armchair lawyers".
EDIT: By the way....John T. Reed. Smart man.......always liked reading his articles. I recommend him.
You joking right John T Reed a smart man :roll:
The guy is a joke. The biggest hypocrite in REI today. All he does is bash every investor he comes across so he looks good and have people buy his worthless books.
The guy is a motor mouth that needs to shut up PERIOD!!!!!
Seems like everyone has the jist, but there is still some confusion about whether or not you need to be a licensed RE agent or not. The answer is NO.
If you look at the difference in the two then you will see. When you WHOLESALE a property you are taking a property that sometimes you buy or have the intentions on buying. You put it under contract and then in your contract it states that you have the right to sell or option depending on your wording to another buyer for a fee.
The problem with a lot of the dealing that is going on now is that because of the economy you have novice and even seasoned investors, who are financially strapped for CASH and now they are all competing against themselves and also against the real estate agents.
When you do not know enough about a field, but you hear that everyone is making fast cash in it, of course that is going to get you interested. But, I say again the reason the economy is the way it is, is because of OPPORTUNITIES being taken advantage of.
Now FLIPPING which I never cared for and now if you look at what was going on 5-6 yrs ago even 3-4 yrs ago everyone had the FLIPPERS mentality. Buy a house even if they did not own one themselves. Buy and overspend for it and YES, many even in the HOTTEST of markets OVERPAID for properties.
You buy a property for 100k and you put 25k into it and now you put it back on the market for $169k and you sell it within 30-60 days. Looks like a GREAT CONCEPT, the only problem I see with this as I see with many opportunities where people EXPLOIT, the get rich quick THEME.
Now, why are not as many people speaking about FLIPPING and everyone is a WHOLESALER now. See the market is going to do what it does, but what the SAVVY INVESTORS do is stay the course and follow the CONCEPT of Buy one or two properties manage them and get them paid down or off and then buy and couple of more and so forth you get the picture. No one wants to be a landlord, but everyone wants to GET RICH in real estate the easy way.
Well I am here to tell you there is no easy way. If you do find a couple of opportunities that make you some fast cash, you better buy a property or two and hang onto them.
FLIPPING vs WHOLESALING is it illegal. NO, but those who do not know what they are doing shore make you raise an eyebrow.
Wholesale opportunities are all around us, but once again people are trying to short cut the system and there are no short cuts and once everyone realizes that it will be come a lot easier.
Oh, by the way I have wholesaled over 50 properties and I have HUD statements to prove it and so I feel as though I can help someone with the struggle of if it is illegal.
I also own over 15 rental properties so I can speak from both arenas.
My question has always been how can you become a GOOD wholesaler if you do not OWN or have never done a rehab job yourself, to understand the concept of repairs vs price vs rents in the area.
I here many of you spending money on GURU's that could be used for purchasing your first fixer upper, but instead you go to a classroom and allow someone to teach you some of what they know and then they turn it around on you and say I will mentor you for 50% of the deal.
You just became an EMPLOYEE for this GURU. So technically he does not have to go out and find deals anymore, because the novice unbewaring student does not know any better and just brings him deal after deal and so he takes off the work clothes and becomes a TAPE AND BOOK seller because he has an over abundance of students doing deals for him.
Now I applaud that as a CONCEPT of GETTING RICH QUICK and not doing anything but having a little knowledge about a subject.
But, I am not mad at them or you for trying because THAT IS THE AMERICAN WAY.
John,
Thanks for the detailed reply. I have been watching this threas but have not had the time to spell out what you did. This topic has been discusse before and it is important to continue to discuss for newbies.
Yes, Josh, wholesaling (assigning contracts or double closing on a property) is perfectly legal in Texas. PM your email to me, and I'll send you the contracts I use.
This thread has gone on for some, but I want to make sure that wholesaling/birdogging is legal in the state of Oregon. I am working with an investor who doesn't have time and lives out of state in Washington. I have done some research and am meeting with a real estate agent this Monday. He is concerned because he says that wholesaling/birdogging is illegal. Is this true?
If you are not licensed and are a principal in the transaction, as Jon said above, you can:
* Sandwich Lease option (Lease Option and Sublease suboption
* Master Lease and Sublease
* Cooperative Assignment (Lease Option then sell-assign the contract
* Land Contract purchase and sub lease option
* Seller Carry back purchase and lease option
* Straight Option and Assign the Contract (flip)
* Contract with a conditional S&P and then Double Close - Double Escrow (need full transparency with Seller and Escrow)
I am not licensed and have been doing the above since 1986.
Being licensed, with all the regulation, well, that is another discussion!