Wholesaling without a license in Texas
Wholesaler · Houston, TX · Member since 2016 · 42 posts · 10 votes
Hello!
I'm new to REI and like many, think it's a good idea for me to get into whosaling. I recently ran across the debate of wholesaling being illegal without a listense because the wholesaler is essentially brokering a deal. I've read different things from different people and am a little confused as to if I need a license in the state of Texas or not. Can anyone shed some light?
@John Cantu Hi John,
Figured I'd jump in here real quick. I do a lot of deal in the Houston market and there are certainly things to know (this is all pertaining to Texas specifically). For instance, some wholesalers couldn't really tell you what equitable interest is, what their contract accomplishes, or how the legal spectrum works regarding the whole process. One reason why some wholesalers get in trouble is because they are marketing a house for sale while not being licensed. That's a big no-no. They aren't selling a house, they are selling their equitable interest (they may say that or kinda know it in their head, but they can't articulate that in any of their marketing or conversations). In fact (I don't have the code in front of me), look through the TREC rules and it specifically states you can sell your interest in a deal if you have equitable interest. In Texas you actually have equitable title. (Fun Fact: Equitable Title means you basically own the house once you sign the contract, however the deed transfers at the closing.) So what does all this mean? Well, ever heard of daisy chain wholesalers? (Wholesalers who market other wholesaler deals) What are they marketing exactly, and under what authority are they doing it? First, most are sending out email blasts, CL posts, FB posts, etc, saying House on such and such street selling for 100K, or asking 100K. What is a reasonable person going to believe? Either that that wholesaler is the owner of the house or a licensed agent. If questioned, they don't even have a legal interest in the property. What grounds do they have do defend themselves?
To do it correctly involves a few things. First, run your business correctly... don't try to screw over a seller (I see that so many deals get thrown around that it devalues the human element of there really being a seller who is really depending on you to bring 100K cash to the closing table). You aren't providing a service, you are fulfilling a contractual obligation to close on a real estate transaction, unless there are issues that allow you to get out of the contract (inspection issues, etc). Second, have equitable title (be in contract directly with the seller, or somewhere in the chain). Does a JV count? I wouldn't think so, not in terms of equitable interest. Third, have a good contract (yes, it's smooth not to have earnest money, but does that open you up for all damages under law, as opposed to damages equaling your earnest money deposit?). Fourth, have some intent to buy the house or houses in general. Did you contract with the intent to assign? Well, then maybe you have some partners who work with you and buy your houses. Or maybe you can say, yes, last year my company bought 7 properties, however we also assign some that end up not meeting our business model. Sometimes we buy them and other times after we do our due diligence we decide to sell our interest to another investor, etc. Fifth, do you default on a lot of contracts? Are you arbitrarily locking up deals and moving 20% of them? Well, that means you're screwing 80%. Or are you running your business right and working your numbers so there are several exists.
I've done a lot of assignments and I also buy a lot of houses for short term flips and long term holdings. I've thought a lot about this issue because, as you've stated, it's come up in our market a lot over the past year. I'm not an attorney, and all of what I said is merely my opinion from my experiences, but the bottom line is to know the nuance pieces of the law. You can't sell real estate without a license, period. However, you can sell your contract. But you can't market your contract like you're selling real estate, or you won't pass the sniff test. I've developed specific processes and procedures over the past month to handle all this.
Oh, as a bonus, my favorite piece of info for agents who wholesale (I'm not an agent by the way) is that TREC also states they must show a CMA or get a BPO and provide it to the seller if they want to work the deal off market. Mr. Seller, once you repair your house it will be worth around 120K based off this printed off analysis that I'm really good at because I'm a trained Real Estate Agent, but actually, that information aside I'm willing to give you 32K cash for your house and can close in 3 weeks. How many agents do that??? lol, I bet very very very few.
Just my personal advice, but I hope that helps a bit.
Wholesaling in Texas is not illegal. My mentor has done it. You need to find a title company that will do assigned contracts, not all will.
Thanks for the reply, Jesse.
I've heard that myself too, doing a double close deal. Many times, however, that would entail having the capital first to buy the property and then finding the end buyer. This is fine, but it takes a way a major advantage for me to get into wholesaling in the first place. I see myself assigning congrats and receiving the assignment fee for it. I guess that's where the nature of my question lies.
If you ask 10 people you'll get 10 different answers. The no license argument is that wholesalers have equitable title in the property once the contract is in place and don't need a license to resell the property to someone else.
There are plenty of people doing it without a license in Texas. So far, I've never heard of anyone being busted.
Wholesaling doesn't seem to be on TAR's radar at the moment. That could change in the future, and wholesalers could find the environment a lot more hostile.
There are companies that will loan you money specifically for a double close. Hell, I should do it and makes some extra cash.
If you are worried about it being illegal, get your real estate license. You can do it for about $500
Double close can be done at the same time and still using buyers cash.
Bigger Pockets Podcast 12 has an explanation from someone who is doing the double close and I found it very helpful to wrap my head around the idea.
You need a license in every state if you are masquerading as a wholesaler but really brokering.
These "gurus" who publish ebooks and other stuff on wholesaling drive me nuts. Guess what? Nothing's free. Their "free" material is actually nothing more than a sales letter designed to tell you enough to get you excited, maybe even get you to try it, then get in a jam so you come running to them to buy their stuff. They aren't teaching you wholesaling in their free material. They are advertising very cleverly.
Would you let a doctor remove your gall bladder who said to you, "I read a free ebook about the surgery. It seems pretty simple to me, so I'm getting into it"?
Don't get me wrong. I have nothing wrong with paid coaching/mentoring if it's good, and by good, I mean it pays for itself. What I object to is the mendacity in the marketplace in the way it's promoted.
I was professionally trained. I love wholesaling. I've been at it over 10 years. It's a lot of fun (most of the time). I've made a lot of money at it.
If you are going to do it, for goodness sake do what I did. Get properly trained so you do it right and keep a beautiful thing a beautiful thing.
I have heard of (but yet to confirm for Texas) having a contract where you have a clause allowing you to sign over your rights to the contract to a third party. (Assignee or Assignment clause).
I would be interested in getting my hands on a contract that someone is currently using in TX. I am planning to get a lawyer to review or create something but it would be awesome to have something proven that could be taken for review for wholesaling in Texas.
Simple answer on this one. Jesse Demaree and/or assigns.
You can find a Texas contract on the TREC website.
Mark
Are they any drawbacks from getting a real estate's license as a wholesaler? I know you're obligated to disclose the fact, but would here be anything else that would restrict me from the whole advantages of wholesaling? I only ask because I've heard some say there are.
I suggest you look more to who gives advice than to what advice you're given.
Admit it, newbies want simple, quick, money now and so long as they get advice that fits their desires, that is the advice they are inclined to take. Human nature and it's very naive.
Simon made me laugh, it's not illegal, my mentor does it! Ever think your mentor may not know squat, just BSing his way through the wheeler dealer venue and reaping benefits of your relationship?
That's like saying, robbing a bank isn't illegal, Jesse James did it!
Another one bites the dust!
What many don't get, especially youngsters starting out, is they don't know basic contract law.
You MUST have the intent to purchase and the ability to purchase, perform the requirements stated in any sale contract. If you do not have that, you don't have a valid contract to assign! This is why the practice defaults to brokering.
How do you do it legally and ethically? Get on title, then sell it! There are ways to get on title without much money or, in fact, any money in the deal.
I'd suggest you get your heads out of guru crap and learn real estate, seller financing, buying a part interest or using transactional funding and do things properly.
Oh well, another wholesale thread, some people you can't tell them anything. Which reminds me of a 21 year old relative. We had dinner, then that evening a few beers. He was confident he could have some Jack and Coke. I told him mixing beer and mixing different drinks wasn't a good idea. He insisted being a big guy, so he had 3 J&Cs, then he moved to having a few screwdrivers, and I left. After that were some preppy drinks, he said he lost count. The bartender took his keys and called him a cab after he made a mess on the floor.
How do I know what happened, two days later I gave him a ride to get his car. He was in bed and having bathroom trips the day after and still couldn't drive. I got his rendition that he must have had the flu, the bartender had a different story.
Since then, we have been out and he will not change up his drinks (I guess he thinks it causes the flu). He's bigger than I am, but I reminded him that at 21, the brain has just been fully developed and much of it is pretty empty still, while in his opinion he's the smartest guy in the bar!
Some people just can't take good advice, they have to learn the hard way. Same goes for getting drunk on wholesaling, not doing things properly has consequences, the difference is, not only does the wholesaler have a false sense of security, harm themselves at some point, they harm others as well.
So, for the drunken wholesalers, don't drive into an owner occupied deal, you'll have problems on that road. :)
You don't need a license to assign a contract. Key words there is assigning a contract vs. brokering a deal for real estate.
Don't need to be a broker either.
To be really safe, yes, own the property/get on title and resell it. Multiple ways to do that, one of which is transactional funding.
@Account Closed
Are you saying that, it is illegal in Texas to wholesale?
And there are hundreds and hundreds of wholesalers in Texas breaking the law?
Surely there is a misunderstanding somewhere or the jails would be filled with criminal wholesalers.
@Account Closed
Are you saying that, it is illegal in Texas to wholesale?
And there are hundreds and hundreds of wholesalers in Texas breaking the law?
Surely there is a misunderstanding somewhere or the jails would be filled with criminal wholesalers.
NO!!! That is not what I said AT ALL.
I was making a point.
My point is that there are people out wholesaling who have no business wholesaling because they don't know what they are doing, and they are doing it improperly. They read an ebook that made wholesaling sound like easy money and think they can learn wholesaling by reading that free ebook. They don't realize the proper way to practice it so they malpractice.
They ask questions here on BP like, "I'm a wholesaler. I have a hot prospect. What kind of a contract should I use?" ARE YOU KIDDING ME???!!!
Those people at the very least have cast a pall of skepticism in the marketplace and the very worst have been called before the real estate boards in select states, been fined for brokering without a license because of the way they did it, and called wholesaling into scrutiny.
For example, I have been contacted by people who hold themselves out as wholesalers who ask permission to list my properties on their websites. They hold no equitable interest in them, I don't grant them one, and I tell them no. Guess what? They put them up there anyway! Then, they try to do an end run on me! THAT is representing someone else on a property in which you have no interest and is brokering without a license. That is the kind of behavior I am out to stop!
I am inferring anyone who wants to wholesale needs to get properly trained or be a bird dog for someone who is experienced if they can't afford training. They will keep us all out of trouble and learn and earn.
It is better to not have a license in Texas if you are wholesaling. If you have a license and you buy a property from someone you might be obligated to tell them you are paying less than market value.
Most wholesalers do not want to say, "I am just going to raise the price and find a buyer before we close."
Bill Gulley,
Thanks for clarifying my points. I am not an attorney. Just paraphrasing what I learned from my interview with an attorney regarding this specific topic.
Attorney speaks about the difference between assigning a contract vs. being seen as brokering a real estate deal without a license.
I think there are differences between your concept of wholesaler's intent to buy... but I'm not the attorney. I will be interested in your thoughts of my interview... (optionally, you may want to go to my website and click on "Press" and scroll down to find this interview, "Is Wholesaling Illegal?").
Yes, I agree, transactional funding is the clear cut way to perform these wholesale transactions.
Duane.
Hello my name HORACE ,
Good morning everyone and my question is:
I live in Austin,tx and my business partner lives in Canada. Do we both need a Real Estate dealer license to wholesale more than six to 30 properties deals a year?
i read the answer you all gave but I need to know do you or don't you and so where do i go to get one and how much if you already know? I have being searching and its all different answers but not a yes or no.
Can anyone help me get a straight forward answer.
Thank you Horace Pinkard
Here is a direst quote from a different thread (Getting Busted in Ohio...@Monique Rene Coates Feb 2 2016): "Here is some fact to add to the "feed" . . this is FL Statute on RE investing without a license. RE Schools are teaching it, i.e, against wholesaling: 2015 FL RE Statute and Constitution 475"
@HORACE PINKARD, time for some more reading, then please, tell US the answer: yes, or no? Cheers...
Here are a couple of points to keep in mind when deciding a) if wholesaling in Texas is legal / illegal, and b) if it is better to have a Texas Real Estate license or not if you want to wholesale properties IN TEXAS.
THESE ARE MY OPINIONS ONLY. Do your own due diligence. If you have questions, I strongly recommend you hire experienced, competent legal counsel to answer them for you.
Thanks, "
When I ran the club one of the most common mistakes I saw repeated thousands of times over was Self Delusion. Especially on the part of "newbies." And specifically where it pertained to skirting laws b/c you are DESPERATELY trying to change your financial position. The only folks I've ever seen succeed in the REI business long term heed the advice given here to educate yourself, WORK HARD, and follow the Law.
@GrahmNash
I am having trouble understanding the purpose of your post regarding our company but would like to be of assistance. We are very transparent regarding our corporate structure and the roles and obligations of our agents If you really care to know more I would like to invite you to our corporate office anytime to review this topic in detail. It appears you are located in the same city as us.
Please forgive the short response as it's hard to determine which profiles are real and which are fraudulent, regarding the limited activity of your new account. I hope you appreciate the invite and take us up on it.
The level of legal risk is very high with simultaneous closings.
If that's true, isn't that why TRANSACTIONAL Lenders exist? To provide an "arms length" if needed, between the Seller, Wholesaler and end-Buyer?
ie. The Wholesaler DOES take Title! Where's the legal risk?...
Interesting thread so far. Here are my $.02 so take it with a grain of salt and consult any legal professional for additional information.
I've done about 30+ wholesale deals in 2 years. We haven't had any issues until recently. I don't have a license and have gone by the process that you get a property under contract and assign your rights. We don't do double-closes (aka simultaneous closes). The contract(s) we use are fairly simple without much hassle (i.e., one page contracts) which allows us to assign our rights.
Given that, it all depends on the title company you use. We used a few that are familiar with our contracts and haven't run into any issues. We do have a few that were done through more big name title companies that have run into issues. As such, I have heard of some wholesalers being "investigated/sued". I'll be honest that I'm not too clear on the details yet but I believe it is from deals that went astray (not successfully and may have been ugly).
To sum it up on whether you need a license or not, it's up to you on your goals. If you want to wholesale, I say be wary of getting the license but also do your due diligence and know how all the pieces fit together. Wholesaling, although the cheapest point of entry for many new RE investors, is also, in my opinion, the hardest as you need to do many things well and consistently and persistently. I have wholesaled without a license and continue to see others do so as well. I believe it's more along the lines of if you are successfully completing transactions without issues, HAR/TAR won't bother you much. It's when things go awry that they get involved.
I like what @Kenneth Sokshared.
I too have been wholesaling properties for years and never had an issue. Most of the time I am purchasing the properties (cash) and then later re-selling to other investors or end-users. Great business model, don't need or want a RE license, and everyone is happy.
Sure, there are more details to it, but not hard and not crazy.
And if you have limited funds, start small with unimproved/vacant land that costs less than a $1,000 - market and sell for double or more, and build up your funds from there.
Hope that helps! Jill
Great advise Jill, that is how I started with vacant land. Vacant land investing spoiled me and that is all I ever did. No houses for me. In fact bought large tracts of land in Mohave County Arizona just across Hoover dam from Las Vegas.
Yes - we do have the BEST business model!