Is wholesaling with a partner illegal?

Question

This is mainly directed at Ohio Investors, but anyone is free to chime in on this.  I think that we have established thoroughly that wholesaling a property is not illegal in any state.  (when I say wholesaling, I am referring to contracting a property and then either assigning the contract or double closing the transaction).  However, let me ask you this:

What if my partner and I are working together and I contract the property in my name but when we wholesale the deal out we split the profit.  If he receives that profit split from me, is he breaking the law?

Let me take it a step further:

My partner and I find a house, we close on it in my name with my money and have it rehabbed by contractors (i.e. we don't do any work on it ourselves).  We then sell the house and split the profit 50/50.  Is this illegal?

Thanks in advance for your input!

Ryan Webber · Answer

Well I would have to disagree that making an honest profit is never illegal.  Sometimes making an honest profit can violate state or federal laws whether you disclose it to everyone or not.

Point being with the posters question is that you are acting as a general partnership so, no, your partner isn't violating any state real estate licensing laws (which is where the issue can be) by not having his/her name on the contracts but still partaking of the profits.  If that's the general agreement between the two of you then that's fine.  It does not have to be in writing either, but it is definitely a good idea to put it in writing, and investigating a corporate entity, as Will and Beauvais alluded to, is not a bad idea either.

Will Barnard · Answer

Any written contract can "justify your splits", you don't necessarily need an entity to do that although you should consult a RE attorney on that topic to see what is the best fit for your particular partnership.

Corey Demuth · Answer

maybe I misread this but if they are partners and do everything in one person's name then yeah of course it's not really an issue, but then one partner has to trust the other to pay him fairly

Ryan Webber · Answer

It would seem like you formed a general partnership, which can be done with merely a verbal agreement, and so even if its in your name and with your money I think you can sleep soundly that no prosecutor will be coming after you or your partner.

NA Beauvais · Answer

Also if you guys have a long term partnership you might want to create a company of some sort.  That way justifying your splits.

Corey Demuth · Answer

I think what he may really be asking is, if I use a bird dog and call him my "partner", am I avoiding the illegality of essentially having had him broker a transaction.

Richard Lorenzen · Answer

Gary, one question, but not really related to your question...If the property you buy is in your name, the deal is done with your money and you have contractors doing the repairs, what is the role of your partner?

Will Barnard · Answer

Looks like the partner would bring teh buyer to the table justifying a split and in other cases, the roles reverse and thus the partnership evens out in this scenario.
(Hope I answerd their questions correctly Gary!)

Illegal, I don't see how. As you stated, wholesaling is not illegal and having a partner would not make the transaction illegal.
The ONLY thing I could think of is if your partner was a licensed agent and then got paid from this transaction while circumventing the broker. That could potentially be a problem as the broker wants his/her share of commissions earned and the state/fed wants a paper trail of record for taxing of the income.

Gary Bailey · Answer

Sometimes he finds buyers and sometimes I do.  Sometimes he buys the houses and I find the buyers.  However, we don't have anything in writing.

James Hiddle · Answer

What is your partners role in your business?
            
            I have a partner myself (through a joint venture agreement) and we split 50/50 but he finds buyers and I find the sellers(sometimes vise versa).