Rental Property Investor · Shavertown, PA · Member since 2017 · 27 posts · 4 votes
Hi there! i was just trying to find out if wholesaling properties in Pennsylvania is legal. I seem to find answers on both sides of the spectrum whenever i search around on the forum and google. Also, does anyone double close contracts anymore? I heard that is highly frowned upon now. If you can't tell, I am very new to this. I started down the rabbit hole of real estate investing a few months ago when i decided to buy my first house, and now I am more curious by the day. Any information is greatly appreciated!!
Pittsburgh, PA · Member since 2014 · 2 posts · 13 votes
9y
The biggest problem is that the PA Department of Revenue will do anything to get every bit of $ they can. There are actually several appellate decisions holding that if a contract is assigned you have to pay two sets of transfer taxes - one as if the property was sold to the wholesaler and another from the wholesaler to the end buyer - even if it only involves a single closing.
Also, PA has been following suit with several other states in bringing criminal prosecutions against wholesalers for acting as an unlicensed real estate broker.
The work around to this is to sign an option, not a sales agreement, with the seller. You then record the option with the Recorder of Deeds, and your end buyer pays a "release fee" at closing for you to unencumber the property. It's a good idea to offer the seller a few extra bucks at closing to get them to agree to this type of structure as well.
And that, my friend, is how to legally wholesale a property in Pennsylvania.
Investor · Sharpsville, PA · Member since 2016 · 45 posts · 22 votes
9y
If by double closing you mean closing on your property and with your own funds and then turning around and selling it to someone else for five minutes or five hours later that is doable in Pennsylvania.
As long as you do not use the funds from The second purchaser to pay for the property. You must use your own funds or get a short term hard money loan to do the first closing.
However Pennsylvania has a high transfer tax that will have to payed twice. you can simply avoid paying that transferred by letting both parties know what you were doing and charge a fee. Then you can simply a signed a contract to the second buyer for the fee.
Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes
9y
Double closing probably isn't frowned upon by anyone other than the fact that it's more expensive to do it that way. But it also makes it completely legal so if that's what's your concerned about there's one way to know your doing it right. In my opinion some wholesalers are definitely going into the Grey area of marketing a property without a license. Iv also seen some that are not doing what's in the sellers best interest but in their own. Some properties would fetch more money on an open market, but without a license they can't list it so they would rather wholesale than get the seller top dollar. What part of PA are you in? I'm an agent and investor in the Philadelphia area and would be happy to help.
As the above folks already said, the main down side of double closing is that you will need to pay double taxes and fees.
Whether you can legally act as a wholesaler in Pennsylvania is a complicated topic. Part of this is because the law is not entirely settled; part of it is that wholesalers often use different methods. Folks on BP have discussed this issue in great detail, so try to search for past discussions. My personal thought is that until we get a published opinion from an appellate court, we won't know with 100% certainty whether wholesaling is illegal. That said, I have heard that the Commonwealth did force some wholesalers to pay fines for illegally acting as an agent/broker.
Note that even if wholesaling itself is legal, you may end up violating other laws. Now I've many wholesalers ignore even the basic laws (e.g. RESDL) and manage to survive. But that's very risky in my opinion.
Property Manager · Philadelphia, PA · Member since 2015 · 515 posts · 196 votes
9y
My understanding is that you can put a property under contract then sell that contract to someone else. From a seller's perspective: who cares who the buyer is and they are informed of this ability by how its stated in the Agreement of Sale. I might be wrong though.
Rental Property Investor · Shavertown, PA · Member since 2017 · 27 posts · 4 votes
9y
thank you very much guys! What a great community! i really appreciate the responses, makes me feel welcome! @William C. I am in dallas pa currently, and likewise if you could ever use an extra person in my area or "sweat equity" let me know!
Pittsburgh, PA · Member since 2014 · 2 posts · 13 votes
9y
The biggest problem is that the PA Department of Revenue will do anything to get every bit of $ they can. There are actually several appellate decisions holding that if a contract is assigned you have to pay two sets of transfer taxes - one as if the property was sold to the wholesaler and another from the wholesaler to the end buyer - even if it only involves a single closing.
Also, PA has been following suit with several other states in bringing criminal prosecutions against wholesalers for acting as an unlicensed real estate broker.
The work around to this is to sign an option, not a sales agreement, with the seller. You then record the option with the Recorder of Deeds, and your end buyer pays a "release fee" at closing for you to unencumber the property. It's a good idea to offer the seller a few extra bucks at closing to get them to agree to this type of structure as well.
And that, my friend, is how to legally wholesale a property in Pennsylvania.