I'm located in Appleton, WI, which for those unfamiliar with Wisconsin is in the Fox Cities, about 30 minutes south of Green Bay, WI.
I am looking for clarity on several things, for I've been wanting to get my ducks in a row before taking any risks wholesaling in Wisconsin (if you're interested where - mostly in the Fox Cities to start). I'm mainly interested in selling to fix & flippers, but I'm also learning how to run numbers for the cash flow / long term real estate investor.
First, the difference between using "and/or assigns" vs "or assigns" in the offer to purchase. What are the technical reasons for using one or the other? When should either be used, and why?
Second, using an option to purchase in a wholesale deal. Why not just get an offer to purchase notarized instead? Plus, can options be assignable?
Third, does anyone ever have a title company open what's known as a "Hold Open Title" instead of actually going through a double close to avoid showing up on title (and avoid paying capital gains tax) and then also only paying one set of escrow fees?
Fourth, if we are assigning an offer to an end buyer, should a wholesaler be using a second offer to purchase, but signed by the buyer? I'm hung up on using an assignability contract, because as far as I'm aware, there isn't one used by real estate agents in Wisconsin.
Fifth, how do we get paid out at the title company? How do we show up? Using a single escrow, does the title company make the two contracts (two offers, or an offer and assignability contract) into one contract, and then do we show up as a loan being paid off on the seller's side of the HUD?
I just want to know what I should expect to happen, and what should happen.
Please help. Thanks!
@Matthew Srnka know that an educated seller would never agree to a contract with any "assigns" in it, and is not allowed for most REO sellers, there was a time when this was common, pre 2008.
Be very careful wholesaling in Wisconsin, it have been viewed by the licensing board as practicing real estate, or brokerage, and people have been charged with practicing without a license, unless you are licensed, then disregard, also you must completely understand the legal side, there have been cases of "wholesalers" being charged with equity stripping, AKA illegal flipping, in Wisconsin, the courts are not friendly to no added value for a profit, so if you are not taking ownership, be careful.
The EASY way to operate is to close and then resell. There are lots of FRAUDS AND SCAMMERS promoting dishonesty and using escape clauses such as "subject to my partners approval" and other BS clauses to get out of a contract. I suggest finding a way to make deals work. By that I mean not misleading sellers, and closing on properties unless they do not meet your criteria such as a bona fide inspection problem.
I don't know about the rules in your state. In Texas, if you intend to purchase a property as a buyer, you can also put "and/or assigns" after the buyer's name. I think a lot of "wholesalers" in every state, tend to get very close to if not out right overstepping the line of essentially practicing real estate without a license. This is not the spirit with which "assignable contracts" are meant. I only write a contract on something I will and can close on no matter what. I do however always make it assignable and for random reasons have wholesaled 4 out of 25 deals in the past 8 months. It is usually a phone call to an investor buddy who needs inventory and I have too much. Or vice versa and they are calling me. Again, all of this is normal, wholesaling with zero intent to buy though, I would imagine in any state is more or less skating by on the technicalities regarding contracts.
Shopping around contracts at a higher price than a seller will accept is more of what is known as a "net listing" where the agent would get any amount of an agreed price. The difference in most cases with an agent is that this is an above the board transaction where the intent of the third party (non principal) in the transaction is made clear, in writing, and governed by rules and restrictions. Again, I know the rules, etc... and that wholesaling, at least here in Texas, is legal. However, it my point is that I believe wholesaling is meant for someone to attach a contract to another investor if they can't or no longer want to buy. Not what we know wholesaling to be currently. The fact that it is an industry within the industry speaks to how the practice has been manipulated. Essentially what we have are "investors" who have no intent or ability to buy acting as agents for the seller in the manner they would if they were providing representation to said seller on what is known as a net listing. Only the seller thinks they have solved their problem.
And/or/and doesn't matter.
You pay ordinary income tax and self employment taxes either way-if "holding open" were even possible
The title co.s don't make your contracts
Neither type of contract gets notarized, as it doesn't affect anything
Wow. Every single point 1-5 contains an incorrect assumption or error.
I could elaborate and maybe will later, but first things first... stop the wheels on actual deals until you get a mentor/partner or research each of those issues fully.
@Matthew Srnka if you dont find a buyer will you close? if not your offer could be viewed as fraudulent, as far as "wholesale value" you have a contract below that, so what is that value, that could be up to a court to decide, plenty of people sell paper, and some get screwed, all I'm saying is Nut Up and buy the property, add value and resell, then you are safe, if you cant buy the property, you shouldnt be offering on it.
I'm not making an argument against or for wholesaling. I started out this way many years ago. I am however saying that the way most wholesalers work is pretty close to acting as an agent since they have zero intent to buy the property. It is the pretending that some, NOT ALL, of those who strictly wholesale that they have an intention of buying the property that most have an issue with.
1. no educated seller is going to allow you to use either "and/or assigns" or "or assigns" -- both purport to allow you to freely assign your interest and obligations to a third party. Arguably the "and/or assigns" version keeps the original contracting buyer on the hook. The "or" version arguably eliminates all liability if the contract interest is assigned. Both are a huge red flag that you are not intending to close. If you never intend to close, you're probably acting as a broker.
2. an "offer to purchase", whether notarized or not, is worthless. Only once an offer is accepted do you have anything of value -- a ratified contract. And whether a ratified contract is notarized or not is irrelevant. Re options ... they are not freely assignable. You would need to review the exact terms of the option to determine whether it could be assigned. As a seller, I would not allow an option to be assignable without additional consideration.
3. if you enter into a contract and assign your interest to a third party you are showing up on title. Your equitable interest must be factored into the chain of title (judgment searches, etc.) and often you will be named as party of the second part in the deed to the eventual buyer, the party of the third part.
4. offers don't get assigned... contracts do. The transfer of a contract to another buyer is through an Assignment Agreement. Realtors generally don't have a use for assignments. If their client closes, they earn a commission. If someone else such as an assignee does, they get zero.
5. as @Wayne Brooks mentioned, the title company should not be making anything. Good title companies interpret contracts, they don't prepare them. If you assign your interest to a third party, you'll likely earn an assignment fee. That fee will be disclosed on the settlement statement and your seller will be fully aware of what transpired. If you don't want to go that route, you can close on the first transaction with the seller and then close again on the sale to a third party. Land records are public so the documents will show what occurred regardless.
It is important to know the rules of your state
I would suggest you go to one of the REIA's in either GB or Appleton to get your questions answered. Do your homework with every answer you get. Don't believe everything you hear (even if it comes from me). It may not be 100% correct for your situation. Every state is slightly unique in it's legal interpretations of what is or isn't selling real estate without a license. Most states were pretty relaxed on the issue in the past, but they're getting pretty strict now.
Assigning the contract may avoid the legalities, but maybe not. How you market the contract/property will determine the legality, not the assignment itself. How you market, your ability to close and your intent all come into play in staying legal. In my experience, most wholesalers don't do it legally.
There are ways to do it completely above board and legal in all 50 states, but you need to learn the basics first. If you want a good overview of the legalities of wholesaling, I would head over to Jeff Watson's website. He's a friend and all around awesome investor. And, he's the attorney for the national REIA so he's pretty on top of the legal issues. You can find his video's at Watson invested dot com. He did an interview series with the heads of Ohio regarding this topic. I would go and watch his wholesaling videos. Everything he says about Ohio is relevant to Wisconsin.
Be careful buying wholesale courses or listening to guru's. Many do and teach wrong. If you do want a course on how to legally wholesale, consider buying Jeff's course. He put it out with John Cochran of Real Estate U dot com (I don't get any kind of kickback for recommending it).
Thank you all for your advice.
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