Wholesaling danger in Florida
Richmond, VA · Member since 2018 · 47 posts · 20 votes
Wholesaling danger in Florida
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Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
7y@Teren Cooley if I may play devil's advocate for a minute....
Does it make logical sense that someone who, presumably, owns a number of properties and lots, is going to sell you, someone he's not related to, for 1/5th of its value?
Why would this person do that?
Have you seen the land?
How did you put a value on it? Are you experienced in the market and land valuatuons?
If you told me that you made a deal to buy a $100K piece of land for $75k, I would have thought that you were a good negotiator and made a compelling case to sell quickly, for a discount.
But $20k? I would be very cautious. There may be something that you dont see here....
28 Replies
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
to conduct real estate exactly like a real estate agent or broker and get paid to bring two parties together. that requires a license in all 50 states.. but that would not sell GURU how to wholesale courses if the Guru's actually told you the laws
- Richmond, VA · Member since 2018 · 47 posts · 20 votes7y
I definitely understand the logic behind the law. I've actually never taken any how-to wholesaling courses, or even done a wholesaling deal. And I certainly haven't given any of my hard earned money to a so called "guru". I'm just trying to make some side money as a small time real estate investor. But I have heard of wholesaling and done some basic research recently trying to figure out how to make this current deal work, so I am quite certain that some people have made it work, presumably legally. When you say "to conduct real estate exactly like an agent or broker" that infers a lot of grey area. If you didn't get a chance to read the link in my original post, my question was: If, instead of just getting the property under contract then turning around and trying to sell it without the intention of closing, I finance the property from the owner. In other words, give him a down payment, set up a monthly payment plan, and close on the property. Would I then be able to market and sell the property within the confines of the law without having to fully pay it off first? Thanks for your reply
- Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes7y
@Teren Cooley if you own the property, you can sell the property. If you don't own it, you cant sell it without a license.
If you close on the property and have your name on the title, it's yours to do as you choose
- Richmond, VA · Member since 2018 · 47 posts · 20 votes7y
Thanks Jason. Seeing as I have little to no knowledge on the subject, I respect your advice. But on the other hand, I found it hard to believe that the entire "wholesaling" thing is a complete sham. I just did a little searching and there's a ton of conflicting information out there. It seems to me that there are a lot of people doing it successfully, and legally. There are also other people claiming it's illegal in every sense. I've got a feeling that the truth lies somewhere in the middle, so I plan on exploring further. I have no intention of getting myself into legal trouble, but I'm not willing to completely abandon the whole idea. Thanks again for your reply and if you have any further info to share I'd love to read it.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Teren Cooley:
I definitely understand the logic behind the law. I've actually never taken any how-to wholesaling courses, or even done a wholesaling deal. And I certainly haven't given any of my hard earned money to a so called "guru". I'm just trying to make some side money as a small time real estate investor. But I have heard of wholesaling and done some basic research recently trying to figure out how to make this current deal work, so I am quite certain that some people have made it work, presumably legally. When you say "to conduct real estate exactly like an agent or broker" that infers a lot of grey area. If you didn't get a chance to read the link in my original post, my question was: If, instead of just getting the property under contract then turning around and trying to sell it without the intention of closing, I finance the property from the owner. In other words, give him a down payment, set up a monthly payment plan, and close on the property. Would I then be able to market and sell the property within the confines of the law without having to fully pay it off first? Thanks for your reply
yes if you buy it you certianly can resell it.. thats how I did wholesaling REAL wholesaling i closed on everything before we resold hopefully for profit
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Teren Cooley:
Thanks Jason. Seeing as I have little to no knowledge on the subject, I respect your advice. But on the other hand, I found it hard to believe that the entire "wholesaling" thing is a complete sham. I just did a little searching and there's a ton of conflicting information out there. It seems to me that there are a lot of people doing it successfully, and legally. There are also other people claiming it's illegal in every sense. I've got a feeling that the truth lies somewhere in the middle, so I plan on exploring further. I have no intention of getting myself into legal trouble, but I'm not willing to completely abandon the whole idea. Thanks again for your reply and if you have any further info to share I'd love to read it.
use this analogy people break the speed limit every day.. so yes its done every day but its not legal.. thats the issue. its simply not legal but done everyday.. thats why your confused.
- Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes7y
@Teren Cooley so I'm going to tell you, with 100% certainty, that putting a property under contract, and then marketing that propert to buyers, is illegal in the state of Florida. As @Jay Hinrichs said, many people do it, and do it successfully, but it is illegal.
True "wholesaling" is purchasing a property, taking ownership, and then reselling for a profit. That is legal in every state.
- 7yNicole A.Pro MemberRental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
There is also this link from a FL attorney on the matter. To me, it reads that you can wholesale as long as you are not presenting yourself as a broker or sales associate. To me, it reads that you should simply be honest. In my *opinion*, usually the people you hear telling you flat out that wholesaling is illegal are real estate agents. You are right that the truth is somewhere in the middle. And that actual truth varies from location to location. To be extra safe, consult a local real estate attorney.
If you truly can't assign the contract, then form a relationship with a transactional lender and just do double-closings. There are ways to wholesale. It's one of the most popular ways to get started on the path to real estate investing. Think of this as your "due diligence" if you need to spend a few bucks to talk with a local real estate attorney (although some of them do give free initial consultations).
https://www.richardhornsby.com/crimes/regulatory/unlicensed-practice-of-real-estate.html
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Jason D.:
@Teren Cooley so I'm going to tell you, with 100% certainty, that putting a property under contract, and then marketing that propert to buyers, is illegal in the state of Florida. As @Jay Hinrichs said, many people do it, and do it successfully, but it is illegal.
True "wholesaling" is purchasing a property, taking ownership, and then reselling for a profit. That is legal in every state.
there is one state if you do more than like 3 transactions in a year in addition to owning the asset you need a license or hire an agent.. and that is Wisconsin.. I was shocked to learn that but its the law there
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Nicole A.:
There is also this link from a FL attorney on the matter. To me, it reads that you can wholesale as long as you are not presenting yourself as a broker or sales associate. To me, it reads that you should simply be honest. In my *opinion*, usually the people you hear telling you flat out that wholesaling is illegal are real estate agents. You are right that the truth is somewhere in the middle. And that actual truth varies from location to location. To be extra safe, consult a local real estate attorney.
If you truly can't assign the contract, then form a relationship with a transactional lender and just do double-closings. There are ways to wholesale. It's one of the most popular ways to get started on the path to real estate investing. Think of this as your "due diligence" if you need to spend a few bucks to talk with a local real estate attorney (although some of them do give free initial consultations).
https://www.richardhornsby.com/crimes/regulatory/unlicensed-practice-of-real-estate.html
NIcole this is simply not true.. lawyers don't make the laws they argue them.. the ONLY one to check with is the state regulator..
- Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes7y
@Teren Cooley just buy it. Then you can sell it. Is this dirt actually a good deal? You building something on the lot?
- Specialist · PA · Member since 2018 · 85 posts · 122 votes7y
@Teren Cooley I am doing some background research and analysis on the wholesaling business model and a possible alternative that can mitigate some of the legal issues. I'll send you a PM with more details.
- Richmond, VA · Member since 2018 · 47 posts · 20 votes7y
@William C. Yes, this "dirt" is potentially a very good deal. It's just a few miles from Disney and one of the rare vacant lots in the area zoned for single family residential. The owner is looking to liquidate all his assets and is willing to sell it for what I believe to be a fraction of market value. To answer your second question, no, I do not plan to build there. I plan to wholesale the property to someone who is looking to build there however. The reason I'm not planning to buy it outright is that I don't have enough free capital to do so, which is why I'm trying to figure out a different option. Thanks for your reply
- Richmond, VA · Member since 2018 · 47 posts · 20 votes7y
@Alan Johnson Perfect, thanks!
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes7y
give a non-refundable option to purchase and then Market your option
- Richmond, VA · Member since 2018 · 47 posts · 20 votes7y
@Ayne C. I feel like he would, he's already agreed to sign an option contract knowing that I plan to find a buyer and assign the contract rather than buy it myself. I just don't want to do anything shady and get myself into trouble. I doubt it'll take a year, I'm thinking more like a month or two considering what I feel is a pretty large margin. Thanks for the reply
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Alan Johnson:
@Teren Cooley I am doing some background research and analysis on the wholesaling business model and a possible alternative that can mitigate some of the legal issues. I'll send you a PM with more details
One simple way is to simply negotiate an option to purchase .. for that to work you need option money. now it may be tougher to talk people into going into contract.. since most wholesaler / assigners give the seller the false impression that they are actually buying the property not trying to broker it like a real estate broker. But options work I think in Texas they have to be short term though.
I am buying a 5.5 million dollar property that i optioned in 2009 I put 200k in cash up for option money ( non refundable) and i pay 120k a year in option payments ( non refundable) but its all a credit to the purchase price.. so i have no interest carry .. on a 117 acre parcel that once it comes into the city will be worth north of 50 million.. thats how you make money in the land game.. and sellers will understand.
so as it comes to hawking beat up houses.. just put 5 to 10k in option money out make your monthly option payment have it all go to the purchase price and close in 60 to 90 days when you exercise your option.... although you will want to run this model by the state regulators they still may not like you publicly marketing the property.. I bought another one in December were i paid 125k fee to a guy who tied up 40 acres he put up 50k in option money and did another 50k in work over 18 months to get it to the point we would pay 5.3 million for it. so he got his money back and I gave him 125k large for his option position.
- Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes7y
@Teren Cooley best of luck. Iv learned the money is in the development of the land. Flipping the paper might make a few grand, but building a $500k house can be very lucrative. Builders in my market are tripping over themselves for lots. So if we purchase a lot at a good price, I am able to partner with the builder, and we build the home together , sell it together, and split the profits together. I understand what you are trying to do. Maybe there is way more potential in that diet than you are giving yourself credit for. If it is so valuable, why give it up for a $5k assignment fee? Just something to think about. I know it’s not possible in every market and in every deal, but think of the highest and best use, and work to bring it to that highest and best use through your network.
- Richmond, VA · Member since 2018 · 47 posts · 20 votes7y
@William C. Yeah I get what you're saying and I've been told before that the real money lies in land development. As of right now, I'm nowhere near the point where I could pull off something like that. I'm really just looking to grow my investment capital and pick up some knowledge on the way to bigger more complex deals.
So let's say hypothetically I find a piece of land that the owner will accept 20k for, but I believe the market value to be around 100k, giving me a rough margin of 80k to work with, before closing costs, marketing, etc. In a hot market, I would think it's reasonable to expect to find someone willing to pay 80k in a relatively short amount of time, still leaving 60k profit, give or take. In your opinion, what would be the best course of action? Try to get a contract and assign it with a huge assignment fee? Find a hard money lender and double close? Partner with another investor? Or buy and close the property under a finance agreement, then find a buyer? Any other suggestions? Keep in mind I would be trying to close this deal quicky, without giving up too much margin, so that I could move on to the next deal. Thanks!
- Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes7y
@Teren Cooley if I may play devil's advocate for a minute....
Does it make logical sense that someone who, presumably, owns a number of properties and lots, is going to sell you, someone he's not related to, for 1/5th of its value?
Why would this person do that?
Have you seen the land?
How did you put a value on it? Are you experienced in the market and land valuatuons?
If you told me that you made a deal to buy a $100K piece of land for $75k, I would have thought that you were a good negotiator and made a compelling case to sell quickly, for a discount.
But $20k? I would be very cautious. There may be something that you dont see here....
- Specialist · PA · Member since 2018 · 85 posts · 122 votes7y
@Teren Cooley Following up on @John Thedford 's comment about an option contract in conjunction with @William C. 's comment about highest and best use, there are many possible approaches. Here is just one of many:
1. Get a rough idea of the seller's carry cost on the property. For example, what are the quarterly property taxes he must pay? Any other costs he must bear that you can 'guesstimate'?
2. Use the option contract as a vehicle to discover the seller's urgency and price point. For example, how attractive would it be for you (and the seller) if you offered 1.5x times the estimated carry costs over 90 days in return for the right to purchase the property for, say, $20k during the next 90 days? (Note: in an option contract, the amount you pay the seller as 'valuable consideration' will be his to keep regardless of whether or not you exercise or assign the option to someone else... so be sure that you can afford to lose this money if you cannot find a buyer prior to the option expiring.)
3. If the seller declines the offer, it will be for a combination of a) offer amount for the property ($20k) is too low, b) he can't wait 90 days and wants a shorter option period of, say, 30 days max, and/or c) he feels that the consideration you offered for the option contract ("1.5x") is insufficient incentive for him to lock up the property for 90 days.
4. But now you have discovered valuable knowledge: the seller's urgency (or lack of it) and his view of the worth of the property.
5. If you can negotiate the right combination of property price, term of option, and consideration payment you will give the seller, you now have the luxury to utilize the 'time' you have bought with the option to find the highest and best use for the property.
So why give up a non-refundable consideration to the seller, when there are those that simply negotiate a $500 or so refundable deposit on a straight purchase and sale agreement? In a nutshell, here are some possible reasons:
a) Potential Carrot: Which would you rather have, a $5,000 assignment fee hastily agreed to while you rush to find an investor who will take over the P&S contract? Or spend $2,000 on a 90-day option contract and locate a developer during that time who will give you $20,000 for the option? (These numbers are purely imaginary, but you get the point -- it's a basic risk/return analysis).
b) Potential Stick: If you execute a purchase and sale agreement, you may be exposed to legal risk that could cost you far more than the money you spent on the option contract.
The above is strictly for informational and discussion purposes and is NOT a recommendation for you to take any particular action.
- Richmond, VA · Member since 2018 · 47 posts · 20 votes7y
It definitely doesn't make sense for someone to sell their property for a small fraction of what it's worth, but that doesn't mean it doesn't happen. If you send out enough direct mail you see all sorts of stuff. Specifically with vacant land, some people own it for a long time, pay the taxes and never use it. These people begin to see it as a burden. Other people quit paying their taxes altogether and face foreclosure. A lot of other people just don't have much invested in their property, because they inherited it rather than bought it. It's not uncommon to see north of 500% ROI if you can buy at the right price.
As for this other property, no I haven't seen it. I live out of state, so I've only seen it on google earth, but I have done plenty of research. I've called several county departments and have a pretty clear picture of exactly what I'm dealing with. As far as comps, I don't have access to the MLS, so I only have what I can find on my own on Zillow, etc. When I get a little further along in the process, I can probably find a realtor to pull comps for me, as I have in other places I've worked, but with such a big margin, I just need to be in the general ballpark.
Now to your last point, there definitely could be something I don't see, but there's always a certain amount of uncertainty. That's part of the reason I don't want to buy the property outright, rather find a way to find a buyer without fully investing. I am fairly certain that there is a healthy deal to be had, though, or else I wouldn't be pursuing it at all.
- Real Estate Agent · Merritt Island, FL · Member since 2017 · 974 posts · 1k+ votes7y
Originally posted by @Teren Cooley:
It definitely doesn't make sense for someone to sell their property for a small fraction of what it's worth, but that doesn't mean it doesn't happen. If you send out enough direct mail you see all sorts of stuff. Specifically with vacant land, some people own it for a long time, pay the taxes and never use it. These people begin to see it as a burden. Other people quit paying their taxes altogether and face foreclosure. A lot of other people just don't have much invested in their property, because they inherited it rather than bought it. It's not uncommon to see north of 500% ROI if you can buy at the right price.
As for this other property, no I haven't seen it. I live out of state
Being from Virginia and having lived in Florida since the end of 2004, let me say that while it is possible for someone to sell their property for a fraction of what it's worth, I'm putting my money on what Jason suggested. In fact, I'm betting heavily on it. This isn't the Commonwealth, your wallet will be emptied faster than you can say "Herring was a dope rapper!"
Be careful moving forward on this.
- Flipper/Rehabber · Springfield, MA · Member since 2016 · 641 posts · 204 votes7y
@Teren Cooley I have friends who wholesale tons of deals in FL. You're are fine
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