INTRODUCTION
Some people don’t know about real estate wholesaling. It’s basically like what you see on “fix it and flip it” shows on HGTV. On shows, investors “fix and flip”. With wholesalers, contractors “fix and flip”.
Real Estate wholesalers find properties unsuitable in their present condition and list them on a Multiple Listing Service. They acts as middlemen and negotiate contracts with property owners (“buyer”). This can make a contract to allow someone to fix the broken property and then resell it either to an investor or consumer.
IDEAL SITUATIONS
- Properties are not move-in ready & need touch ups;
- Probate Courts are complicating matters;
- There are legal issues revolving around a piece of real estate;
- A recently divorced man or woman wants to leave his or her current residence but the property is preventing a move; and
- A retiring landlord wants to stop renting and/or leasing but can’t because he or she own the property.
Texas Code & Wholesaling Regulations
Wholesalers tend to lessen property owners’ headaches. Before 2017, doing this without a Real Estate’s Brokerage license was not a problem. But a Senate Bill was passed which amended the Texas Occupations Code. It defined the gray areas of wholesaling, especially wholesaling without a Real Estate Brokerage License.
It stated that one may participate in wholesaling without holding a license if:
- “ If he or she does not use the option or contract to purchase to engage in Real Estate Brokerage
- or
- If he or she discloses the nature of the equitable to any potential buyer”
It also stated that
- “A person selling or offering to sell an option or assigning or offering to assign an interest in a contract to purchase real property without disclosing the nature if that interest to a potential buyer is engaging in real estate brokerage”.
This COULD mean, if you don’t disclose the equitable nature of the rights being sold, it is considered brokerage of real estate (which requires a license) AND that disclosure alone is all that a real estate wholesaler must do to avoid violating this law.
But, this is open to interpretation. The same section could mean that disclosure alone is insufficient to protect an unlicensed wholesaler, which = pricey consequences.
CONSEQUENCES
A violation could result in a wholesaler paying “no less than, but up to three times the profit realized by the wholesaler”. If the disclosure is not enough, “no fee means no brokerage”.
So how does one avoid a violation of these laws?
It translates to having the assignee, aka buyer, be sure that the owner of the property consents to the assignment AND will honor the status of being the “new buyer”. This can be done via a sale and an assignment document which includes the consent in wording.
This could make it less likely to accidentally violate Texan wholesaling rules.
After learning about the basics of wholesaling, and you choose to enter the business, here are 3 cautions:
- Unpredictable income – there is no guaranteed paycheck, benefits, or insurance so you NEED to be able to manage your own finances.
- Difficulty in finding buyers – if you’re unable to fulfill your end of the bargain, future buyers are less likely to conduct business with you. To ensure a buyer, you’ll need to have a buyers list in order to make the deals.
- Difficulty in maintaining buyers- you don’t just need contracts. You need to know the preferences of these clients so you can tailor the deals and earn loyal clients.
With those in mind, consider the benefits:
- You’re your own boss and can make income in short time frames;
- You get experience in the real estate industry, and;
- You are not limited by cash and or credit.
Weigh the pros and the cons while minding the regulations, and you might just find that real estate wholesaling is for you.