I have a word of caution for you today.
Well, 2 words, actually. 😉
It’s two important things that you should really be aware of when you’re wholesaling deals.
I’ve actually briefly mentioned these things in other emails and on my podcasts too, and I feel the need to devote a whole email to them now…
The two critical pieces most wholesalers need are:
- Intent
- Disclosure
Here’s the thing…
No matter what you may have heard, wholesaling is not illegal—when done the right way.
Yes, you can wholesale real estate deals without a real estate license. No need to be a broker. No need to be a Realtor. You can buy a contract, and flip the contract.
But to stay out of hot water with the real estate commissions (who typically don’t like us wholesalers very much these days for some reason) you should have both (i) the intent to close and (ii) the ability to actually do it.
So, what do I mean by INTENT?
I mean you need some kind of viable (actually possible) scenario in which you close on the acquisition of the property yourself—I mean, it should at least be one of your solid considerations, and actually doable.
If you get into a deal and you know that your only option is to not actually close, but exclusively to flip the contract, then you’re missing that important intent piece, aren’t you? You might find yourself getting into trouble at some point.
And because you do intend to buy the property, you really shouldn’t have outrageous contingencies in your agreements.
So, no to things like:
‘This offer is contingent on me/buyer finding another buyer.’
And also not this one:
‘This offer is contingent on my partner’s approval.’
I hear wholesalers using these contingencies all the time, and even bragging about their “partner” being their pet cat, or something silly like that.
To me, those just feel shady.
Now, when I say you need the ability to close on the deal, it means you have access to the money somehow.
You can get funding on tap several ways:
- Lines of credit
- Private investor
- Transactional funding
- Hard money lender
- JV partner’s money
Pro Tip: One thing I stress to my students and clients is to always have the buyers first. You need a solid buyers list. Then you simply ‘shop’ around for the type of deals they’re interested in. This way, you know you have the ability/funds, because you already have your buyers’ capital at hand.
As for DISCLOSURE…
Yes, if you’re licensed, you always have to disclose that to your sellers.
Second, try just being honest and upfront with sellers about what you’re doing. If you get into the deal intending to buy it, and then decide to change your mind and assign the contract, let the seller know that. It’s a business decision, not a bait-and-switch.
Chances are high that they don’t really care who ends up buying their property, but that their problem gets solved in the same way, with the same terms and everything.
What you don’t want are weasel clauses. Legit contingencies are one thing, but weasel clauses are another—and so named for a reason.
A valid, non-weasely contingency I use oftentimes is:
“This contract is contingent on verifying taxes, title and value.”
Or…
“This contract is contingent on an inspection.”
Simple, direct and true in almost every deal I do.
Bottom line…
Just do wholesaling deals the right way and everyone wins. And what I just shared above are some of the key, important ways you can make sure you’re doing it right.
Look, this is not an area where you can afford to plead ignorance. So, make doubly-sure that you are careful about intent and disclosures.
Final Note: I am not an attorney. I’m sharing information with you based on my personal experiences. Always consult an attorney (preferably an investor-friendly attorney who understands creative real estate investing) on these and all legal documents and matters.
