I have a word of caution for you today.
Well, 2 words, actually. đ
Itâs two important things that you should really be aware of when youâre wholesaling deals.
Iâve 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
Hereâs the thingâŠ
No matter what you may have heard, wholesaling is not illegalâwhen 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 donât 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 yourselfâI 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 youâre missing that important intent piece, arenât you? You might find yourself getting into trouble at some point.
And because you do intend to buy the property, you really shouldnât have outrageous contingencies in your agreements.
So, no to things like:
âThis offer is contingent on me/buyer finding another buyer.â
And also not this one:
âThis offer is contingent on my partnerâs approval.â
I hear wholesalers using these contingencies all the time, and even bragging about their âpartnerâ 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 partnerâs 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 âshopâ around for the type of deals theyâre interested in. This way, you know you have the ability/funds, because you already have your buyersâ capital at hand.
As for DISCLOSUREâŠ
Yes, if youâre licensed, you always have to disclose that to your sellers.
Second, try just being honest and upfront with sellers about what youâre 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. Itâs a business decision, not a bait-and-switch.
Chances are high that they donât 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 donât want are weasel clauses. Legit contingencies are one thing, but weasel clauses are anotherâand so named for a reason.
A valid, non-weasely contingency I use oftentimes is:
âThis contract is contingent on verifying taxes, title and value.â
Or…
âThis contract is contingent on an inspection.â
Simple, direct and true in almost every deal I do.
Bottom lineâŠ
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 youâre 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. Iâm 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.