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December 3, 2021

Wholesaling Regulations Worry Real Estate Investors

The state of Oklahoma jumps on the Illinois bandwagon requiring wholesalers who assign contracts to have a real estate broker's license. A few cities, namely Philadelphia, PA, have passed similar regulations. Is this the beginning of the end for wholesalers? In short, the answer is “NO”!

First, assigning a real estate contract, while a simple and effective way to wholesale, is not the only way to skin the proverbial cat. There are double-closings, reverse assignments, options, transactional funding, LLC membership assignments, and land trust beneficial assignments as techniques to wholesale a deal, as discussed in my Wholesaling Course. Thus, while the simplest and most common transaction, the contract assignment, may be in danger of being outlawed, the more sophisticated and educated investors will continue doing wholesales.

Second, I personally think that these laws are GOOD for the business. It's easy to get a real estate broker’s license, and it weeds out the amateurs for competition. You simply take an online course for about 40-60 hours of training costing around $500, then take a test. Sure, you have to purchase errors and omissions insurance and pay a monthly fee to hang your real estate license with a managing broker’s office, but if you do ONE wholesale deal a month, it’s worth the effort and expense. Plus, you will get access to the local MLS, more cooperation from other brokers and agents, and well as credibility with homeowners.  While some homeowners won’t want to do business with a licensee, you will make it up with potential listings you can get from people who just want full price for their properties. Even if you don’t wish to list properties, you can refer them to another agent or broker for a legal referral fee.  Thus, overall, the benefits of being a licensed broker or agent will outweigh the downside if you regularly do business. Those who wholesale only a few deals a year will probably not bother, which means either a) they will learn the other more advanced methods that I discussed above, or b) leave the business, which means less competition for you!

Why do you think that social media companies like Facebook want federal regulations of their business? Because small companies that are potential competitors can't afford to comply with the extensive proposed rules. Likewise, the more persistent and committed real estate investor will get a license if he or she wants to continue doing regular contract assignments for wholesaling.

In summary, don’t focus on how government regulation of your business will cost you business. Instead, focus on how compliance with and/or creative workarounds will benefit you in the long run.

Wholesale Properties

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Attorney William Bronchick

Attorney William ("Bill") Bronchick, the host of Legalwiz.com, has authored six best-selling books and is sought nationwide for his 30+ years of real estate and legal knowledge. He has been interviewed by numerous media outlets, such as CNBC, TIME Magazine, USA Today, Investor Business Daily, Forbes, and the LA Times, to name a few. William Bronchick is the co-founder and past President of the Colorado Association of Real Estate Investors and the President of the Colorado Landlords Association. Click on the "About" link above for more information on William Bronchick.

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