When it comes to being able to quickly jump into real estate investing without having to have a ton of capital or credit, many beginners are left wondering… is wholesaling real estate legal?
The short answer to that question is… yes.
Wholesaling real estate is legal in most states in the US but it does come with a specific set of rules and guidelines that you’ll need to follow.
So while wholesaling can be a great way for beginners to get started in real estate investing, you’ll want to know what to do (and what not to do) before you get started.
In this guide, we’re going to break down the in’s and out’s and the legalities of wholesaling in every state in the country while helping you stay within the boundaries.
By the time you’re done reading, you’ll know exactly what to do to make sure you can start profiting from one of the best ways to get started in real estate investing — with minimal upfront costs to you.
What Is Wholesaling?
Before we get into the legalities, though, it’s worth addressing what wholesaling is and isn’t.
Since, if you’re reading this, you may be new to these terms, wholesaling is a process where you’ll find people who want to sell their property and then enter into an agreement with them.
This agreement gives you permission to then go locate a buyer who may be interested in the property.
In exchange for connecting the buyer with the seller, you can get paid what’s called an “assignment fee”.
This fee is a markup on the agreement, going above what you got the seller to agree to sell their property for. The fee would then be paid by the buyer of the property once they take over assignment of the contract.
In more simple terms, let’s say you found someone who is willing to sell their house for $100,000 but that house needs a ton of work. After the work is completed, the house will be worth $250,000.
To an investor, that looks like a prime opportunity. The only problem is, they don’t know the seller exists.
Yet.
That’s where you come in.
By connecting with the seller, figuring out what they’re willing to sell the property for, negotiating a deal and then getting an assignment contract signed, you get to become the middleman.
Then you can track down buyers who are interested in the property and pitch them the deal.
In this case, let’s assume you offered the seller $110,000 and they accepted.
When you find a buyer for the contract, they will purchase the property from the seller for $100,000 and your $10,000 assignment fee will be paid to you.
The investor can then do with the property what they want, all because you facilitated the deal.
Because of the model, wholesaling is one of the easiest ways to get started in real estate investing.
But because of the simplicity of the model, some people are left wondering…
Is Wholesaling Ethical?
When it comes to the ethics of wholesaling, it’s considered an ethical business model since you’re providing a service for the seller and buyer.
However, with the general nature of the business model, it leaves plenty of room for unethical wholesalers to operate which tends to stain people’s perspective on the model.
For instance, some wholesalers may attempt to hide the fact that they’re not actually the investor that will be purchasing the property.
There’s also the legalities of being required to have an assignment contract so someone can’t just start listing properties that they don’t actually have an equitable interest in.
As a wholesaler, you’ll also want to consider the impact on the community surrounding the property that you’re attempting to wholesale.
If you’re taking advantage of distressed sellers or severely undervaluing properties, it affects every other property around the one you’ve gotten an assignment contract on.
When you keep these things in mind, though, and operate with integrity while thinking about the impacts of what you’re doing, wholesaling is an ethical business.
Pros & Cons Of Wholesaling
While wholesaling real estate may be a great way for both beginner and seasoned investors to start doing deals, it does come with a few specific pros and cons.
As an example, wholesaling real estate tends to require less upfront investing on your part which makes it accessible for more people.
It also offers you the opportunity to make a quick profit while serving as a stepping stone to get into more complicated real estate investing models.
On the downside, though, because it’s so easy to get started it can be incredibly competitive.
Successfully wholesaling will require you to have a healthy understanding of the real estate market and develop your negotiating skills.
You’re also required to find sellers who are motivated to sell their property and then find buyers who are willing to purchase the contract from you.
Each of these can represent challenges for people who are brand new to the industry.
The Legalities Of Wholesaling
The short answer to this question is that wholesaling is generally legal but ultimately depends on the state that you’ll be operating in.
Below, we’re covering each state in the US and helping you understand the specific requirements for operating as a wholesaler within that state.
If you’re in South Carolina, Oregon, Iowa, or Virginia, you’ll want to make yourself aware of the recently proposed bills that can affect how you operate your wholesaling business.
Likewise, if you’re in Illinois, Oklahoma, Arizona, or Kentucky, you’ll want to be aware of the laws that have recently changed.
As a general rule of thumb, you’ll want to make sure you are not acting as a real estate agent or broker and are only marketing your equitable interest in the property — not the property itself.
This can be nuanced but, when you’re talking to sellers and buyers, be upfront about wholesaling the property, your assignment contract, and your fee.
Alabama
Yes, wholesaling is legal in Alabama as long as you’re following the state’s real estate laws.
Alaska
Yes, you can operate as a wholesaler in Alaska without having a formal license.
Arizona
Yes, wholesaling is legal in Arizona.
Arkansas
Yes, wholesaling is legal in Arkansas.
California
Yes, wholesaling is legal in California but there are more regulations for unlicensed wholesalers that you’ll need to make yourself aware of.
Colorado
Yes, wholesaling is legal in Colorado.
Connecticut
Yes, if you avoid committing acts that require licensure (like marketing a property instead of a contract), wholesaling is legal in Connecticut.
Delaware
Yes, wholesaling is legal in Delaware.
Florida
Yes, wholesaling is legal in Florida.
Georgia
Yes, wholesaling is legal in Georgia.
Hawaii
Yes, wholesaling is legal in Hawaii.
Idaho
Yes, wholesaling is legal in Idaho.
Illinois
Yes, wholesaling is legal in Illinois.
As a wholesaler in Illinois, though, you’ll need to be aware of recent changes in the law and increased regulations for operating as a wholesaler.
As a general rule of thumb, make sure you are only selling your equitable interest in the property and are not portraying yourself as a real estate agent or broker during the transaction.
Indiana
Yes, wholesaling is legal in Indiana.
Iowa
Yes, wholesaling is legal in Iowa.
Kansas
Yes, wholesaling is legal in Kansas.
Kentucky
The laws recently changed in Kentucky to require you to market your equitable interest in the property rather than the property itself.
When you’re wholesaling, you need to remember that you’re getting a contract that allows you to sell the contract, not the property.
Do not portray that you are selling someone’s house on their behalf, whether to the seller or the buyer.
Louisiana
Yes, wholesaling is legal in Louisiana.
Maine
Yes, wholesaling is legal in Maine.
Maryland
Yes, wholesaling is legal in Maryland.
Massachusetts
Yes, wholesaling is legal in Massachusetts.
Michigan
Yes, wholesaling is legal in Michigan.
Minnesota
Yes, wholesaling is legal in Minnesota.
Mississippi
Yes, wholesaling is legal in Mississippi.
Missouri
Yes, wholesaling is legal in Missouri.
Montana
Yes, wholesaling is legal in Montana.
Nebraska
Yes, wholesaling is legal in Nebraska.
Nevada
Yes, wholesaling is legal in Nevada.
New Hampshire
Yes, wholesaling is legal in New Hampshire.
New Jersey
Yes, wholesaling is legal in New Jersey.
New Mexico
Yes, wholesaling is legal in New Mexico.
New York
Yes, wholesaling is legal in New York.
North Carolina
Yes, wholesaling is legal in North Carolina.
North Dakota
Yes, wholesaling is legal in North Dakota.
Ohio
Yes, wholesaling is legal in Ohio.
Oklahoma
Yes, wholesaling is legal in Oklahoma.
Oregon
Yes, wholesaling is legal in Oregon.
Pennsylvania
Yes, wholesaling is legal in Pennsylvania.
Rhode Island
Yes, wholesaling is legal in Rhode Island.
South Carolina
The laws recently changed in South Carolina to require you to market your equitable interest in the property rather than the property itself.
When you’re wholesaling, you need to remember that you’re getting a contract that allows you to sell the contract, not the property.
Do not portray that you are selling someone’s house on their behalf, whether to the seller or the buyer.
South Dakota
Yes, wholesaling is legal in South Dakota.
Tennessee
Yes, wholesaling is legal in Tennessee.
Texas
Yes, wholesaling is legal in Texas.
Utah
Yes, wholesaling is legal in Utah.
Vermont
Yes, wholesaling is legal in Vermont.
Virginia
Yes, wholesaling is legal in Virginia.
Washington
Yes, wholesaling is legal in Washington.
West Virginia
Yes, wholesaling is legal in West Virginia.
Wisconsin
Yes, wholesaling is legal in Wisconsin.
Wyoming
Yes, wholesaling is legal in Wyoming.
Marketing A Contract vs Marketing A Property
With recent changes to the laws in a few states and proposed changes in a few others, you can still operate as a wholesaler legally.
However, you want to make sure you’re conducting business in a certain way to avoid getting into the gray area that exists between being a wholesaler, being an agent, and being a broker.
For instance, when you’re working with a seller, you need to be upfront and let them know that you’re not selling their property for them.
You are, instead, signing a contract to give you the ability to find a buyer for their property.
Then, when you’re working with the buyer, you do not want to portray yourself as owning or selling the property that you’ve contracted.
Instead, be upfront with them about your assignment contract and fee and maintain that you’re selling your own equitable interest.
As long as you stay within these bounds, you can legally operate as a wholesaler in all 50 states.
It’s a subtle difference but ultimately comes down to the way you engage sellers and buyers and how you carry yourself in the conversations that you’re having with them.
So Is Wholesaling Real Estate Legal?
As a general rule of thumb, yes, wholesaling real estate is legal in all 50 states.
Check with your local clerk of courts or secretary of state to ensure you have the right types of licensing, if it’s required in the state you live in.
And as you’re growing your wholesaling business, consider using a service like Call Porter.
When you’re getting busy, the last thing you want to do is miss calls from potential sellers.
With Call Porter, we’ll answer your calls for you and book qualified sellers directly onto your calendar so you can focus on speaking with potential sellers instead of dealing with tire kickers and time wasters.
