Is Wholesaling Real Estate Legal? What Just Happened In Illinois?

When I’m asked by a new Real Estate investor where they should start, I usually encourage them to start their investing career with wholesaling. Without a doubt, this strategy requires the least amount of money, expertise, time, and risk. It’s the perfect place to start because it’s where you can get the fastest, easiest “win” and when you’re new, that first win is like a newborn baby’s first breath of air. It’s critically important.

But…what exactly IS wholesaling real estate, what does it entail, and is it legal? 

What Is Wholesaling?

Wholesaling is simply finding a good deal and then passing it along to an investor buyer who will do the necessary repairs to sell or rent it. 

Finding the deal involves finding a motivated seller with a house that is typically in need of repairs. This can be done through marketing or data tools or typically a combination of both (vacant houses are categorically good prospects). Then, the wholesaler finds a motivated and capable (preferably cash) buyer who is willing to purchase the property for a higher price than what was negotiated with the seller.

The difference between the seller’s price and the buyer’s price is the wholesaler’s profit.

There are essentially 2 ways to complete the transaction. One is to assign the contract to the buyer, which I will discuss. The other is to close (take title) as buyer and then turn around and sell to your buyer.  Most of the time this happens on the same or next day and is commonly referred to as a double closing.

The prefered method of wholesaling Real Estate has always been to use a contract assignment. This is where the wholesaler effectively sells their contract (that they already have with the seller) to their buyer. For example, if the purchase price with the seller is $210k and the buyer is willing to pay, say, $230k, the assignment amount, aka wholesale profit would be $20k. This has always been preferred because the wholesaler doesn’t need to actually close (take title) on the property and therefore is not in the chain of title. 

The challenge is assignments have been scrutinized and disliked for years. Bank sellers (on their foreclosures) won’t allow it and haven’t for more than a decade. Most Realtor’s contracts don’t allow for it without special provisions and haven’t for more than a decade. But, now added to that, assignments have come under scrutiny on a state level with legislation recently passed in Illinois. Enter the legal / illegal part of the conversation.

The argument against wholesaling is that by assigning the contract, the investor is not actually “investing,” but instead they are just bringing a buyer and seller together and charging a fee that is only received upon a successful outcome. This is, in essence, Real Estate brokerage and brokers/agents are required to have a license. The argument against needing a license that stood up for years was that the wholesaler was “a party to the transaction” and had an “equitable interest in the property”, so therefore it did not require a license. 

Well, in our world of ever increasing pressure on capitalism and the concept of success, that argument may no longer stand up. At least in Illinois. The new law there basically says that to do assignments you need to be licensed or be represented by a licensed agent in the transaction. While I don’t know the backstory on this, I suspect this one of those “follow the money” scenarios. In fact, I would bet $1 that the Ill Association of Realtors are BIG campaign donors to those lawmakers that introduced and pushed this bill to passage.

Call me cynical and you’d be right. Call me right and I’ll take my dollar. The question is, is it constitutional and will it stand up in court? Only time will tell.

There is a similar anti-wholesaling legislation in Ohio that’s been kicked around for a number of years, but that hasn’t passed yet. I suspect it may now, especially if it draws big campaign funding from the OH Association of Realtors. 

This conversation about wholesaling is happening at a national level too. Bernie Sanders recently proposed a special tax (if elected president) on house flippers who don’t make significant investments and/or hold title to the property for a certain period of time. But that could be because Elizabeth Warren (his nemesis) was once a house flipper. Did you know that? And then of course, Trump is the ultimate Real Estate investor and let’s face it… “Orange Man Is Bad So All Real Estate Investors Are Bad” if you’re Sanders. Right?

What all of this really means is that some wholesalers may be (or already are) facing some serious challenges when it comes to getting the deal closed, with assignments.

But Don’t Panic!

Wholesaling Real Estate is still the perfect way to start in real estate investing and it’s the perfect add-on strategy if you’re already in the business. So, rather than abandon it, rather than focus on why it won’t work, let’s focus on how it can work!  Plus, at present, there’s only an issue in Illinois!! That’s just one state! 

If you’re not in Illinois don’t stop reading, however. This could be coming to your state because politicians are copycats and campaign funding is their catnip. Whoops! There’s my cynical side again.

So, if you’re in IL, one solution is for you or someone on your team to get (or have) a Real Estate license. With that, you can assign contracts to your heart’s content. But let’s face it, getting and having a license involves some work, some expenses and then there’s some good and bad that comes along with having it. I would suggest that the good outweighs the bad.  Some of the most successful investors I know are either licensed themselves, or have a team member (sometimes a spouse or S.O.) that is a licensed agent.

I also believe you can pay a licensed agent to represent you on wholesale deals when needed. How much would it cost? I don’t know but if it were to catch on, I think very little. Certainly nowhere near a normal commission. In fact, I bet you could find an agent that would be willing to do it for a few hundred dollars per transaction.

But there’s another simple solution as I interpret the IL law, and that is to do a double-close.  

Doing a double-closing means you take title of the property as the buyer and then you sell the property (typically only a few minutes) later that same day. Click here to read one of my recent blog posts on double closings. So look at it like the last property you bought and lived in for a number of years and then sold it, hopefully at a profit. A double closing is technically the same thing only years are compressed into minutes.

By doing this vs. an assignment, you’ve removed the issue of brokerage. You’ve clearly invested in the property when you bought it and then sold it for a profit. You clearly did this for the purpose of “investment” and your actions back that up.

Ok, so where do you get the funding you’ll need to buy and close on the deal before you resell it and what if you’re in a high-priced market and need a LOT of funding?

Up until the crash of 2007-8, you could actually use your buyer’s money to close your purchase. This was typically called “floating the funds” and made double closings doable for anyone whether you had the money/funding or not. It wasn’t needed. So for example, when you had a $210k property under contract to buy, and had a buyer happy to pay you $230k, the closing agent would simply use $210k from the buyers funds to settle the seller’s escrow on your behalf. Then you’d walk away with a $20k profit minus a few closing costs. Easy peasy. 

Sadly, this does not happen anymore, that is if you want title insurance. Back around the time of the crash, title companies (and not local agent offices) but the insurance companies themselves changed the rules. They said, if you want a title insurance policy, and you sure do anytime you’re taking title to a property, you can not use the buyer’s funds to close your purchase. Instead, you need your own funds, or those of a third party, to close the purchase. So no more floating the funds. Yep. You got it. They MOVED THE CHEESE!

But all is not lost. Instead, and as it always does, the “investor world” pivoted.

Here’s How ANYONE Can Get The Funding For Wholesale Deals

Needing the funds doesn’t necessarily mean you need personal funds. In fact, you have a viable option known as Transactional Funding. 

Transactional funding is specifically for your wholesale deals. For the use of the money, you should expect to pay +/- 2 points, or 2% of the amount they fund. In some cases, it’s much higher. I have recently seen up to 10% depending on the size of the deal. 

So if we go back to our example…the house is under contract with your seller for $210k and, since you don’t have $210k in cash laying around, you connect with a Transactional Funding source and agree to pay 2 points or 2% of the amount funded including closing costs. To keep the example simple we’ll omit closing costs here. So you purchase the house for $210k with the funders cash and pay 2%, which is $4,200. So instead of making $20k on the deal you make $15,800 on it. Not bad considering that without the Transactional Funding source, you would not have closed or made anything on the deal. Think of it as $15,800 vs. Zero. WAY better than nothing!

I started funding deals, just like this, for my clients in 2009. Since then, we have done countless deals and watched my clients make millions and millions in profits that they would not have otherwise made. The best part is we have the closing statements to prove it and can see to the penny, exactly what they make. 

As you might expect, like everything my team and I do, my funding has evolved. In fact, over the years I’ve been called a “market disruptor” and our funding is no exception because today we provide…

Same day, next day Transactional Funding with NO points, interest or transaction fees of ANY kind!

WHOA! Hold on! No fees on the funding? Does that sound too good to be true? I’m sure it does, until you know the backstory on why I do it and how I can do it and stay in business.  Here is a video where I explain exactly why and how I offer my funding with ZERO transaction fees!

We provide transactional funding for all wholesaling needs. In order to qualify, all you need is to be a member of our program and have a committed buyer lined up and ready to go. This is not hard money; the program is specially designed for wholesale deals and requires absolutely no credit (we don’t look!), no money aka, skin in the game, and we fund 100% of your purchase price including closing costs. All you need is your earnest money deposit.

When you are on board with our “Trifecta Program” we will provide up to $1,000,000 per deal. And the best part? There are NO TRANSACTION FEES… meaning there are no application fees, no wire fees, no administrative fees, no points, no interest, no prepayment penalties. There are NO fees on the transaction what-so-ever.

In addition to the funding, we provide vitally important verifiable proof of funds too. When you make an offer on a property and the seller wants you to “show me the money”, you had better have a verifiable way to do just that. With our program, I do that for you. With our program you can easily and quickly produce proof of funds letters on demand, online, 24 / 7 / 365. You’ll have immediate and unlimited access to these letters without needing any sort of approval.

Our verifiable proof of funds letters are accepted everywhere. They are provided on official letterhead, and if the real estate agent or the seller requests a verification of deposit, a.k.a. bank statement, they’ll reach us by using the contact info on our letterhead and we’ll provide it. We always respond to these requests promptly to keep your deal moving forward.

Again, our funding program doesn’t have any credit or income requirements. It’s the deal that makes it work. 

If you’re interested and would like to learn more, please check out my FREE webinar training called “The Real Estate Trifecta” where I break down the three things that every successful investor needs. They are motivated sellers, cash buyers, and funding. With Trifecta and thanks to our 10 years of software and data tool experience, you get all 3.  Watch the Real Estate Trifecta Training that includes NO TRANSACTION FEE funding up to $1,000,000 per deal here. 

This is a groundbreaking training that you will learn a ton from, plus the combination of tools and funding will make you an unstoppable force in the market. Buyers, sellers, real estate agents, closing agents will all respect you and you’ll crush the competition because they won’t have a clue what you’re doing or how you’re doing it.

Make no mistake about it, this really works. We would know because we are…

currently funding 3 to 5 deals a week and again, see exactly what our clients are making.

One of our members, Helen, recently did a deal in South Carolina. This was a short sale and took some time to get to closing and took some very creative thinking from Helen to make happen. Helen found a buyer and after using our funding, made a profit of $38,005.75!

Ronnie used our program to fund a duplex in Nashville, TN. He found this deal by cold calling an absentee owner who lived in California and was essentially a “tired landlord”. The seller was initially asking $180,000 for the property, but after some renegotiating and some rapport building from Ronnie, he was able to talk her down to $150,000. He found a cash buyer in New York and, through the use of our funding, came out with a profit of $22,609!

A few weeks later, Ronnie used our funding AGAIN for another deal in Nashville and profited a whopping $58,101!

We have funded hundreds and hundreds of deals just like these and with each, we watch our clients making big money. The record to date, which just happened a few days ago, is a $515,000 profit on one double closing – and that’s not a typo. Suffice to say, it’s happening in a big way and you can be a part of this movement. Now you can join our small, tight-knit community of clients who we get to know on a personal level, work with closely, and care very deeply about.

Your Take

What’s your own experience with wholesale deals? How have you funded them in the past? Let me know in the comments below. I love hearing from you!

Regards,

Cameron Dunlap