Is Wholesaling Real Estate Legal?

Wholesaling is often hyped as a great way to make money in real estate even if you don’t have any money to invest.  As a new real estate investor though you might be wondering what it actually means to wholesale real estate and is wholesaling real estate legal?

Before we get into why wholesaling real estate might not be legal and why one type of wholesaling is legal but another may not be.  It’s important to have a proper definition for wholesaling real estate.

Wholesaling real estate is when an investor buys a property or puts a property under contract and then immediately sells the property or assigns the contract to another buyer for a profit.   

Is There More Than One Way to Wholesale a Property?

As the above definition eludes to yes, there is more than one way to wholesale a property.  No matter how you wholesale a property though the underlining concept is the same, the only difference is whether or not you take possession of the home.

Wholesaling real estate hinges on there being enough potential profit in a house, that a wholesaler can buy the property, do little to no work to it, take a small profit, and then resell the home to another buyer with profit still left over for the end buyer.  

Taking Possession When Wholesaling

The first way to wholesale a property does require the wholesaler to have money to invest.  As the wholesaler will actually purchase and take possession of the property.  Only after they have purchased the home will they then look for and resell the home to another buyer at a slightly higher price than they paid for it.  Thereby giving them a small profit with still enough profit left over for the end buyer.  

Not Taking Possession When Wholesaling

The second way to wholesale real estate requires little to no money, which is why wholesaling is often touted as a great way for beginning real estate investors to get started.

This method of wholesaling does not require the wholesaler to purchase or take possession of the property.  Instead, the wholesaler will find a good deal on a house, put the property under contract and then assign the contract to another buyer inside the timeline of their contract with the seller, taking a small profit for their efforts off the top. 

Is Wholesaling Real Estate Legal?

When considering whether wholesaling real estate is legal you must first know which type of wholesaling is being referred to.

If referring to the first type of wholesaling where the wholesaler actually takes possession of the property and then sells the property to another buyer.  Then there is no need to worry as this form of wholesaling is perfectly legal and there shouldn’t be any issues.

If however, you’re wondering whether the second way to wholesale real estate is legal where you don’t actually take possession of the property, this is a little trickier to answer.

The potential legal issues of the second way stems from the fact that the wholesaler never actually owned the property and instead assigned the contract to purchase to another buyer.  This can be a problem because some states perceive this as performing the duties of a real estate agent without a license, which is illegal.

If you have the property under contract but don’t actually own the home and then begin marketing and advertising the home for sale, many states will consider this performing the duties of a real estate agent without a license.

So if you are considering wholesaling real estate the second way, before you get started you need to check your state’s laws to find out if this type of wholesaling is even legal.

Pros and Cons to Wholesaling Real Estate

As with any type of real estate investment, wholesaling real estate has its pros and cons. 

Pros to Wholesaling Real Estate

• Allows you to focus more on negotiating and deal-making.
• Requires little to no physical labor or property rehab.
• Potentially requires little or no money to invest.
• Tends to move at a much faster pace compared to the standard fix and flip model.  

Cons to Wholesaling Real Estate

• Make much less compared to taking the flip through to completion.
• Need to flip more property when wholesaling than you would fix and flipping homes.
• Have to find even better deals on property because profit is taken twice out of the home.
• Requires more property compared to standard house flipping.
• Potential legality issues depending on the type of wholesaling.  

How Much Money Can You Make Wholesaling Real Estate?

How much you can make wholesaling real estate really depends on your skill level and how many real estate deals you can successfully put together.

As with any other type of entrepreneurial business, there are no limits on your income as it mainly comes down to how hard you want to work and whether or not you can successfully find good deals on properties to wholesale.

To illustrate this point some wholesalers might not put a deal together all year.  While other wholesalers put over a hundred deals together in that same year. 

It’s not just about quantity either when it comes to wholesaling but also about quality.  As some wholesalers might make $2,500 when they wholesale a property while others might be able to routinely put deals together where they are making $5,000 or $10,000 per deal.

So when it comes to wholesaling real estate as with anything in life, your abilities will dictate your success.  While you can certainly make well over $10,000 a month wholesaling real estate you can also make nothing.  

Want to learn about HUD homes for real estate investment?  Check out our article “Does Buying HUD Homes to Flip Make Sense“.