The Science of Flipping - Is Wholesaling Legal?

Episode Date: January 13, 2021

Is Wholesaling Legal?

What is up, everybody? What is up? Welcome back to the Science of Flipping podcast. I am Justin Colby. This podcast is all about the processes, the tools, the systems, the strategy to become a really profitable real estate investor. Now, most of that comes from wholesaling and rehabbing, but we do want to get into building wealth. That's what we are all here for. So let's talk about that as well. Now, if you have not yet checked out my YouTube channel, go to youtube.com forward slash Justin Colby. I drop a video every single day there for you. It's regarding all business, entrepreneurship and real estate. Go to youtube.com forward slash Justin Colby. Check out those videos each and every day. I drop a podcast here and I drop a video, totally separate discussion over on YouTube. For all inquiries or any questions that you might have, head over to thescienceofflipping.com, thescienceofflipping.com, a ton of free resources there as well. So now that the housekeeping is over, let's talk about a subject I was posed this week

again by one of my prospect students who is looking to get into this space of wholesaling, but was curious to know if it is legal. Now, this has been a discussion for years, I'd say for the past decade, since wholesaling really has taken off in our space, is some places, some cities don't find it to be legal because they think you are acting as a realtor. Now I can get their perspective. And by all means, realtors are still fighting and scraping just like we all are to, you know, make money and this is their livelihood. So I can see why they think that we are quote unquote, stealing their business or doing something unethical or illegal. Not quite sure where it lands there because wholesaling is absolutely ethical and legal, but they're making a point to say you can't do anything if you are not licensed. So Chicago is a city I'm well aware of that have set precedents that if you are going to wholesale or do any real estate of any sort, you must be a

licensed realtor. Now, that's not for me to agree with or not agree with. But what I will tell you is wholesaling is absolutely legal. The first and foremost thing that you need to disclose is if you are an agent, you want to make sure you are disclosing that you are an agent. Now, let me take a step back for those that may not be totally familiar with what wholesaling is. Wholesaling is the real estate investing strategy where you are marketing to direct a homeowner, you are contracting the property with the homeowner, and you have a buyer who will pay you a fee to buy that home from you. So you are contracting the property at a discount. The buyer that you have would pay more than you are paying for and will give you a fee, which is

typically called an assignment fee for them to buy the home from you. So that's the strategy of wholesaling. There's obviously more to it than that. But on the 30,000 foot view, that's what we're discussing. So what people have brought up specifically, uh, realtors are bringing up as, you know, wholesaling is illegal. Uh, frankly, it's just not true. So let's start there. But what they're saying is you're acting as a licensed realtor doing real estate transactions. Well, I have never been licensed in all 13 years of my career. I've done over 1,600 deals. I'm actually probably creeping up on 1,700 if I finish doing the math on the last couple years. And I will tell you, I've never been in trouble.

I've never done anything wrong. I've always done good business. And I'm always a value to the seller and the buyer because essentially I have a seller who's motivated and needs to sell. That is why they're discussing the home with me. And I have a buyer who's looking to buy properties that they themselves can't find.

So I am typically 99% of the time providing a massive value to both. And if I am not, then I tend to not do the deal because in wholesaling, we really are only as good as the value that we provide to the seller and the buyer both. So with that said, you know, there are several cities, maybe even states that frown on wholesaling is because the realtor lobbyists are out there lobbying, saying that we're doing the work of a realtor. But I would tell you, minus Chicago and the surrounding cities there, you do not need to get licensed. And you could even not be licensed in Chicago if you understand how to disclose everything that needs to be disclosed, etc.

But you will not go to jail. I have not experienced anyone receiving massive fines or anything like that because it is a completely legal transaction. Everything is being disclosed. You are contracting the home with the seller saying that you are buying this as an investor and that you can profit on this deal, whether you flip it, whether you rent it, whether you sell it, that it is okay to assign this deal. You are disclosing that you are an investor looking to make money off of buying this deal. And when you do that, that disclosure, which is on my purchase agreement. And if you're

trying to figure out where to get the purchase agreement, go over to the science of flipping.com. We have a ton of free resources there, the science of flipping.com. Uh, so once you disclose that, then you are in the good, right? You are basically saying everyone's aware of what's trying to happen here and we can assign this, we can buy it, we can flip it, we can do whatever we want, we can rent it, collect rents, you name it. And so that is what is being disclosed that keeps you in the good there. And so I just don't want any confusion on whether this is legal or not legal. It is a hundred percent legal. You know, and it's a strategy that I consider to be like an ATM for me, right? It kicks off a lot

of cash. That cash can help me even get into the flipping game and ultimately get into the building wealth, which is what, how I kind of started this episode, which is ultimately, yeah, we want to make a lot of money and put a lot of money in the bank, but what are you going to do with the money? It can't just sit there. You want to start building wealth. So I'd encourage you. I don't care if you've been a rehab flipper for the last 20 years. I don't care if you have a rental portfolio of 200 homes. If you are interested in creating a business within real estate, or I don't care if you're a newbie, wholesaling is the way to go. It's a leverageable business. You can leverage

people within the business. You can kick off a lot of cash, whether you take it as income or use it for operational costs. And I talk a lot about that on previous podcasts. It is really important for you to have this as the vision of your business. I myself have done this for 13 years. I have all three divisions of wholesaling, wholetailing, rehabbing. Going into this year of 2021, I am heavily going to be going into buying holds. So guys, totally legal. I encourage you to do it.

If you have any questions at all, go to thescienceofliving.com. Me or some of my team members will get on the phone with you and answer any and all your questions or help you overcome the challenges you have. And don't forget to check out those YouTube videos. Just look me up, Justin Colby, and I'll talk to you guys on the next podcast. Peace.