Ever heard of someone investing 1% to reap a return of 15%? Sounds like a gimmick, doesn’t it? The good news is that it is not. It is real estate wholesaling.
Wholesaling real estate is finding and contracting a property from a seller for a stipulated earnest deposit. You can then sell that contract to an end buyer and receive a wholesaler fee, which is the difference between the market value of the property and the sale price. Wholesaling does not require taking ownership or possession of the property, which makes it an attractive option for investors.
But with real estate being a highly regulated industry, it is no wonder aspiring wholesalers are asking: do you need a license to wholesale real estate? It depends on your state and city. The majority of the states don’t require licensing for real estate wholesalers.
But there are states like Kentucky, which has recently passed a law requiring wholesalers to have a form of license.
This article will delve into state-specific licensing requirements for real estate wholesalers. We will also explore the potential advantages that await you in this industry. By sticking with us till the end, you’ll gain insights to help kickstart your journey into successful wholesaling, no gimmicks involved.
License Requirements by State
Becoming a real estate wholesaler is a lot like becoming an Airbnb manager. There are no licensing requirements attached to either venture.
Most states do not require a license to wholesale real estate. This means you can act as a middleman between a seller and a buyer and assign the contract to the buyer for a fee without obtaining a real estate agent or broker license.
The practice can save you time and money.
While most states do not require a license to wholesale real estate, there are some exceptions. For instance, some states, such as Kentucky, have passed laws that require wholesalers to obtain a real estate agent or broker license or to work under the supervision of a licensed professional.
The governor signed House Bill 62 on March 23rd, 2023. The major stipulation in this law is that, “ advertising for sale an equitable interest in a contract for the purchase of a real property between a property owner and a prospective purchaser.”
This law doesn’t change the licensing requirements. It only adds that a specific scope of advertising, which wholesalers participate in, is conducted by licensed individuals.
These laws are intended to protect consumers from fraudulent or unqualified wholesalers. The rules have also been erected to ensure wholesalers follow the same standards and duties as licensed agents or brokers.
However, even if your state does not require a license, you still need to follow some basic rules to avoid legal trouble. For example, you should always disclose your role as a wholesaler to both parties, use a proper assignment contract, and avoid representing yourself as the owner or agent of the property.
Be Weary of Local Laws
Even if your state does not require a license to wholesale real estate, you should also check the local laws and regulations of the city or county where you plan to operate. Some cities or counties may have their own licensing requirements or restrictions for wholesalers or may have different definitions of what constitutes wholesaling.
For example, Atlanta has strict protocols that wholesalers must follow. From October 26th, 2020, real estate wholesalers were prohibited from commercially harassing homeowners. The city actually calls it “predatory tactics.”
Under the ordinance, wholesalers may not contact a homeowner for a period shorter than 180 days since their last contact without the owner soliciting their services. The term contact extends to include any written correspondence and even personal visits.
The city promises disciplinary action to wholesalers who fail to comply with this ordinance.
To avoid legal issues, you should always research the local laws and regulations of the area where you want to wholesale and consult with a local attorney or real estate professional if you have any questions or doubts.
Local Business Permit or Registry
Whether you need a license to wholesale real estate or not, you should always treat wholesaling as a legitimate business. This means you must follow outlined steps to establish and run your business legally.
Included are obtaining a local business permit or license, registering your business name or entity, paying taxes, keeping records, and having insurance.
These steps will not only help you avoid any legal problems but also enhance your credibility and reputation as a wholesaler and attract more sellers and buyers to work with you.
Benefits of Getting Licensed
One thing is clear: wholesalers in most U.S. states can operate without a license. But it doesn’t you should.
Getting a license may seem like a hassle, but it can benefit your wholesaling business. Here are some of the advantages of getting licensed as a real estate agent or broker:
Greater Market Legitimacy
Having a license can boost your credibility and reputation in the market. A license shows you have the knowledge, skills, and ethics to conduct real estate transactions.
You can also leverage your license to access the Multiple Listing Service (MLS), a database of properties for sale by licensed agents and brokers. The MLS will help you find more deals and allow you to market your properties to a broader audience of buyers.
Expanded Seller Prospecting
A license can also expand your pool of potential sellers, as you can offer them more options and solutions for their situations. You can provide clients with more information and guidance on the selling process, such as market analysis, pricing, staging, and closing.
By providing more value to your sellers, you can build rapport and trust and increase the chances of getting a contract.
Ability to Transact Additional Deals
A real estate license can enable you to transact additional deals. By diversifying your income streams, you can reduce your dependence on wholesaling and increase your stability and security in the market.
For instance, you can buy and sell properties for yourself or for other investors and earn commissions or profits from both sides of the deal. You can also work with retail buyers looking for their dream homes and help them find the best purchases.
Do You Need a License to Wholesale Real Estate: The Verdict
Real estate wholesale remains an unlicensed activity. But that doesn’t mean having a real estate license won’t benefit you. Do you need a license to wholesale real estate? It is a personal choice that only you can make for your career.
1. Research: Find out whether your state requires a real estate license for wholesalers.
2. Evaluate: Check any additional local regulations that may apply in your city or county.
3. Start Licensing: If no licensing is required but you decide it could benefit your business growth, consider enrolling in pre-licensing courses.
4. Stay on the Straight: Ensure you’re running your operation ethically regardless of licensing requirements: disclose roles clearly and use appropriate contract templates.
5. Establish: Distinguish yourself officially with necessary permits/licenses at both local & federal levels.
What has been holding back from diving into this lucrative industry? Do you have any questions about how these rules apply where you live? Share them below!
We’d love to hear from aspiring wholesalers just beginning their journey or seasoned veterans who’ve learned valuable lessons along the way!