is wholesaling real estate legal in hawaii

Is Wholesaling Real Estate Legal In Hawaii? A 2024 Guide For Investors

real estate investing strategies wholesale real estate wholesaling real estate May 14, 2024

Wholesaling is a strategy that allows investors to facilitate property transactions without holding ownership. This method is particularly appealing due to its potential for quick returns and minimal upfront capital requirements. For those considering this approach in Hawaii, a critical question arises: "Is wholesaling real estate legal in Hawaii?" This guide provides a comprehensive overview of the legal aspects of real estate wholesaling in Hawaii, equipping investors with the knowledge necessary to navigate the market effectively and ensure compliance with state regulations.

*Before we begin our guide on whether wholesaling real estate is legal in Hawaii, we invite you to view our video on How To Wholesale Real Estate Step by Step (IN 21 DAYS OR LESS)!

Host and CEO of Real Estate Skills, Alex Martinez, provides a comprehensive, step-by-step guide for beginners to start wholesaling real estate!

What Is Real Estate Wholesaling?

A real estate wholesaler essentially acts as an intermediary, which is hardly a radical idea when one considers the latitude of permittable actions within the worlds of capitalism and big biz. The process, in theory, is simple. A wholesaler finds an available property for sale (be it a rental property or not), usually priced below market value, and enters into a contract of sale to purchase the property from the homeowners. The reduced price is key, so it helps to understand that these available deals are often distressed properties or those available due to a seller motivated by financially challenging situations, like an ongoing foreclosure process, a loss of a job, or an unfortunate accident or illness.

A skilled real estate wholesaler then finds another buyer (usually from a list of potential buyers), typically from a curated cash buyer’s list created through connections or simply a part of the real estate community. The end buyer (or home buyers as they are more traditionally called) is legally assigned the right to buy the subject property (using the legal tool known as ‘assignment of the contract,’ at a new price (with a new real estate contract) – usually and hopefully above the original contract’s agreed-upon price. The difference in the purchase contract prices would be the real estate wholesaler’s gross profit (cash flow from the deal), although others refer to it as an assignment fee.

The Doctrine of Equitable Conversion (or Equitable Interest) is the legal concept that permits the buyer (with a fully executed contract of sale) to assign the rights awarded by the purchase agreement.

The principle of Equitable Conversion states that when a contract is fully executed (and meets the legal criteria dictated by law), its ‘equitable title’ effectively changes owners – from the seller to the buyer. Note, though, that the property’s legal title remains with the property owners/sellers and is converted to personal property acting as a security interest until the transaction is final.

While a buyer involved in a legal contract does not yet hold legal title to the subject property, they do possess the saleable rights awarded by the contract and, thus, control of the property’s ultimate disposition. Despite its prevalence, however, there are those who still ask, "Is wholesaling real estate legal in Hawaii?"

wholesale real estate contract pdf

When wholesaling real estate, investors must remain within the legal boundaries of the laws in Hawaii. As such, note that a wholesaler can ONLY sell the legal rights obtained by executing a contract—they cannot sell or market the property. This is the critical distinction between a wholesaler and someone who needs a real estate license to accomplish their task.

Real estate investors will think that the strategy to wholesale properties is a great way to tiptoe into the real estate market with limited capital. The digital landscape, with sites like Zillow and Redfin has opened a conduit to the real estate market.

The process of wholesaling properties is similar to flipping houses, except, the flipper must traditionally take title. However, a wholesaler must be specific that the wholesale deal is executed with due diligence, following the Hawaii law – which should always include an analysis evaluating the possible legal potholes against potential outcomes.

What Do You Need To Know About Wholesaling Houses In Hawaii?

If you're considering jumping into wholesaling houses in Hawaii, there are a few key things you should understand to get started: local real estate laws, the different ways to wholesale homes, and how the local market is behaving. It’s really about getting the lay of the land before you dive in.

Let’s break it down a bit. In wholesaling, you’ve got a few strategies to choose from: contract assignment, double closing, and wholetailing. Contract assignment is pretty straightforward—it's where you get a property under contract and then pass that contract on to another buyer for a fee. Double closing might suit you if you’d rather not disclose your earnings from the deal; it involves you temporarily owning the property before selling it right away. Wholetailing is a bit of a mix—you buy the property, make minor upgrades, and then sell it.

Why consider Hawaii now? Well, some market indicators are turning in favor of investors. According to RedFin, median sales prices have jumped by 14.1%, and sales have risen by 11.3% from last year. With properties averaging 74 days on the market and about four months of inventory available, the conditions are ripe for quick and profitable deals. It’s a vibrant market, perfect for newbies looking to make their mark.

Despite today's opportunities, aspiring investors are still asking the same question: Is wholesaling real estate legal in Hawaii? For more information on the topic, investors should consult with the state's most prominent real estate trade and professional organizations. Each of these associations is a member of the National Association of Realtors (NAR):

  • The Hawaii Association of Realtors (HAR): The HAR provides innovative resources to support real estate professionals in Hawaii. Its mission is to be the state’s leading advocate of real property rights. In addition, the HAR seeks to cultivate partnerships throughout the state in support of prioritized real estate issues.
  • The Honolulu Board of Realtors (HBR): Established in the early 1920s, the Honolulu Board of REALTORS is Oahu’s largest professional organization dedicated to real estate, with a membership that exceeds 6,000. Additionally, HBR is recognized as one of the largest real estate boards in the country. The Honolulu Board of REALTORS is considered the voice of the real estate industry in Honolulu.
  • The Hawaii Island Realtors (HIR): Founded in the mid-to-late 1960s, the HIR serves real estate professionals and property owners on the Big Island of Hawaii. It offers a variety of benefits and educational development opportunities on the Big Island.
  • The Realtors Association of Maui (RAM): The RAM was developed to serve the real estate interests of Maui property owners and real estate professionals. It seeks to protect consumers, support professionals, and continue the thoughtful expansion of the Aloha spirit.
  • The West Hawaii Association of Realtors (WHAR): Founded in the late 1960s, the WHAR serves the western portion of the Big Island of Hawaii from Naalehu (at its southern end) to Hawi (at its northern parts). The WHAR supports local property owners and real estate professionals with the resources required to keep consumers and real estate ownership safe and transparent.

The Hawaii Real Estate Commission (HREC) is one of over two dozen administrative boards within the state’s Professional and Vocational Licensing Division within the Department of Commerce & Consumer Affairs (DCCA). Hawaiian real estate licenses are issued for two years and expire on November 30th in even-numbered years.

The Real Estate Commission’s powers and duties are noted in Chapter 467-4 of the Hawaii Revised Statutes. The commission manages more than 17,000 licenses and is responsible for the licensure, discipline, education, and registration of all real estate-related activities in the Aloha State, including the development and management of condominiums. The Licensing Department offers helpful general information via the FAQ sheet online.

Hawaii Real Estate License Reciprocity

Applicants for a Hawaii real estate license who meet the following qualifications may obtain an equivalency for Hawaii’s uniform section of the state’s licensing exam:

  • Currently hold a valid real estate license issued from another jurisdiction or state
  • Have passed the uniform portion of the state's licensing examination for the equal real estate license level

Certain pre-licensing education requirements may be satisfied. Hawaiian law’s use of equivalency refers to an individual’s ability to waive certain requirements. The state offers a helpfulbroker flowchart.

Note that Hawaii is an escrow state. As such, an attorney is not required to close a real estate transaction, although it is highly recommended that you seek legal advice, especially for those investors with limited knowledge of laws they could potentially violate.

Read Also: The Pros & Cons Of Wholesaling Real Estate: An Investor's Guide

Yes, real estate wholesalers can legally wholesale real estate in Hawaii if they do not violate any of Hawaii’s real estate licensing laws.

A real estate wholesaler must ensure they sell their established equitable interests or their ‘right to purchase’ rather than incorrectly (and potentially illegally) selling/marketing the property itself to stay within the legal lanes defined by Hawaii real estate law.

Read Also: How To Wholesale Real Estate in Hawaii: Step-By-Step

Do You Need A License To Wholesale Real Estate In Hawaii?

No, a real estate license is not required if real estate wholesalers do not violate the state’s real estate and license law.

In addition, Hawaiian real estate wholesalers would steer clear of legal woes by:

  • Staying transparent – make sure the contract of sale is straightforward.
  • Managing the seller’s expectations with integrity.
  • Not marketing/selling the property – a wholesaler must only market/sell their right to purchase real property.
  • Consult an attorney to ensure you protect yourself.

In Hawaii, real estate activity and license laws are found in the Hawaii Revised Statutes, Chapter 467—Real Estate Brokers & Salespersons, and The Professional & Vocational Licensing Act (Chapter 436B).

Wholesaling real estate in Hawaii

What Are The Wholesaling Laws In Hawaii?

First, it is noted in Chapter 436B-2, the purpose of licensing and licensing law, according to Hawaiian law, License means the permission to engage in a profession or vocation granted by the applicable licensing authority to a person who has satisfied every requirement for licensure, and shall include any registration, certificate, or other document issued by the licensing authority reflecting proof of permission. Meanwhile, licensing laws mean the applicable chapter providing for the regulation, licensing, and practice of a profession or vocation by the licensing authority.

Staying within the Aloha State’s defined legal boundaries will make real estate investing at the wholesale level both lawful and profitable. This article begins by reviewing the legal definitions in Hawaii’s HRS §467-1 (Definitions), noted below.

A real estate salesperson in Hawaii is defined as any individual who, for a compesnsation or valuable consideration, is employed either independent contractor in association with a real estate broker, to sell or offer to sell, buy or offer to buy, list, or lease, or rents or offers to rent, or manages of offers to manage, any real estate, or the improvements thereon, for others as a whole or partial vocation; or who secures, receive, takes or accepts, and sells or offers to sell, any option on real estate without the exercise by the individual of the option and for the purpose or as a means of evading the licensing requirements of this chapter.

A real estate broker in Hawaii is defined as any person who, for any compensation or consideration, sells, buys, negotiates the purchase or sale or exchange of real estate, any option on real estate without the exercise by the person of the option and for the purpose or as a means of evading the licensing requirement of this chapter.

With regard to the legislation, the term real estate is defined as the means and includes lands, the improvements, thereon, leaseholds, and all other interests in real property.

It is equally relevant to understand when a real estate license will not be needed. This is found in Hawaii (Chapter 467-2 Exceptions):

      • Any individual who:
        • Is the owner of real estate, or,
        • Is performing as a Power of Attorney for the owner of real estate who performs the actions denoted in the licensing definitions noted above. However, it is noted that the term ‘owner’ or ‘Power of Attorney’ DOES NOT include -
          • Anyone who is engaged in real estate brokerage or development, or,
          • Anyone who acquires an interest in real property with the purpose of evading Hawaii’s licensing requirements. This is an essential legal nuance regarding Hawaii real estate wholesaling. The best way to avoid a legality issue (of needing a broker’s license) is to –
            • Ensure all parties to the transaction have complete knowledge of your intentions – 100% Transparency is key to avoiding legal hassles.
            • Execute a double close, which effectively eliminates the potential of violating licensing law. This is because your actions ultimately reveal your intentions to be lawful and not in need of a real estate license as a legitimate buyer or seller.
            • However, you are advised to tread carefully, though.
          • Any person who is acting as a trustee, receiver, the response to a court order, or other fiduciary capacities.
          • Any individual who rents/leases real property or improvements for which the person is a caretaker/custodian.
          • Any individual who rents/manages/operates a hotel.
          • Owners/operators/agencies that manage a homeless facility (See Chapter 346 Part XVII)

The Double Close

The most direct way to avoid potential legal troubles is to do a double closing. While it might be more expensive to close (remember, there are double closing fees for two closings), this method ensures you, as the buyer, had lawful intentions regarding the initial transaction.

It also helps to be transparent, issues a disclaimer (if applicable), and act honorably. But note, with this more cautious exit route, there are double closing costs – which most would say is money well spent considering the protection it offers.

To wholesale real estate legally in Hawaii, the investor must be sure to have a working knowledge of the state licensing laws. In sum, these are the laws to review –

According to HRC Chapter 467-26, the penalties for violations for any person violating this chapter shall be fined not more than $5,000 for each violation.

*For in-depth training on real estate investing, Real Estate Skills offers extensive courses to get you ready to make your first investment! Attend our FREE training and gain insider knowledge, expert strategies, and essential skills to make the most of every real estate opportunity that comes your way!

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Final Thoughts

The legality of wholesaling real estate has become a ‘hot topic.’ Oppositionists of the process of real estate wholesaling often have an erroneous view of the strategic intentions of this investment strategy, which, as noted above, is – The right to market your “right to buy the property” but not the property itself.

The reality is that wholesalers do meet an unmet need—highly motivated sellers who need a quick turnaround, which may not be met by a traditional real estate agent.

Those who oppose real estate wholesaling do so because wholesalers could unknowingly cross a license-law boundary without due diligence and cautious handling. However, if you comply with Hawaii law and receive the proper training, real estate wholesaling is legal and profitable in specific markets. A well-written contract of sale coupled with transparent negotiations is the ideal way to manage the transaction.

*Disclosure: Real Estate Skills is not a law firm, and the information contained here does not constitute legal advice. You should consult with an attorney before making any legal conclusions. The information presented here is educational in nature. All investments involve risks, and the past performance of an investment, industry, sector, and/or market does not guarantee future returns or results. Investors are responsible for any investment decision they make. Such decisions should be based on an evaluation of their financial situation, investment objectives, risk tolerance, and liquidity needs

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