Are you curious to know if and how you can wholesale properties in Kentucky? Are you new to real estate investing and considering it as a career?
If this sounds like you, read on! We've got a lot of the answers you're looking for.
The Commonwealth of Kentucky is home to about 4.5 million people. More than a quarter of Kentucky's population lives in Jefferson, Fayette, and Kenton counties.
Seven other states border the Bluegrass State, and this centralized location means it is an important transportation hub, making it a highly desired place to live and do business.
At just over 40,000 square miles, it is one of the most diverse topographical states east of the Mississippi River. It's also one of the nation's oldest states. It was admitted as the 15th state to the union in 1792 and was the first state west of the Appalachian Mountains.
It served as an important waypoint for westward expansion, and competing loyalties made it a highly conflicted state during the Civil War. In fact, Abraham Lincoln and Jefferson Davis were both born in Kentucky.
The economy is also economically diverse and vibrant, which is excellent news for those putting together real estate deals on investment properties.
Historically, Kentucky has been a major coal producer and produces about 95% of the world's supply of bourbon whiskey. This continues to be a growing segment with 5.7 million barrels of bourbon aged in Kentucky by more than 50 distilleries in 2019.
It may surprise you to know that Kentucky ranks fourth among states in the number of assembled automobiles and trucks. Assembly plants for the Chevrolet Corvette, Ford Escape, Ford Super Duty trucks, Lincoln Navigator, Toyota Camry, and several other Toyota lines are found in Kentucky.
That is counterbalanced nicely by the fact that about half of Kentucky is still farmland, with corn, tobacco, and soybeans as the dominant crops.
Kentucky is also one of the premier places in the United States for breeding horses, highlighted by the annual Kentucky Derby...the most famous horse race in the world.
The state continues to be a hotbed for college basketball, and home to Louisville Slugger baseball bats. It is also well known as the home to pioneer frontiersman Daniel Boone, and of course, as the birthplace of Kentucky Fried Chicken.
The state has more than 1.7 million housing units. Statewide, markets are highly affordable with the median value of owner-occupied housing units priced at $141,000.
Much of the state's real estate activity is centered in the largest population centers, which are:
One of the most noteworthy things about the largest Kentucky population centers is that 5 of the top 10 have experienced double-digit growth over the past decade, topped by Bowling Green and Georgetown, which have seen increases of more than 24%.
According to the Kentucky Realtors trade association, several indicators show a strong housing market throughout the state. Closing listings, the price of those closed listings, and the total dollar volume of real estate transactions are trending upward significantly through April 2021.
According to a recent Kentucky Realtors Confidence Index, industry members are optimistic about the state's near-term future of real estate activity. Current local economic conditions indicate an estimated 7% increase in housing prices over the next 12 months.
Kentucky Realtors (KYR) is one of the largest trade associations in the state, representing more than 12,000 members involved in all parts of the real estate trade, including agents, brokers, developers, builders, property, and office managers, and other similar related occupations.
All KYR members also belong to one or more of the local Realtor associations in Kentucky.
Some of these larger local associations include:
The Kentucky Real Estate Commission (KREC) it's part of the state's Public Protection Cabinet (PPC). The PPC and insurers for the safety of residents by regulating and ensuring the safe and fair operation of some of the most important institutions in Kentucky. The KREC regulates and oversees licensing activities of Kentucky real estate associates and brokers.
The Kentucky Real Estate Authority (KREA) is another PPC agency that protects the public through licensing real estate professionals, including appraisers, auctioneers, home inspectors, and real estate sales associates and brokers.
Another related PPC agency to note is the Kentucky Real Estate Appraisers Board. While wholesalers probably won't have much, if any, direct contact with this body, there is some value in knowing that it is one of the state's regulatory agencies. It specifically focuses on protecting the public through regulation, examination, and licensure of real estate appraisers and registering appraisal management companies.
Wholesaling real estate in Kentucky is legal, but you need to pay attention to some essential things; otherwise, you could wind up with some legal trouble on your hands.
As a real estate wholesaler, it pays to educate yourself about the basics of wholesaling, including the three primary strategies often used to complete a transaction. Those strategies are the assignment of contract, the double closing, and wholetailing (also known as buy and sell).
One of the most misunderstood issues involving wholesaling real estate has to do with the assignment of contract strategy. In this type of transaction, it's critical to understand that you can only market the rights to a contract that you have secured with an existing property owner.
Under no circumstances can you market the home itself if you don't have a real estate license.
Many first-time wholesalers enter this profession seeking an assignment of contract arrangement because it affords them the lowest barrier of entry into wholesaling. There are essentially no costs involved because, as a wholesaler under this type of arrangement, you are not conducting the actual transaction on a piece of real property. You are only the middleman who collects a fee when the contract is assigned to another party.
With double closing or wholetailing, a wholesaler engages in two separate purchase contract transactions--one with the original owner and the other with a real estate investor often prearranged through the wholesaler's buyers list. Many times, these are cash buyers who are looking for foreclosure bargains or potential rental property they can add to their portfolio. You will be required to at least fund part of the transaction with an earnest money outlay.
Many times, these transactions take place the same day with a double close. However, wholetailing to an end buyer may involve a longer time frame but is typically still a relatively short timeframe to complete the real estate purchase.
Chapter 324 of the Revised Kentucky Statutes covers the legalities and conduct of real estate brokers and sales associates. While these laws pertain mostly to licensed individuals, as a wholesaler, it's best to familiarize yourself with some of the key provisions that may have an impact on you, whether you're licensed or not.
A wholesaling business in Kentucky can be a rewarding and successful career, but you need to make sure you stay within the confines of the law; otherwise, you could face significant penalties.
Relatively speaking, there are not many wholesaling laws to be concerned with, but if this is not a particular area of strength for you, it may make sense to retain the services of an experienced real estate attorney.
While this legal advice may require some costs upfront, you could be saving yourself a lot of money and heartache in the long run by getting help with due diligence, purchase agreements, and other types of wholesale real estate contracts.
One of the most important things you must understand is that if you're an unlicensed wholesaler, you can only market the rights to a contract of a piece of real estate that you control by agreement with an owner. You cannot market the property directly itself.
You can only market a property if you are a licensed real estate agent or broker. This requirement is specifically defined in Statute 324.020 as follows:
If you engage in real estate brokerage without a license, according to Statute 324.990:
Any person engaging in real estate brokerage without a license shall be guilty of a Class A misdemeanor for a first offense and a Class D felony for any subsequent offenses. A person who engages in real estate brokerage without a license due to failure to renew a previously valid Kentucky license shall not be subject to this penalty if the person is entitled to and does avail himself of the remedial provisions of KRS 324.090(3).
(2) In addition to the penalties set out in this chapter, a Circuit Court may impose an additional penalty on any person who violates any provision of this chapter by fining them not less than one hundred dollars ($100) nor more than one thousand dollars ($1,000) or imprisoning them for a term not to exceed six (6) months or both. Upon conviction, in addition to the aforesaid fine, there shall be added to the fine the amount of any real estate brokerage commission paid or received as a result of the violation or violations in question. Each transaction shall be regarded as a separate offense and shall be punished as such.
Another key provision is Statute 324.117 that addresses advertising properties for sale. Only licensed agents can advertise a property with the following key provisions:
The Kentucky Real Estate Commission (KREC) has also identified several vital legislative statutes that may be worth exploring. These include:
You don't need a license to wholesale real estate in Kentucky, but many people engaged in the practice decide to get licenses for various reasons.
Keep in mind if you do get a real estate license, you'll be operating under a somewhat different set of rules and regulations to remain in compliance with state laws.
Here are the key provisions for licensing:
Some of the more important things to pay close attention to include:
When you submit your application, you'll need to include a certificate of completion of the pre-license course, a copy of your high school diploma or a college transcript, proof of E & O insurance, and a license history if you've been an agent in other jurisdictions.
You must submit your completed application to the KREC within 60 days of passing both portions of your licensing exam. If you don't, then your exam results will be voided.
Also, national criminal history checks are valid only for 90 days. You must pass the exam and submit your application before the background check expires.
The initial sales associate license application fee is $130, paid when you submit your license application. Licenses are valid for two years, at which time they must be renewed.
Another thing to consider is that Kentucky real estate licensees must also stay current with continuing and post-licensing education. All sales associates licensed after January 1, 2016, are required to complete 48 hours of post-license education (PLE) within the first two years of obtaining an active license.
In addition, all actively licensed agents are required to attend six hours of continuing education (CE) courses sponsored or approved by the KREC. Also, Kentucky requires a state-specific continuing education course (the Kentucky Core Course) to be completed by all active licensees as part of their continuing education every four years.
You can see full licensing, education, and testing requirements by viewing Kentucky Real Estate Commission Statute 201 KAR 11:210. Licensing, education, and testing requirements.
Not only can you wholesale real estate in Louisville, but you should also be able to do quite well, given the region's demographics and economic vitality.
Keep in mind that real estate laws apply throughout the state, and there are no local statutes on the books that appear to be related only to Louisville.
With a population in the greater metro area of about 600,000 people, and 344,000 various types of housing units, this market is big enough to sustain quite a bit of wholesaling activity regardless of which strategy you decide to use.
If you're interested in wholesaling real estate in Louisville and you're new to the industry or to the city itself, you may want to do some online research. You can also think about connecting with what appears to be a vibrant and collegial group of people who already do wholesale deals in the area.
Kentucky is a diverse, affordable, and active state to wholesale real estate.
Pent-up demand is creating favorable real estate investment conditions for an active house flipper market. As the economy opens more amid recovery from the Covid-19 pandemic, consumer confidence will continue to rise, and opportunities to find attractive properties at or below market value should present themselves to wholesalers who are diligent.
Wholesalers who enjoy the flexibility and the potential for a low barrier to entry into this type of real estate business are poised to do very well throughout Kentucky in the coming months and years ahead.
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