If you’re seeking a rewarding career in real estate investing, you might want to consider the flexibility and creativity of starting a Louisiana wholesaling business.
There are several things to know, starting with the most basic of all questions.
Is wholesaling real estate in Louisiana even legal?
Here are some answers for you.
The key to wholesaling houses in Louisiana is that there are statutes and rules you must follow to comply with the law as set forth by the Louisiana Real Estate Commission (LREC).
You might find additional valuable resources to have your questions answered through the Louisiana REALTORS® Association or one of several other local Realtor associations where you live.
If you don’t, the fines and penalties can be onerous, creating legal and financial nightmares for you.
Fortunately, there are just a few key concepts you need to understand. Some of them depend on how you choose to pursue your wholesaling activities.
For example, in an assignment of contract deal, you are not allowed to market a property. Even though you have a signed agreement to purchase the property, you still can’t publicly market the actual property by any means.
To do so, you must be a licensed Realtor and have permission to market the property from the owner.
As a wholesaler, you can only market the rights you’ve obtained in a contract you have entered into with the seller. You can work through your existing network of pre-qualified buyers, your personal contacts, and others who come in contact with you through non-public means.
Although they are considered wholesaling activities, the Double Close and a Buy and Sell agreement is two separate transactions. While they may shield a wholesaler from revealing how much money they will make on a deal, they require deals to be funded upfront, meaning a substantial cash outlay may be required.
For all of these methods, you don’t need a real estate license. However, some people go through the extra effort and expense to give them more flexibility when structuring deals.
Another key is transparency. You must make sure you disclose your intentions as a wholesaler. This is just as critical as a buyer who must provide sellers with disclosures and contingency agreements that both parties may agree on.
As long as you abide by state rules and regulations, wholesaling is legal in Louisiana.
All real estate transactions are governed by rules and regulations set forth by the Louisiana Real Estate Commission (LREC) in Baton Rouge.
The LAC is published biennially and is current through the compiled date of publication, which may vary by title. The Louisiana Real Estate Commission Rules and Regulations are found in Title 46.LXVII: Professional and Occupational Standards.
The Louisiana Register is published monthly and contains rules and regulations that have been adopted, amended, or repealed after the most current LAC has been published.
Updates in the Register immediately become part of the LAC and are included in the specific title’s next compilation.
To wholesale properties, you don't need to have a Louisiana real estate license, but you must understand the limitations that you work under as a wholesaler.
The most important of these is that you can’t market an actual property if you want to assign a contract.
You can only market the rights to the contract assignment.
You are not allowed to engage in any public advertising, either online or in newspapers that directly publicizes the property or that it is for sale.
But you can work with your pre-existing buyer relationships, personal network and have private conversations with those who may want to cut a deal with you to have the contract assigned to them. There is a big difference!
As a wholesaler, you’ll collect a fee when you assign a contract. As a licensed Realtor, you will earn a commission when you sell a property.
Some wholesalers choose to become a licensed agent to avoid any potential constraints. Those who want to conduct real estate activity under the umbrella of a real estate license can make an application with the LREC.
There don’t appear to be any laws specifically on the books in Louisiana related to wholesaling, so you need to interpret existing general laws about real estate transactions instead.
For example, RS 37:1436 requires active real estate professionals to be licensed when engaged in real estate activities.
In part, the statute states, ”It shall be unlawful for any person, partnership, limited liability company, association, or corporation, foreign or domestic, whether pursuant to a power of attorney or otherwise, for a fee, commission, or other valuable consideration, or with the intention, in the expectation, or upon the promise of receiving or collecting a fee, commission or other valuable consideration, to engage in any real estate activity relating to any portion of a real estate transaction performed for another, unless exempted, as specified herein.”
That is why it is critical to engage in only marketing the assignment of a contract and not the actual property.
Penalties can be stiff for non-compliance.
“Whoever violates the provisions of this Section shall be guilty of a misdemeanor and fined not more than five hundred dollars per day of violation, beginning from five calendar days from service by certified mail of the cease-and-desist letter issued by the commission, or imprisoned for not more than three months, or both.”
Under RS 37:1446, brokers can also get into trouble if they pay non-licensed wholesalers a commission. As such, you must identify any payments as a fee for services.
By statute, the LREC can initiate enforcement actions on unlicensed persons as well. That is covered under RS 37:1459, which states in part, “the commission may issue a subpoena to any person or persons who the commission has probable cause to believe has engaged in real estate activity without a currently valid license.”
The statute also declares, “The commission may impose a civil penalty of no more than five thousand dollars upon any unlicensed person…”
These are just a few examples of the statutes and penalties that a wholesaler can face by not following Louisiana laws. That’s why, when in doubt, retaining an experienced real estate attorney is a wise move in all cases. You may also be able to get guidance by contacting a local real estate investors association.
Co-wholesaling involves partnering with one or more other entities to either do more wholesaling deals or bring added strength and skills to complete deals you may attempt to wholesale.
For example, a joint venture between partners may mean that one person actively searches for properties to place under contract.
The other partner may act as a lender or provide financing resources, legal advice, contract expertise, or other elements needed to facilitate the deal. That works well when one party has limited cash reserves or cash flow.
Often, the equitable interest in these deals is a 50-50 split. However, any terms can be put in place, depending on the nature of the relationship and what each party brings to the deal.
The key to co-wholesaling is to be transparent and identify all parties when drafting real estate contracts; otherwise, the steps and laws governing co-wholesaling are the same.
Reverse wholesaling means you have developed a cash buyers list and lined up buyers before you have found appropriate pieces of real estate. The steps are the same. It’s just the order that is different.
The state does not put restrictions on reverse wholesaling, other than those already in place regarding real estate laws in general for Louisiana.
As we’ve previously mentioned, there is a right way and a wrong way to wholesale real estate in Louisiana.
It may sound a bit simplistic, but following state laws and statutes is the right way.
Disregarding laws and statutes is the wrong way.
The vast majority of wholesaling deals use three methods for transactions. They are:
For an assignment deal, the key legality is that as a wholesaler, you do not market the property itself. This means you cannot promote the property online or in print advertising or you’ll run afoul of the law. To market a property, you MUST have a real estate license.
You are only allowed to market the contract you hold on the property. And to do this, you can only work off of your pre-existing buyers list, through your personal network, or through private conversations with others.
It’s also a wise and prudent idea to let the owner know you are going to market the assignment of the contract so that there are no surprises or adverse legal entanglements after the fact.
Many people choose to wholesale using the assignment method because it requires no money to complete the deal.
With a Double Close or Buy and Sell deal, you (or a partner if you’re co-wholesaling) must put up funds to complete the first deal, requiring more in-depth financial resources.
The trade-off is that you do not need to reveal how much profit you are making with these two methods because you are completing two separate deals. With an assignment, you must reveal how much your assignment fee is going to be.
There are many good wholesale deals to be found in the Louisiana real estate market, whether you’re looking to wholesale homes, apartments, commercial properties, or raw land.
You can get creative on real estate deals within the framework of state laws and build a lucrative wholesaling business with hard work and diligence.
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