is wholesaling real estate legal in rhode island

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

legal real estate investing strategies wholesale real estate wholesaling real estate May 03, 2024

Explore the thrilling possibilities of real estate wholesaling in Rhode Island, a market brimming with lucrative opportunities for astute investors. However, a pressing question hovers over this exciting venture: Is wholesaling real estate legal in Rhode Island?" The uncertainty surrounding the legality often leaves many potential investors in the dark.

This article examines the legal framework, comprehensively examining the regulations, effective strategies, and crucial tips for navigating the Rhode Island real estate scene. Use the jump links below to unlock essential knowledge designed to empower real estate professionals and clarify the legal landscape:

*Before we begin our guide on whether wholesaling real estate is legal in Rhode Island, 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!

Wholesaling real estate has become a popular investment strategy for new and experienced investors. However, it is often preferred by beginners because, as a short-term strategy, it requires little capital investment. More specifically, investors typically only need an earnest money deposit held in escrow until the transaction is complete.

But, like all real estate investing, there are pros and cons to the practice and market factors that must be understood to be successful. One of the most important things investors can do to understand this exit strategy is to ask a specific question: Is wholesaling real estate legal in Rhode Island? If for nothing else, wholesaling properties in Rhode Island coincides with unique laws and regulations, not the least of which investors must be intimately familiar with.

What Is Real Estate Wholesaling?

Real estate wholesaling is an investment technique in which an investor (otherwise known as the wholesaler) enters into a real estate contract with a homeowner. The contract is designed to give the wholesaler the sole right to purchase the property; that's an important distinction to make. Wholesalers do not attempt to buy or sell properties themselves, but rather their rights to buy the properties. Consequently, when wholesalers are given the right to buy the property, they can transfer their right to an end buyer for a fee. The transfer is an equitable conversion, giving the investor the right to transfer their equitable interest to buy the home to another buyer.

Here's what a typical wholesale deal in Rhode Island looks like:

  1. Finding a home being marketed for a price below market value from a motivated seller.
  2. Contracting to purchase the property.
  3. Assigning the purchase contract to another buyer. End buyers are usually investors seeking rehabs or others who don’t want to find the properties themselves. By acting as a middleman, real estate wholesaling professionals can generate an income by helping real estate investors find and close potential deals.

The time it takes to execute the first contract and finally close is when property ownership becomes somewhat divided. During this time, the seller maintains possession of the subject property. Simultaneously, the buyer is awarded the contractual right to own the subject property if they complete and comply with the delineated terms within the purchase agreement.

At this time, real property is said to have dual ownership—legal ownership and equitable ownership divided between the seller and the buyer, as set forth by state law.

wholesale real estate contract pdf

The Current Rhode Island Real Estate Market

The Rhode Island real estate market has been on an upward trajectory for over a decade, with home prices experiencing significant growth. Since 2020, when the pandemic caused a surge in real estate values, the median home value in Rhode Island has soared by approximately 48%, according to Zillow. Today, the median home price in the state stands at $451,868, reflecting the robust and continually rising market conditions.

The primary reason for the surge in home values in Rhode Island is a significant inventory shortage. Typically, a balanced real estate market has about six months of inventory; however, according to the latest update from the Rhode Island Association of Realtors, Rhode Island currently has only about two months of inventory, underscoring the intense demand driving up prices.

Rising home values and low inventory levels create an ideal environment for real estate wholesalers. These conditions intensify buyer competition and urgency, allowing wholesalers to secure contracts at lower prices and quickly assign them for a profit due to the high demand and limited supply. All things considered, now is a great time to invest, which begs the question: Is wholesaling real estate legal in Rhode Island? Let's take a closer look at state laws and regulations to get you started wholesaling properties in Rhode Island.

What Do You Need To Know About Wholesaling Houses In Rhode Island?

Rhode Island offers a compelling landscape for real estate wholesalers due to its dense population and strong demand for housing in a state with limited space. The state's attractiveness is further amplified by its prestigious educational institutions, such as Brown University and the Rhode Island School of Design, which attract a steady influx of students, faculty, and staff. This academic presence boosts the demand for housing, creating numerous opportunities for wholesalers to engage in profitable transactions. Additionally, the vibrant, diverse communities across the state ensure a continual demand, making Rhode Island a prime market for real estate investment and wholesaling.

Due to the state's dense population, authorities have established several organizations to govern real estate law and regulations. Many of these professional organizations are members of the National Association of Realtors (NAR). In other words, here's who you want to turn to when asking, "Is wholesaling real estate legal in Rhode Island?":

  • The Rhode Island Association of Realtors (RIAR): Founded in the late 1940s, the RIAR is among the largest trade organizations in the state, with more than 6,000 professional members. The Rhode Island Association of REALTORS offers property owners and professionals a forum for professional development and a voice for the state’s real estate market.
  • The Greater Providence Board of Realtors (GPBOR): Founded in 1907, the Greater Providence Board of REALTORS® is one of Rhode Island’s largest membership organizations, serving several thousand real estate and appraisal professionals. The GPBOR is a charter member of the NAR.
  • The Kent Washington Association of Realtors (KWAR): The Kent Washington Association of REALTORS’ mission is to provide necessary resources and support services that help professional members maintain the required high standards of integrity and professionalism while protecting the public.
  • The Northern Rhode Island Board of Realtors (NRIBOR): Chartered in the early 1920s, the NRIBOR is a professional trade organization serving the communities of Central Falls, Woonsocket, Pawtucket, Cumberland, and North Smithfield. The NRIBOR seeks to advocate for property owners and real estate professional community members and provide the tools required to support their success.
  • The Newport County Board of Realtors (NCBR): Founded in the late 1950s, the Newport County Board of REALTORS has served Newport County for over five decades. Its mission is to promote high conduct standards that serve professionals and area homeowners.

The Rhode Island Real Estate Commission (RIREC)

The RIREC is the state agency tasked with managing real estate activities and licenses of each real estate agent across the state. As a result, it is a great source for anyone asking, "Is wholesaling real estate in Rhode Island legal?"

The RIREC is housed in Rhode Island’s Department of Business Regulation. The commission's duties are authorized in Title 5, Chapter 20.5-12 of the Real Estate Brokers & Salespersons’ legislature. For the provisions of this statute, the term "real estate" is defined as and "includes leaseholds as well as any and every interest or estate in land, whether corporeal or incorporeal, freehold or non-freehold, and whether the property is situated in this state or elsewhere."

There are three categories of real estate licenses in Rhode Island, which are also defined in Rhode Island law § 5-20.5-1. Definitions:

  • Real Estate Salesperson: "Includes any person employed or engaged as an independent contractor by or on behalf of a licensed real estate broker to do or deal in any activity as included or comprehended by the definitions of a real estate broker in subsection (5) of this section, for compensation or otherwise."
  • Associate Broker: "Any licensed real estate broker employed or engaged in independent contractor by or on behalf of a licensed real estate broker to do or deal in any activity as included or comprehended by the definitions of a real estate broker in subsection (5) of this section, for compensation or otherwise."
  • Real Estate Broker: "Includes all persons, partnerships, associations, and corporations, foreign or domestic, who or that for a fee, commission, or other valuable consideration, or with the intention of expectation of receiving or collecting a fee, commission, or other valuable consideration, lists, sells, purchases, exchanges, rents, leases, prepares an opinion of value, or auctions any real estate, or the improvements on real estate including options or who negotiates or attempts to negotiate any such activity."

Additional license requirements may be found in Section 5-20.5-6 of the state legislation. Licensees in Rhode Island will find these license renewal terms, such as applying and paying the appropriate fee, renewing every two years, and timely renewal, which may result in disciplinary proceedings for failure to renew.

It is also important to understand who is not required to be licensed in Rhode Island, such as a lessee or lessor or any person who seeks to acquire, lease, rent, sell, or deal in real estate that has been or will be used or held for investment.

The statute specifically notes that a license is not required for anyone who, for investment purposes, acquires, rents, sells, or deals in real estate. [See Persons Exempt 5-20.5-2(2)]

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Rhode Island Real Estate License Reciprocity

Rhode Island law § 5-20.5-10 (for nonresidents) includes a real estate broker who conforms to all the provisions of this chapter. That said, there are specific reciprocity requirements for salespersons residing in the neighboring states of Massachusetts or Connecticut. More specifically, "once you earn your Rhode Island real estate license, you can apply for the Massachusetts and Connecticut real estate license," according to the Real Estate Institute of Rhode Island.

Who May Close Real Estate Transactions In Rhode Island?

In May 2020, the Rhode Island Supreme Court issued a ruling requiring whether a residential closing—at least purchase and sale transactions—is considered the practice of law. This ruling did not explicitly address the closings of refinances and allowed non-lawyers (not representing a party to the contract and not offering legal advice, among other requirements) to close the transaction.

Read Also: How To Wholesale Real Estate In Rhode Island: Step-By-Step(2024)

Wholesaling real estate is indeed legal in Rhode Island, provided that the wholesaler adheres to the state's real estate laws. In this process, wholesalers enter into a contract to purchase a property, thereby acquiring 'equitable rights' as defined by the terms of the purchase agreement. Essentially, Rhode Island real estate wholesalers operate similarly to intermediaries in other sectors, legally facilitating transactions as long as they comply with Rhode Island's licensing laws.

Once the purchase agreement is in place, wholesalers can assign their 'buyer’s right to purchase' to another buyer, often a cash buyer, if the wholesale real estate contract allows for such assignments. While most real estate contracts are initially assignable, sellers or their agents may modify these terms.

It's crucial to note that the only asset a wholesaler can legally sell is the rights and obligations specified in a fully executed purchase agreement. Wholesalers should consult with a Rhode Island real estate attorney for best business practices and to address any legal queries or concerns.

What Are The Wholesaling Laws In Rhode Island?

Real estate license law in Rhode Island does not explicitly address wholesaling per see, but there are two statutes worth looking at:

  • Chapter 5-20.5: Rhode Island General Law – Real Estate Brokers & Salesperson
  • 230 – RICR-30-20-2: Licensing and Conduct Requirements of Real Estate Brokers & Salesperson

These two statutes require licenses under these circumstances as stated in § 5-20.5-1.

Note that Rhode Island’s consequences for violating a provision of the Real Estate Brokers & Salespersons statute, as stated in § 5-20.5-17, are as follows: Penalties for violations are punishable by a fine of not less than one hundred dollars ($100), imprisonment for a term not to exceed one year, or both.

Do You Need A License To Wholesale Real Estate In Rhode Island?

No, real estate wholesalers in the state of Rhode Island will not need to be licensed by the Real Estate Commission if their actions stay within the legal confines of Rhode Island law. However, following these suggestions will help wholesalers avoid legality issues in the state:

  • The wholesaler’s actions should always be transparent and reflect its integrity. Ensure that the contract is smartly worded to avoid potential issues.
  • Always act as a principal buyer or seller in the transaction. This way, you'll fall under Persons Exempt from licensure according to §5-20.5-2(2) of Rhode Island law.
  • The wholesaler must appropriately manage the seller’s expectations.
  • Don’t market/sell the real property.
  • Do market/sell your equitable right to purchase real property.

To be clear, you do not need a license to wholesale properties in Rhode Island, but if you have one, you must disclose as much. Full transparency is essential for abiding by the real estate laws in Rhode Island.

Wholesaling real estate in Rhode Island

The Double Close

The most direct way to avoid violating license law in Rhode Island is to complete the transaction by using a double close. As its name implies, a double closing consists of two closings, which may occur back-to-back.

In the first closing, the wholesaler is the buyer. In the second closing, the wholesaler becomes the seller. The difference that exists between the first and second sale price is the wholesaler’s assignment fee or gross revenue.

Although more circumspect, the double close includes double closing costs. Astute investors would likely agree that the extra costs to close are well worth it due to the protection offered by this closing method.

Read Also: How To Become A Real Estate Agent: The Ultimate Guide

Final Thoughts

Is wholesaling real estate legal in Rhode Island? Yes, wholesaling in Rhode Island is legal, provided that the laws are carefully followed. Key among these is the law that permits wholesalers to assign their rights to purchase a property to another buyer. Adhering to this and other relevant statutes allows wholesalers to operate legally and successfully within the Rhode Island real estate market. That said, properly trained can simultaneously increase their success rate and operate within Rhode Island laws.

*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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