One of the great things about working in real estate in Texas is that there are many ways to make money.
Many people become agents or brokers. But there are other alternatives, such as wholesaling properties.
However, before you consider wholesaling as an option, there is one basic question you need to have answered.
Is wholesaling real estate legal in Texas?
The most important thing to know about wholesaling is that you can get into a lot of trouble if you don’t know what you’re doing.
You must follow Texas laws and regulations that pertain to wholesaling.
All real estate transactions are governed by rules and laws set forth by the Texas Real Estate Commission (TREC).
The TREC shares staff and resources with the Texas Appraiser Licensing and Certification Board (TALCB), established as an independent subdivision of TREC in 1991 when federal law required increased appraisals regulation.
Together, they provide licensing, education, complaint investigation services, and regulation and enforcement of state laws and requirements that govern real estate matters.
Staying within the law framework, there are several ways you can structure deals as a wholesaler.
The most common ways are:
With some good old-fashioned elbow grease, creativity, and a dash of tenacity, you can become a wholesaler in Texas quickly and complete your first deal without a substantial initial cash outlay.
Wholesaling real estate is legal in Texas, as long you follow state laws and regulations.
You can wholesale houses, condos and townhomes, apartment buildings, mobile homes, commercial properties, distressed properties, and even raw land.
But there is a big difference between being an unlicensed real estate wholesaler and a licensed real estate agent or broker.
As a wholesaler, your goal is to find properties and match them to cash buyers, either by assigning a contract or facilitating a short-term sale that puts the property in the hands of the final owner, collecting a fee for your efforts.
As a licensed Realtor, your job is to market and attract buyers to a particular property, collecting a commission when the property sells, and the deal closes.
Wholesalers can get into trouble when they cross the line and market a property instead of marketing the rights to assign a contract for a property. That's why it's often advisable to seek out experienced legal advice, especially early on.
The legal issues are the same for a single wholesaling entity or multiple entities who want to engage in co-wholesaling.
As long as all parties are clearly identified and their roles in the transaction, there should be no issues with co-wholesaling deals in Texas.
If you think of wholesaling as a 1-2-3 process, then reverse wholesaling is more like a 3-2-1 process. You simply reverse the order that you put together wholesaling deals.
As long as you follow real estate laws and the individual steps involved in Texas wholesaling, you should encounter no problems when you reverse the order of those steps.
It’s perfectly acceptable to line up real estate investors first before you attempt to get a property under contract.
All you are doing is restructuring how you put a wholesaling deal together. Don’t deviate from accepted practices, and you will be fine.
There are several ways to legally wholesale real in Texas.
The three most common methods are:
With this method, you are a middleman who finds a willing seller and puts their home under contract. This gives you the right to assign the contract to a buyer, collecting an assignment fee for your efforts. An assignment does not cost you anything to complete the deal.
With the double closing method, you buy the property from a seller and then immediately sell the property to a real estate investment entity you have lined up, generally on the same day or within a few days of each other. The wholesale deal is facilitated with the wholesaler’s cash, private money lenders, or transactional funding.
As a wholesaler, you buy an investment property for an extended period of time, generally weeks or months. You make no improvements before selling to an end buyer, rehabber, or flipper at a later date.
It’s critical to do your due diligence and understand a few key legal points that often get people into trouble.
First, do not attempt to broker a real estate deal without a license. If you do not have a real estate license, the only way to legally wholesale property is to enter into a contract that gives you the legal authority to assign the contract. Do not attempt to actually sell the property.
You can work around this by getting your real estate license. But that does require a time and financial commitment, which may or may not be worth it, depending on your situation.
Also, you can’t publicly market a property you don’t own if you’re not a licensed Realtor. When you market the property to private investors, you must disclose that you only hold a valid contract on the property.
You can avoid the limitations associated with assigning a contract by doing a double close or a buy and sell arrangement. But that’s not always feasible for wholesalers.
No, you don’t need a license to wholesale real estate legally in Texas.
However, as a licensed agent, you won’t be bound by assignment contract limitations or how you can market a property once you have an agreement with the seller in place.
When you as an agent, you’ll collect a commission instead.
In 2017, Texas did tighten the law as it pertains to wholesaling without a license with the passage of Senate Bill 2212. It amended the Texas Occupations Code by adding Section 1101-0045 which became effective on September 1, 2017. Section 5.086 was also added to the Texas Property Code.
The key parts of those laws are:
(a) A person may acquire an option or an interest in a contract to purchase real property and then sell or offer to sell the option or assign or offer to assign the contract without holding a license issued under this chapter if the person:
(b) A person selling or offering to sell an option or assigning or offering to assign an interest in a contract to purchase real property without disclosing the nature of that interest to a potential buyer is engaging in real estate brokerage.
Before entering into a contract, a person selling an option or assigning an interest in a contract to purchase real property must disclose to any potential buyer that the person is selling only an option or assigning an interest in a contract and that the person does not have legal title to the real property.
In addition to what we’ve already covered, here are some important laws to note if you want to wholesale real estate in Texas.
Under The Real Estate License Act, a broker is defined as a person who, in exchange for a commission or other valuable consideration, or with the expectation of a commission or other valuable consideration, performs one of the following acts:
Between this and SB2212, a wholesaler must be as transparent as possible, making sure to fully disclose that they do not hold legal title to a property and offer only to sell the contractual rights to a property.
If you don’t follow the laws, you could find yourself in some considerable legal trouble.
Under Section 1101.758 of the Texas Occupations Code, a person who commits an offense of acting as a broker or an agent without holding a certificate can be prosecuted for a Class A Misdemeanor for each offense. If multiple Class A Misdemeanors are committed, a person can be charged with a felony.
The Occupations Code provides for civil litigation as well for these types of violations.
The TREC Enforcement Division protects consumers by enforcing The Real Estate License Act, Rules of the Commission, Chapter 1102 of the Texas Occupations Code regarding Real Estate Inspectors, the Texas Timeshare Act, and the Residential Service Company Act.
Conducting wholesaling business transactions is legal throughout the entire state of Texas.
If you’re looking for an added advantage in doing well as a wholesaler, look no further than Texas’s biggest metro areas.
Consider some key statistics of the state’s five largest cities:
Seven million people live in these cities, and that number doubles when you consider nearby communities and suburban sprawl.
More people means more wholesaling opportunities. Bigger metro areas also attract more buyers with deeper pockets, making it easier to put together deals.
Double-digit growth over the past decade also indicates a healthy demand for people looking to move into the areas.
To further validate the state’s economic health, take a look at the primary Realtors’ Associations for each of these areas. Check out home value trends, schools, neighborhoods, and other statistical data to acclimate you to regional wholesaling opportunities.
The great thing about wholesaling is that it is highly transferable, meaning you can find deals in every town and city in Texas.
What works well in one area of Texas also works well in another because laws governing wholesaling and real estate transactions are administered at the state level.
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