Is Co-Wholesaling Legal?
There’s a new strategy which has been quietly and gaining a lot of attention in real estate. It’s called co-wholesaling.
For some it may seem like the ultimate and perfect model for hitting their financial goals, and enjoying the journey at the safe time. As with many new real estate concepts, there are also those warning to stay away from what may be illegal activity. So, is it legal? Can you use it? If so, what best practices can keep you safe?
What is Co-Wholesaling Real Estate?
Real estate wholesaling differs from house flipping in that investors typically don’t remodel or make improvements. They simply find undervalued and discounted property opportunities, and flip them for a profit to someone else as-is. Often this is a rehabber or rental property investor who will polish it and lease or resell to a retail buyer.
Reverse wholesaling is a variation of this strategy in which investors first find their end buyers, and then fill orders for inventory by going out and finding the property deals.
Co-wholesaling is essentially a collaboration or partnership of two investors who work together on wholesale property deals. This can be a one of arrangement, or an ongoing relationship. One in which these investors work together to find and resell wholesale properties.
Why Consider Co-Wholesaling?
There are many potential benefits of co-wholesaling, including:
- Leveraging others’ experience, time, resources and connections
- Gaining a partner along for the journey
- Gaining a mentor, or apprentice
- Scaling your investments and deal flow
- The ability to focus on your strengths
- Finding more profitable deals
While you can simply team up with someone else and go to work finding and reselling deals together, it is more common, and perhaps more practical for investors to look for a co-wholesaling partner who complements their skills and mastery, by bringing in someone who is stronger in other areas. For example; one investor specializing in finding and contracting the deals, and the other having a string database of qualified and interested buyers.
Finding Partners to Sell Your Product
If you have been doing well at finding wholesale properties, and signing them up, then you may benefit from a partner who has buyers on hand. That would allow you to focus on keeping on kicking up the deals, signing them, and scaling your system, with a partner helping with the exits. You get to devote your resources to one part, where your strengths are. That can help you double your deal flow, or more.
You may look for partners to promote and sell your properties among those who:
- Already have active real estate buyers
- Have large social media followings
- Operate successful and well trafficked real estate blogs
- Are investment advisors
- Are relied on for their investment tips
Finding Partners with Inventory
If you already have a good group of buyers, or potential buyers, you may only be capped by the amount of inventory you can serve them. Partnering with those who are great at producing consistent deal flow can help scale your income and ability to serve your database, while leaving you free to work on the things you love most.
Look for potential partners by:
- Finding wholesaler websites
- Connecting in online forums
- Networking with Realtors
- Contacting those sticking out “we buy houses” signs
- Responding to Craigslist ads
The Legalities & Staying Safe
So, co-wholesaling sounds great, right? Is it legal?
As with flipping houses, seller financing, being a Realtor or wholesaling; it is really all about how you do it. You can break the law in anything you can do. Or you can stay within the lines.
You have the right to buy and sell property. You can legally partner with others to do that. Done right, wholesaling is perfectly legal. As is assigning contracts or back to back closings. You do need to be careful not to be engaging in activities which require a license that you don’t have. In most states that is acting as a Realtor, and marketing other people’s properties as an agent.
Keep it clean and stay protected by using a co-wholesaling joint venture agreement. Put it in writing, and if you are uncertain, have your attorney review it and give you the greenlight.
