As a beginning real estate investor, you might wonder whether you need a license to wholesale property. In fact, for those who are still learning the wholesaling process, this investment strategy seemingly describes the job of a real estate broker. After all, brokers simply bring two parties together. There’s someone looking to sell a property and another looking to buy. Yet, the role of a wholesaler is a little more complex than simply finding a property buyer and seller.
A real estate broker represents a buyer, a seller, or both parties and facilitates the property sale. However, a real estate wholesaler either takes ownership of a property outright or receives contractual rights to purchase a property. It’s this distinction between a wholesaler and a broker that explains why most states do not require investors to have a wholesale real estate license. Let’s break it down a little bit. Here’s why most wholesalers don’t require licensing, how to decide if you should get a license regardless, and who to ask for clarification on wholesaling laws in your state.
How Agents and Wholesalers Differ
There are two ways to complete a wholesaling deal. The first way is to put a home under a purchase contract. Doing this would make you a contract buyer. In most contracts, you can sell or assign the rights to purchase a property to another party. When you sell and assign a home buying contract to someone else, you complete the role of a property wholesaler.
The second way to make money as a wholesaler is by closing on the purchase contract, and then selling title to the property. In this case, you take ownership of a property and sell that property to another party for a higher price. Therefore, you’re not just selling a contractual agreement. Instead, you’re both the buyer and the seller of a property, even if you only own title to the home for a short period of time.
Thus, you earn money for either selling contractual rights to purchase a property at an agreed price, or you buy a property outright and sell it for a profit. These processes are legally different from facilitating a real estate transaction to earn a commission. Whereas a real estate agent represents one or both parties to earn a fee, a wholesaler on the other hand exercises the rights to either assign a legal purchase contract or sell their own property. These actions generally do not require a real estate license to perform.
Should Wholesalers Hold Real Estate Licenses?
Another question you might wonder is whether you should hold a real estate salesperson license as a wholesaler. There are certainly pros and cons to holding a license. In most circumstances, it’s a personal decision that depends on what your goals are. However, there is one case where you might need licensing to be a real estate wholesaler, and that’s if you live in Illinois.
Now, before explaining specific state laws, it’s important to discuss real estate wholesaling with an attorney in your area. There are no federal wholesaling regulations, so your personal licensing requirements depend on your state laws. Subsequently, laws change frequently. Hence, you should always have an investor-friendly real estate attorney that can advise you. To return to the subject, here are a few situations where you may want to get your real estate license.
Reasons To Hold A Real Estate License
First, because it’s a state requirement
In 2019, Illinois enacted a law requiring anyone that conducts more than one wholesaling deal a year to have a real estate license. So far, no other states require licensing, but this might be the beginning of new regulations. When you have a license, you’ll always know that you meet the requirements for your area in the event that your state laws ever change.
Second, when you don't mind spending more money and time
Real estate wholesaling is appealing because it doesn’t require a significant investment of time and money to begin. With that said, if you don’t mind spending money on courses, exams, brokerage fees, and other costs, then you might want to get licensed.
Third, when you want the benefits that come with being a licensed agent
Agents and brokers have access to property databases, attorney approved contracts, and real estate professional networking events. Whether these matter to you depends on the support system you need to work efficiently. Having your license makes it easier to learn about selling real estate and connect with other professionals.
Finally, if you're fine disclosing that you're a real estate agent
When you’re an agent, you need to follow certain rules. Disclosing that you’re licensed whenever you purchase or sell a property is one example of many. It’s not likely that wholesale deals fall through because you’re a licensed agent, however, it’s not unheard of. Some people would simply prefer to work with those that are not licensed.
Can You Be Successful Without A Real Estate License?
In conclusion, in most cases, you will not need a license to begin wholesale real estate investing. There’s no question that with dedication and hard work, you can be successful without a wholesaler real estate license. So, are you ready to start investing in real estate? Don’t leave before getting a copy of Achieving Wealth Through Real Estate, which details the step-by-step process of profiting as a real estate investor. Download your copy of this helpful eBook while it’s still available for free.