Should real estate wholesalers operate with or without a real estate license? There are a lot of mixed opinions about this, and legality varies by state, but as long as you make sure that you abide by the law, you may not need to have a real estate license to wholesale properties. Let’s look at some of the pros and cons of acquiring a real estate license, as opposed to operating as a real estate wholesaler without one.
Benefits of Wholesaling with a Real Estate License
May offer increased credibility with sellers, buyers and associates in the industry.
Gets you access to the Multiple Listing Service (MLS), although most wholesale deals are done on off-market properties, meaning you won’t find them listed on the MLS.
You could use your RE license to earn additional income, if you want to earn commissions on selling properties, but this is a whole different beast to wholesaling, so ask yourself – do you want to be a real estate agent, or a wholesaler?
Being a licensed agent also serves as a good starting point when growing your network, by giving you the chance to connect with brokers and agents, who could potentially bring you future wholesale deals. This is also a great way for beginners to learn more about the ins and outs of the industry.
Not worrying about state requirements which the number of annual transactions you can do without a license.
Drawbacks of Wholesaling with a Real Estate License
Acquiring a real estate license requires ongoing time and money.
Bear in mind that if you’re a licensed agent, you can only work if you’re employed by a brokerage, which means that they are entitled to a commission from each sale you make. What’s more, being part of a brokerage means you’re limited by the policies set out by the firm, and therefore you might not be able to conduct business in the same way that you would independently.
By law, you are also required to disclose that you are a licensed agent, which could negatively impact your ability to source deals and put you at a disadvantage, when compared to an unlicensed wholesaler. This isn’t necessarily always the case, but it’s worth being aware of.
Potentially getting fined, or worse, for exceeding state limitations on the number of annual transactions one can do without a license.
Regardless of whether you decide to operate as a wholesaler with or without a real estate license, there are certain risks you should always be aware of. To safeguard your credibility, as best practice, it’s always important to carry out proper due diligence by staying informed about your state laws. We highly recommend consulting a real estate attorney for their legal opinion. Also, be extra mindful of the language you use when sourcing deals and marketing them, so that all parties involved understand what your participation in the transaction is.
Land leasing is a good option for achieving long-term returns on your investment
Land is a form of real estate often neglected by wholesalers. Most wholesalers flip properties, but flipping undeveloped land has unique advantages of its own. It requires less upfront capital, and there is less competition.
The typical land wholesaling model is the same as property wholesaling: you enter into a contract with a motivated seller to purchase the land below current market value, and then either flip the land or sell the rights to the purchase contract to a third party for a profit. But one added benefit of land wholesaling is there are options to further increase the value of raw land while you have it under contract, by subdividing it into multiple parcels or applying for a change in zoning.
Rezoning to Add Value
Rezoning, or changing the use district of a particular parcel of land, is a common way to increase the value of non-residentially zoned land. By changing the use district of industrial or agricultural land to residential or commercial use, you can increase the value of your land by anywhere from 100-400% of its original value. You don’t have to own the land outright to apply for rezoning – just make sure that rezoning is permitted in your contract with the seller if you intend to change its use district before flipping it.
The process of applying for rezoning can take a few months or up to 2-3 years, and in addition to meeting all the requirements set by your local authority, it’s also important that you research and understand your city’s plans for development in the future. For example, changing from a residential to commercial use district could either increase or decrease the value of land, depending on whether or not the city has plans to prioritize commercial development in that area in the coming years.
Splitting Parcels
Subdividing land, or splitting a single plot of land into two or more parcels, can increase the value of land and the total amount of rental income you receive from it. Legally subdividing a property can be a lengthy process – it usually takes several weeks or months from start to finish, and will require that you submit an application to the local authority for approval. You also have to take into account the zoning restrictions and specific rules in your area (such as the minimum permitted plot size) when splitting your land into parcels, and will need to hire a surveyor to plat the land. Usually it costs between $1,000-$3,000 to subdivide a piece of land into two parcels, but the benefits of doing so can be considerable. Smaller parcels are more affordable, and thus appeal to a larger number of buyers and tenants, and it’s possible to increase profits on a single piece of land by as much as 100% when selling or renting it out as two smaller parcels.
As long as it’s permitted in your contract with the seller, you can subdivide land while still under contract, but you will need to close with the seller before selling the individual subdivided parcels outright. The major benefit of this wholesaling strategy is that you can subdivide a plot into 4 parcels, for example, and sell 2 of them outright, leaving you with 2 parcels that you own free and clear.
Don’t be scared off if you find a great piece of land to wholesale and you’re worried it will take too long to rezone or split. Instead, negotiate with the seller on a longer purchase contract as it doesn’t hurt to ask. If that doesn’t work, you can also try more of a partnership agreement with the seller, where you do all the work and then split the profits.
How to Monetize Undeveloped Land
Once you’ve sold some of your subdivided parcels and closed the contract on a land wholesale deal, you can sell the remainder of the parcels outright, or monetize them in other ways.
Developing raw land yourself can be a costly and time-consuming process which may not be feasible for wholesalers operating in different states. There are other ways you can generate income from land without having to develop it. These options do take more time and energy than simply selling your land immediately, but the result is higher profits on each plot you own in the long term.
Rent your land to a small business venture
Land leasing is a good option for achieving long-term returns on your investment. If you market your property to the right audience, you’ll find there are a whole range of unexpected business plans which only require raw land to get started. Archery ranges, escape rooms, and drone race tracks are just a few examples of businesses that will pay to rent land, even without any structures or facilities in place. These businesses generally require plots anywhere from .2 – 3 acres in size, so even if you don’t have a huge amount of land, this can still be a viable option for you.
Put up a parking lot (without paving paradise)
Having a parking lot can be an inexpensive way of monetizing your land. Even if your land isn’t near a very transited area, you shouldn’t necessarily discard this option.
Try to think of who may have parking needs and may want to pay lower fees than those charged in downtown areas. A perfect example would be truck, bus and coach companies, since these usually prefer inexpensive options to keep their vehicles overnight, as opposed to expensive central locations. For some of these clients, you won’t even need to pave the land, and they usually pay somewhere around $10 per vehicle for parking overnight.
Rent-to-own
Rent-to-own is a type of transaction in which the tenant is given the opportunity to buy the property outright after a maximum lease period of 5 years. The tenant usually pays you an initial deposit of 3-5% of the property’s value as a purchase option. A portion of the monthly rent then goes towards the purchase price of the land, and after the initial leasing period, the tenant can exercise the purchase option. If they choose not to proceed with the purchase, you can begin the process over again with a new tenant once the agreement ends. It’s also possible to monetize land using a lease-to-own agreement while you still have the land under contract. With a sandwich lease agreement, you can sign a lease-to-own contract with the seller, then sign a separate lease-to-own agreement with a tenant-buyer of your own, who pays a higher rental rate. Once the lease term concludes, you can complete the agreement with the seller and close the deal with your tenant-buyer.
Partner Up!
If you’ve got a free and clear piece of land, it’s an asset, that like cash, you can invest in a deal. In this case you can put up your land as your part of an investment in a new construction or development project. Look for active builders and developers in the area of the land and see what they’re interested in doing.
If you subdivide into parcels, wholesaling land could lead to you owning some plots essentially for free. Whether you decide to sell these outright or pursue a long-term monetization strategy for the land you own, any revenue you receive will be 100% profit, and that’s perhaps the biggest advantage of the land wholesale investment model.
How to market deals without large adcertising budgets?
The two most important skills that real estate wholesalers can have are sourcing great deals on properties for sale and finding solid buyers for their purchase contracts. In order to maximize the number of potential buyers you reach, it’s therefore crucial to know how to advertise contracts for sale in an efficient way (without running into any legal issues).
Wholesaling itself is legal, but keep in mind when marketing your deals that selling someone else’s property without a license is not permitted in many states. You should always make it clear in all marketing materials that you are selling a purchase contract, not the home itself, otherwise you could run into legal issues. If you’re unsure, talk to a specialist real estate lawyer to make sure you are doing everything above-board.
With that in mind, here are some of the best ways to market wholesale deals to potential buyers without the need for a large advertizsing budget:
Networking Events
One of the best tools a wholesaler can have is a great network of potential sellers and buyers. When you have an extensive network, you open up greater possibilities for word-of-mouth advertizsing. Up to 50% of word-of-mouth referrals lead to a successful sale, which makes it the most powerful kind of marketing, and what’s more, it costs basically nothing.
Going to local networking events is a great way to meet people in your area who could one day become your customers, or help bring you potential leads. You can find networking events taking place in your city on Eventbrite.com or Meetup.com.
You could also consider joining industry-specific groups, like your local REIA, or a business club, such as Business Network International (BNI). Alternatively, there are also one-off real estate industry events which you could attend to find buyers and sellers in your area.
Linkedin
Linkedin has become an essential online marketing tool for sourcing leads and generating sales across a variety of industries. Its free version allows you to filter searches based on a person’s type of job, position, location, company size, and more, meaning you can target your marketing messages at potential buyers in your area.
Linkedin allows you to send a connection request with a message to those who fit your target customer profile. If you don’t have enough time to sift through hundreds of professional profiles and contact them individually, don’t worry – there are many tools, such as Scrab.in, which you can use to automate your marketing efforts through Linkedin.
Cold calls
You may think cold calling sounds fairly last century, but the truth is that cold calls are still an effective marketing technique – although less effective than referrals, cold calls still have a 2% successful closing rate.
If you’re nervous about the idea of calling up strangers, there are tools you can use to send potential customers a ringless voicemail instead, meaning you won’t have to speak to leads one-on-one until they call you back and express interest in the property. You can find contact details for your target market by using paid tools, like Skip Trace Lists.
Social Media
Social media is one of the best options for marketing wholesale deals, because it provides a huge potential reach and requires less time and effort than other forms of advertizsing. You can upload a description of the deal and pictures of the house to attract buyers, while also helping you build visibility for your company or personal brand. Having a dedicated Facebook, Instagram or other social media page to promote your wholesale deals will also make you easier to find for buyers searching for homes in your area.
In wholesale deals, communication is key when dealing with both the seller and the buyer, so always communicate clearly and honestly about the fact that you intend to market the property deal. When advertizsing deals, you should disclose the current state of the property, and provide an estimate on any necessary renovation costs, as well as the estimated property value after repairs.
The kitchen and bath may entice your potential tenants, but offering a beautiful, inviting outdoor space can be the tipping point for a place they’ll want to call home. The cost of beautifying a property varies greatly depending on the scope of the job and materials used. Since your rental property is a source of income, any expense must justify itself with a return on its investment — resist the urge to over-decorate. If you’re working with a limited budget, there are inexpensive landscaping design concepts to make the area more attractive.
Declutter the yard
Costing you not much more than your time, this is one of the easiest and cheapest way to spruce up your yard. Merely pulling some weeds and removing any dead or overgrown vegetation can freshen up the yard’s look. This may be all you need, but if you decide some landscaping is in order, you’ll have a clean palette to work with.
Outdoor Lighting
On a warm, sunny summer’s day, the outdoor area may look fine, but after sunset, it may lose some its charm. To experience what your tenants will encounter while enjoying a starlit nightcap, stop by the property in the evening and see for yourself. Is it inviting and attractive or boring and unfriendly? Landscaping lighting fixtures not only bring a dramatic look to the yard, but they can also double as an added security measure. There are several options that can brighten a drab looking space. For the garden, spiked lights can illuminate boundaries and walking areas, while providing a pleasant accent. Depending on your budget, spiked lighting can be hard-wired, battery-operated or solar powered. Another inexpensive alternative is tiki lights or string lighting with a timer or photosensitive switch. Easy to install, they can be strung through trees, from eaves or over patios or decks to highlight the space while providing a warm glow.
Paving Stones
If the outdoor area is small and/or receives limited sunlight, trying to maintain a lush lawn will become an effort in futility. Installing stone pavers will eliminate any dry or muddy dirt patches, instead turning it into an appealing useable patio area. After properly leveling the pieces and filling in the cracks, you’ve got yourself a multi-season functional outdoor space.
Flower Boxes
Flowers brighten even the most boring spaces by adding color and vibrancy, but unless you want to spend your time gardening, they aren’t always the best choice for a DIY landlord. If you insist on flowers for the yard, but don’t want the maintenance headache, incorporate flower boxes into your design. They are cheaper and require much less work than traditional flower beds — virtually eliminating the need for weeding. You can use old care tires or recycled wood for rustic DIY feel. For a bit more pizzazz, paint the rubber or wood frames to add color to your outdoor space.
Ornamental Grasses and Evergreen Foliage
Perennial ornamental grasses are versatile and incredibly inexpensive as compared to other flowers, trees or shrubs. Ornamental grass is super low maintenance, while adding lots of color and texture. Evergreen vegetation, such as small trees, bushes or shrubs add a dynamic that most tenants will enjoy. They require very little maintenance while producing a warm, plush setting with just an occasional trimming. Though most grasses and evergreen plants will thrive from direct sunlight, most will do just fine in partial shade. Plant or pot them near the patio, along walkways or fence lines for privacy.
Disregarding the outdoors can cost you with fewer walk-throughs and potentially excellent renters. Even if your property is a drab, concrete jungle, there are inexpensive, low-maintenance landscaping ideas to add color and character to the yard. Potential tenants might love the kitchen, but if the outdoor space looks like an abandoned graveyard, many will consider alternative properties. Renters shop on emotion, so if the space makes them “feel good,” that might be all you need to snag yourself a long-term tenant.
Being a successful property wholesaler is contingent upon not only locating a viable property, but more importantly, being able to find an end buyer – and quickly.
Whether you’re assigning contracts or double-closing, you want to move the property as quickly as you can. There’s no point in getting into a property if the potential for getting rid of it quickly is low. Your buyers list can be an invaluable part of your business. It provides the ability to contact serious, interested parties, as opposed to blindly cold marketing wanna-be investors. Since your buyer’s list is your lifeline to steady profits, you need to know the essential details regarding your properties, as well as the needs of your potential buyers.
What Is a Buyers List?
Your goal as a wholesaler is to contract properties below market value and then, as quickly as possible, pair that property with a buyer. Starting your search for an end buyer after you’ve got a property under contract will only eat into any profits by accumulating holding costs. Often, you may be forced into buying the property yourself. A buyers list is your inventory of real investors who you can contact to offer your wholesale properties. Building a useful buyers list can take some time, so networking is key. To help grow a list, start associating with real estate professionals, entrepreneurs, and investors. Many communities have an REI club, but you can make connections through other channels such as online real estate forums, Craiglist, Facebook, property auctions, networking events, or from the bandit signs you’ve placed.
Organize Your Buyers List
For your list to be useful, it should be kept organized and updated, prioritizing the most serious buyers or the ones most likely buy based on a set of parameters. Keep contact info current, take notes about the neighborhoods or property types buyers contacts on your list are looking for, so you don’t waste time and energy contracting houses you won’t be able to assign. Nor will you be trying to sell them a property that doesn’t interest them. Using a customer relationship management system (CRM) is an effective way to compile pertinent information across several channels, including social media. By analyzing the information in a CRM, you’re able to present properties to the investors most likely to buy, before resorting to emailing your entire list.
Educate Your Buyer
Understanding the wants and needs of the investors on your list will save you and your buyers time. Property investors are busy and don’t want to be bothered with every contract you’re trying to assign. When looking for properties to wholesale, you should have a buyer profile already in mind before closing the deal. If you think a property will suit a buyer from your list, present them with a concise package, don’t just bombard them with tons of information or data that they’ll have to crunch themselves. Provide vital information first, such as location, terms of the deal, property photos, a list of expected repairs, and estimated ARV. If, after a quick review, there is something that piques their interest, you can delve into more specific details.
To be a successful wholesaler, you should have a reliable buyers list at your disposal to effectively market any property under contract. Not all buyers on your list will be interested in hearing a sales pitch for all houses you’ve got under contract. Keeping your buyers list loaded with dependable contacts and updating it as needed will help you move those properties quickly to keep the
We all know that paying taxes is an unavoidable expense of doing business, so protect the profit margins on your rental property by taking advantage of any and all tax deductions available to you. All of your expenses considered to be ordinary and necessary to run your business are deductible as per the tax code. As the tax laws are continuously changing, make sure you consult a tax professional before filing your return.
Here is a list of some of the most impactful tax deductions:
Interest on Loans
Your rental properties are likely some of the most expensive assets you own. So, unless you own them outright, you’re paying a significant amount of interest for your mortgage. In addition to your mortgage interest, you may also deduct other interest for loans to make improvements or other business-related activities.
Depreciation
You’re allowed to deduct ordinary business expenses for the tax year in which they occur on your annual return. However, the tax code does not permit large capital expenditures to be deducted all at once, those large purchases need to be depreciated over an extended period of time. The tax code allows for the purchase price of your rental property to be depreciated over 27.5 yrs.
Repairs and Maintenance
Any repairs you make to your property are fully deductible for the tax year in which they occur. It’s worth pointing out that repairs are not the same as improvements. For clarification’s sake, a repair is an expense you incur to fix something you already own that is broken and/or is not operating correctly. For example, a burst pipe or a new thermostat for the HVAC system.
Capital Improvements
Any improvements, or other large purchases, you invest in for your property are not deductible for the year in which they occur. As mentioned above, repairs and improvements are distinctly different. The IRS mandates that capital improvements and restorations be depreciated per guidelines according to their natural, expected usable life. These types of expenditures would include a new roof, laundry equipment, and structural renovations.
Meals & Entertainment
If you meet someone for coffee or a meal to talk about your business, the cost may be tax-deductible. Just be sure your tax preparer knows about the new restrictions about expenses with clients versus staff.
Education
Any business-related book or program you buy probably qualifies as a business tax deduction.
Office Equipment, Services & Supplies
Don’t forget about these! Any application you buy or subscribe to, paper, toner, etc. may qualify as a tax-deductible business expense. Part of your computer/printer and cell phone (both purchase price and monthly service) expenses may qualify.
Travel Expenses
You can’t expense your drive into work every morning, but you can deduct work-related travel and maintenance. If you have a dedicated work vehicle, you can deduct the payments, gasoline, insurance, registration fees, and mileage. To make keeping a log easier, download an app, like Everlance, Stride, or TripLog to track your mileage and/or travel expenses, many offer a freemium option until you decide to spring for the full package. You have the option to deduct actual expenses incurred or use the IRS standard mileage rate. For 2019, the standard business mileage rate was $0.58 per mile.
Pass-Through Deduction
Congress enacted the pass-through deduction as part of the Tax Cut and Jobs Act in 2018. It is currently set to run through the end of 2025 unless re-enacted by Congress. This generous deduction allows you to deduct 20% of your income or 2.5% of your investment PLUS 25% of employee wages. Pass-through businesses are ones in which the business entity pays no tax, but instead the earnings “pass-through” to the owner(s) who pay the taxes on the personal tax returns. To meet the requirements of the pass-through deduction, you must operate your business through an approved legal entity such as a: sole proprietorship, S-corp, limited liability company (LLC), limited liability partnership (LLP), or partnership.
Home Office
Small business owners and DIYers often devote space in their home for use as a home office. If you use the space primarily for conducting business, you can deduct associated expenses. The tax code permits you to write off prorated expenses for the mortgage interest, insurance, taxes, maintenance, and utilities.
Overall, be careful about proper documentation to keep your personal and business expenses separate. This can be as easy as using one of your personal credit cards ONLY for business expenses. Otherwise, you may be increasing your chances of an IRS audit.
Operating a DIY rental business is difficult enough without the IRS taking their chunk every year, you need all the breaks you can get. Luckily, by running your rental business, you are authorized to benefit from these and many other tax deductions, but it’s vital to keep accurate records for all business transactions. It’s worth reiterating, tax laws are updated frequently and often without much attention. Always review your deductions with a CPA or tax attorney to make sure you still qualify.
House flippers have a knack for seeing the hidden, potential beauty in a property that requires a lot of love. Hiring the right contractor to see that vision through to reality is a skill in and of itself. If you’re the kind of investor that has the ability to see the grand scheme of things but don’t have the time or qualifications to get the work done, you need to diligently screen your contractor.
How Much Experience Do You Have With Remodels?
Though there is some overlap, remodeling is a niche and is distinctly different from working on new construction. It’s hard to tell what setbacks you’re bound to run-up against, so if the crew has multiple skillsets, it will be cheaper for you. For instance, getting the same person to hang drywall, handle some minor electrical and later lay carpeting is less expensive than subcontracting specialists.
Are You Licensed AND Insured?
Any serious contractor will be licensed to work in the area and have proper insurance coverage. Don’t hesitate to ask to see copies of both. This will (hopefully) ensure that the work will be done to meet proper code requirements and that their insurance policy provides enough coverage should you need it.
How Many People Are In Your Crew?
To be an efficient flipper, you want to get your property ready for sale as quickly as possible. Having the right-sized team, no matter the extent of your remodeling project brings confidence that the job can get done in a timely fashion.
How Many Other Jobs Are You Currently Juggling?
You don’t want your remodel to take longer than needed — time is money. This will also give you a sense how large the company is and how your project will be managed. Many qualified contractors will be doing several jobs at once, that’s not necessarily a problem, as long as your rehab doesn’t experience unreasonable delays. If the other jobs are at different stages, then there shouldn’t be a crew shortage that would require hiring additional subcontractors that would throw you off your timeline.
Can You Ensure Completion By (insert date)?
If you’re satisfied with the answers to previous questions, get the contractor to commit to a guaranteed timeline for completion. People don’t like to pass on work and will tell “little white lies” to get the contract.Have your agreement drafted by a professional to make sure all of your requirements are correctly detailed. Rehabs rarely run as smoothly as the contractor would have you believe, there will always be unexpected snags which jeopardize your completion date. To help guarantee the agreed-upon timeline, consider including incentives for early completion and, likewise, penalties for any unreasonable delays.
To be a successful property wholesaler, you need to find a property, get control of it, and move it as quickly as possible. One of the biggest challenges a wholesaler faces is handling a buyer or seller that wants to cancel a deal when they find out what the wholesaler is making. That’s why it’s wise to be familiar with the double-close, where the seller and buyer close separate transactions and never meet.
What is a Double-Close?
Often a wholesaler puts a property under contract, as a buyer, but then assigns the contract to another buyer at a higher price. With a double close, the wholesaler actually purchases and takes legal possession of the property, then has a separate closing to sell the property to their buyer. Though the double-close does add an extra step and expense, it doesn’t necessarily delay the whole process; many closings are still completed almost simultaneously. Also, if you’re tired answering the question, “Is what you do even legal?” The double close removes any whisper of impropriety or illegality.
Benefits of Doing a Double Close
Financial Confidentiality: When assigning the purchase contract for a deal, your original seller and end buyer will eventually know your contract price, the final contract price, and can do the math to figure out what you’re making on the deal. Either one of them can feel jilted and try to force you to renegotiate, taking money out of your pocket. Theoretically, you could sue either or both for nonperformance of their contract, but that may take a while, and a judge may not look favorably on the transaction.
Using a double-close avoids all this.
How To Perform a Double-Close
Since you, as the wholesaler, legally take ownership of the property, there are two closings, hence the name, to complete the deal. The first transaction is between you and the seller, where you are buying the property. In the second closing, you are the seller, so your buyer is purchasing the property from you. The two transactions can even occur in the same office on the same day.
Double-Close Challenges
Let’s be realistic, if it was easy, most wholesale transactions would use a double-close over a contract assignment. So, let’s look at why many wholesalers avoid using a double-close.
Purchase Funds: It’s much easier to get a property under a wholesale contract you plan to assign, then coming up with the funds to actually buy the property yourself. Lack of funds is why many investors are initially attracted to wholesaling to begin with.
Solution: Use your network to look for sources willing to do Transaction Funding. Transaction Funding is what it says – it’s a very short-term loan to facilitate a transaction. Most of these types of loans are for less than a week. Because the lender can’t make much profit on interest for only a week, expect fees and high-interest rates. If you do the math though, you’ll find the actual cost is reasonable.
Costs: Two closings result in two sets of closing costs – even if you’re closing on the same day. One for the transaction where you buy the property and one for when you sell it.
Solution: There’s no way to get rid of costs like title insurance and recording fees, but if you establish a relationship with a closing company/agent, they may be willing to waive or reduce some of their specific fees.
Finding Closing Company: Years ago, the double-close got a bad reputation because wholesalers were doing closings where they used the end-buyer’s money, to fund their purchase from the seller. This is pretty much no longer allowed, hence the need for Transaction Funding. Still, many closing companies/agents won’t do a double-close (with Transaction Funding) or require a minimum amount of days between the two closings.
Solution: Use your network to find a closing company/agent that understands the double-close and will work with you.
Many wholesalers were trained to simply assign contracts and view the double-close as illegal, and too complicated, and so not worth the hassle. As we’ve outline though, the double-close may be something to consider. The extra steps and costs may help you close more deals, while also protecting the spread in those deals.
You know those ugly signs you see when you’re sitting at stoplights that offer to BUY YOUR HOUSE FOR CA$H — those are called bandit signs. They are a disputed tactic in real estate circles, some people swear by them while others shun them.
Why They Work
Do you ever think to yourself, “Who keeps putting up these stupid signs?” Or better yet, “Who actually calls these numbers?” You might be surprised by the answers to both questions.
Answer #1 – Property wholesalers are responsible. Wholesalers look for motivated sellers to buy their (usually) distressed homes. Then they mark the price up and try to sell them off was quickly as possible without making any repairs.
Answer #2 – It should come as no surprise, but motivated property owners. They’re lured by the idea of getting quick cash and getting rid of a property they don’t really want.
So why are they so effective? The signs are purposefully designed to be simple and non-threatening. They target motivated sellers who want or need to get rid of their homes fast. The message is simple and clear. That’s why they look like some guy with a magic marker scribbled his number on some poster board and nailed it to a utility pole or stuck it on someone’s front lawn. And that’s not far from the truth, except for most of them are made from corrugated plastic. By being ugly and straightforward, homeowners are less intimidated to phone an “average Joe” than some real estate agent.
Legality
They are called bandit signs for a reason — they violate city ordinances in almost every community across the country. They are considered litter, so city crews just throw them away. That’s also why they usually pop up on Fridays after city offices close. Hefty fines can be levied per infraction and increase with the number of violations. Clearly, wholesalers remain unfazed by the threat of fines.
How To Profit From Them (Without Getting Caught)
1) Keeping your message simple and
brief.
2) Not using your company
name.
3) Taking the proper steps to avoid
getting fined:
Only use prepaid cell phones
(burners).
Never use your own name.
Place your signs on the weekends, most
city employeesonly work Monday thru Friday.
If possible, use private property to
place your signs. Ask the owner first.
4) Placing them in high traffic areas for maximum exposure.
Wholesaling is YOUR business, only you can determine what strategies to implement to meet your income goals. Bandit signs have been proven to be excellent lead magnets, but they aren’t the only tool at your disposal. If you decide to use them, it’s best to incorporate them into your overall marketing strategy.
ALWAYS have everything in writing. Specific terms should spell out exactly what is expected and legal from all parties involved
Working through the web of renting your properties can be mind boggling when you realize the details involved with signing a tenant. Knowing federal laws and local regulations will help keep you in business and profitable. Working from a template and a detailed checklist is a good way to keep everything legal from Day 1. If properly thought out, it can save you from the high cost of defending yourself in court.
Proper Documentation
ALWAYS have everything in writing. Specific terms should spell out exactly what is expected from all parties involved. Have a lawyer draft your lease agreement to help avoid the pitfalls of cookie cutter online forms. Rental agreements are legally binding contracts, know the rights tenants have and familiarize yourself with the Federal Fair Housing Act.
Advertising, Showings & Applicant Screening
You must study, and pretty much memorize, the Fair Housing Act to avoid discrimination violations. Your advertising, how you handle inquiries, showings and applicant screenings must all conform. Make one mistake and you could wind up in court.
Don’t forget about the Fair Credit Reporting Act and what your required to do if you deny an application or an applicant disappears.
Once you figure out how to legally operate — be consistent! Avoid potential discrimination lawsuits by treating everyone the same and avoid shortcuts — even when you know what the outcome will be.
Deposits and Fees
Check your state and local requirements regarding application fees, pet fees, security deposits, etc. Decide what you’ll charge and again, be consistent to avoid discrimination claims.
Keep In mind a security deposit is just that, a deposit, so it technically still belongs to the tenant, you are just holding it. Don’t go out and spend it. You may want to keep it in a separate account to make it easier to keep track of and explain when needed. Remember, the security deposit is used as a guarantee against possible damages or unpaid bills, but even during an eviction proceeding, it still legally belongs to the tenant.
Required Disclosures
Federal law requires disclosure to a tenant about potential lead-based paint issues. Make sure this disclosure is included in your lease and that you also have the government required lead-based paint pamphlet to hand out.
Your tenants may also have the right to disclosures regarding building ownership, landlord, or management company that acts on behalf of the landlord. Provide them with proper contact information for rent collection, complaints, maintenance issues, etc.
There’s also required disclosures like the Move-In Checklist, specific tenant notifications required in a lease like; Truth-In-Renting Act, Security Deposit Rights, Domestic Violence and Senior Living clauses. All are another reason to engage an attorney to at least review your lease annually.
Property Maintenance
Check your local ordinances for landlord obligations regarding property maintenance. Many cities consider it illegal to collect rent if a property hasn’t passed a city inspection. In addition to issuing tickets, they may also arrest an owner who fails to comply.
Know Your Landlord Rights
When dealing with landlord-tenant issues, there is usually more focus on protecting the tenant. As we all know, there are two sides to every problem, and as a landlord, you have rights, as well. Though not a complete list, here a few biggies:
Eviction – Depending on your lease agreement and state & local laws, you have any number of valid reasons for choosing to evict a tenant. Keep it legal here, abide by all local laws and ordinances to prevent making the situation any worse.
Home Entry – You certainly don’t have unlimited access to a tenant’s home, but with proper notification to complete repairs or an emergency the law allows entry as needed.
Rent Increases – Many states and cities are passing laws limiting rent increases. Be sure to check and conform as needed. If there are no laws, you can legally raise the rent as much as you want, as often as your lease allows.
Housing is a highly regulated industry and need to be clear on fair housing laws and other local ordinances that affect your business. Pleading ignorance will not keep you out of trouble. Of course, you want your real estate investments to be profitable, but ignoring the laws set in place to protect the landlord-tenant relationship, will only do more harm than good in the end. Before making any legal missteps, consult your attorney for clarification for any landlord-tenant issue.
