In the world of wholesale real estate, it is crucial to be mindful of important legal considerations. When dealing with anything related to investment properties in particular, there are always state and federal laws to consider.
There are zoning regulations to follow. You need to draw up a contract that not only helps to protect you but that satisfies the other party. Think about all the ways in which you could find yourself in legal trouble during a hastily constructed traditional real estate transaction. Now, multiply that number by two because, in wholesale real estate, you’re dealing with both a buyer and a seller at the same time.
As the old saying reminds us, “You don’t know what you don’t know.” Regarding the legal considerations for wholesale real estate transactions, you literally cannot afford that blind spot to be very large at all. Luckily, getting there isn’t entirely difficult, but it is prudent to keep a few key things in mind as you go.
It All Begins and Ends With an Airtight Contract
Arguably, the most important consideration to make when it comes to wholesale real estate transactions involves putting an airtight contract in place as soon as you’re able to. If you’re not as protected as you can be from a legal perspective by way of this contract, little of what follows actually matters if things get contentious enough to the point where the courts are involved.
At a bare minimum, said contract must specify all parties’ roles and responsibilities. This includes the buyer, the seller, and yourself. There should also be provisions in place that outline what could happen if there is some type of dispute or if one or more parties want to walk away before the transaction is complete.
Compliance, Compliance, Compliance
Next, make sure that you are acting in compliance with not just all local laws but state ones as well. There’s a reason why anybody off the street can’t just call themselves a real estate investor. Being mindful of things like licensing requirements, not to mention disclosure obligations, is imperative, or your entire enterprise will be over before it’s had a chance to begin.
A Clear Title is Paramount
You also must ensure that you have a clear title for the property in question so that the wholesale real estate transaction can proceed at all. If someone is trying to sell a property with an outstanding lien associated with it, they may not be able to sell it at all – or at least not in the way they’re trying to.
Likewise, who is responsible for the lien – the seller or the new buyer? You need to answer these types of questions by way of a clear title before things go any further. Verify that all encumbrances are out of the way to secure the deal.
Zoning, Land Use Regulations, and More
Another element of the legal side of wholesale real estate that people sometimes forget about has to do with issues like zoning. If you’re trying to broker a wholesale real estate transaction and the seller is misrepresenting how a property is zoned, you obviously need to be aware of this before finding a buyer. Likewise, whatever the buyer plans to do with the property needs to be possible, and if you’re going to create a mutually beneficial transaction, you’ll need to stay in the loop about all of these factors.
Always dive deep into not only zoning but also land use regulations. This alone can help prevent a bevy of potential issues down the line.
The Art of Due Diligence
That segues into another one of the most essential legal considerations ahead of any wholesale real estate transaction: conducting due diligence. You should obtain inspections as soon as you’re able to, for example, uncover any hidden defects or other issues. It’s better to become aware of these problems now so that you can walk away from the deal than it is to go to all the trouble of finding a buyer only to have things suddenly fall apart right before you finish. Even though wholesale real estate differs from a traditional real estate transaction, you still want to conduct due diligence carefully.
Don’t Be Afraid to Consult With the Pros
Finally, don’t hesitate to consult with legal professionals if you’re having a difficult time handling anything outlined above on your own.
The chances are high that you’re not a legal expert in the strictest sense of the term, and that’s okay. You can accomplish many of these matters with a little care and attention to detail. But when it comes to making sure that the contract is ironclad, for example, you’ll at least want to run it past the professionals first. Consult with legal professionals who are well-versed in real estate law. This can help ensure that your transaction isn’t just seamless from start to finish but also legally sound at the same time.
Prior Preparation Now Prevents Poor Outcomes
In the end, success in terms of wholesale real estate will come down to a lot more than just your ability to negotiate. Yes, you need to be able to masterfully create a situation that satisfies three parties at the same time – a buyer, a seller, and yourself. But there are other aspects to consider, and the legal considerations should be at the top of that list.
By making an effort to understand the legal context surrounding any real estate transaction, you’ll know what “normal” looks like as you conduct your operations. Critically, that means you’ll also be able to identify when conditions start to deviate from that definition of “normal,” giving you the chance to address a small problem now before it has a chance to become a much bigger one down the road.
