In this episode of Coffee with Carl, attorney Carl Zoellner explains wholesaling in real estate and how you can incorporate wholesale trusts into your overall real estate investing game plan.
Updated August 7, 2020
If you invest in real estate, you should know about wholesale trusts. At some point, everyone who’s in real estate should become a wholesaler. Eventually, you’ll come across a deal that you can’t take down for whatever reason. That’s when you need to know about wholesaling real estate.
In a nutshell, wholesaling is buying and selling paper. It’s a creative real estate investing strategy in which you find deals and sell them to buyers. It’s important to note that wholesaling is active income, which means you’ll be hit with 15.3% self-employment taxes.
In wholesaling, you find a property and enter into contract without the intention of closing. Then, you take that property to an investor who does intend to close. For finding the property, you take an assignment fee.
Now, here’s where wholesale trusts come into play. Most, almost all, states restrict the assignment of a contract without the seller’s consent. This is important because, if you try to assign a contract that’s not reassignable, the seller could back out of the deal or renegotiate to cut you out. Thus, step one is looking at the contract to determine whether it allows for assignment. If it does, great! If not, you’ll need a wholesale trust.
Using Wholesale Trusts
When wholesaling real estate, first put the property under contract in the name of your trust. Then, find an end buyer. Next, sell the end buyer the beneficial interest in the wholesale trust. Finally, resign as trustee and appoint the end buyer as the new trustee of the wholesale trust.
From the seller’s point of view, a trustee of the trust enters into contract and someone who represents the trust closes on the deal. The seller does not see the change in parties or reassignment of beneficial interest. What the seller sees is that the party who enters into the contract is the same party who closes on the contract.
An important note: don’t call the trust a “wholesale trust.”
Watch as Carl covers wholesaling in real estate and how wholesale trusts can be a boon to your real estate strategy.
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