Wholesaling real estate in Puerto Rico, how it works

A wholesaler looks for a property that can be bought for less than it is worth, often a house that needs repairs, an inherited home or one in pre-foreclosure. They sign a contract with the owner and look for an investor who wants to buy it. The profit is the difference, the assignment fee.

There are two ways to close. In an assignment, the wholesaler passes their contract to the end buyer, who buys straight from the owner. In a double close, the wholesaler buys from the owner and sells to the end buyer, two sales one after the other.

The 2020 Civil Code calls an agreement to sign a sale later a preliminary contract. If both sides are bound, it is a promise to buy and sell. If only one side decides whether the sale happens, it is an option. It can be signed privately, without a notary, and a court can make the other side comply.

An option can be recorded in the public registry of properties if it is in a public deed and states the purchase price, the price of the option and the term. Once recorded, it binds whoever buys the property later. The recording ends with the term, or five years after it was recorded.

The deposit is often given as arras. If the buyer backs out, they lose the arras. If the seller backs out, they return them doubled. If the sale closes, they count as part of the price.

Under the Civil Code, the rights in a contract can be passed on, unless the contract says otherwise. If your contract says it cannot be assigned, that clause binds you.

For the end buyer to take your place and leave you free, there are two ways. One is to keep, in the contract, the right to name someone later to take over your place, and to tell the owner within the agreed term or, with no term, within 30 days. The other is for the owner to agree in writing.

Have a lawyer write the contract so it says clearly that you can assign it.

A double close has two deeds, one from the owner to you and one from you to the end buyer. They can be signed the same day, but yours has to be recorded before the end buyer's.

The costs are paid twice, once per deed. They include the notary's fee, the stamps on the deed and the registry fees, which are based on the price of the sale. The buyer pays for the certified copy and the recording, unless you agree otherwise.

A double close costs more, but the owner doesn't have to sign anything with the end buyer.

Puerto Rico's real estate broker law says that whoever, for pay, offers or negotiates a sale for someone else is acting as a broker and needs a license. There is an exception for an owner who sells their own property.

Someone who only holds a contract is not the owner. So advertising a house you have under contract, or charging to pass it to someone else, may need a license. We found no court decision on wholesaling in Puerto Rico.

Before you advertise a property that isn't yours, talk to a real estate lawyer in Puerto Rico.

How your fee is taxed comes down to your own case. Talk to a certified public accountant (CPA) in Puerto Rico.

• Inherited homes, where the heirs often sell.
• Properties in pre-foreclosure, before they reach an auction.
• Homes inspected for damage after a disaster.

To place the deal, look for whoever already bought something like it in cash in the same town.

In Flipeo PR the Deal Analyzer works out your maximum offer and your assignment fee. On the Investor plan, Lead Lists finds inherited and damaged homes, and Cash Buyers shows the investors who bought without a mortgage, by town and price.