How do you avoid "dealer" status? - Posted by David MacGown

Posted by Brad Crouch on December 19, 1999 at 03:03:36:

Brian W., Jim Piper and David MacGown,

I posted something previously that was wrong. I’m sorry and I hope nobody was damaged. It seems that having an interest in property is not the same thing as having an “equitable interest” in the property.

My thanks to Bill Bronchick for the clarification. He saved me many hours of time.

Sorry,

Brad

How do you avoid “dealer” status? - Posted by David MacGown

Posted by David MacGown on December 13, 1999 at 05:35:36:

I have a broker friend and we do some work together every now and then, but he always tells me that I need to get liscenced before I become classified as a “dealer”.

In my state if you sell more than 5 properties in a year you are a dealer.

How can I wholesale and lease option properties (buying and selling) without being classified as a dealer and without having to be liscenced?

Thanks,
David

P.S. You don’t need a license as a principal - Posted by Brad Crouch

Posted by Brad Crouch on December 13, 1999 at 20:41:48:

David,

As long as you have an “equitable interest” and are creating transactions for yourself.

You only need a RE license if you are working for “others”, without the benefit of having an interest in the property, yourself.

Brad

Re: How do you avoid “dealer” status? - Posted by Brad Crouch

Posted by Brad Crouch on December 13, 1999 at 16:33:17:

David,

Form an LLC or Corporation and let THAT entity be the dealer instead of you.

If you behave like an investor would, and acquire property as an investment, I don’t think you have to worry about the “dealer status”, as that’s not a “good” thing to be labelled with. It means you have to pay taxes in the year of acquisition, not as the income is received.

If you have an “inventory” of properties that you constantly acquire and dispose of . . . THEN you are a “dealer”.

Since you will most likely be doing both types of deals, you would be better off if you created a business entity to take the “dealer hit”.

Brad

Re: P.S. You don’t need a license as a principal - Posted by Brian W(IN)

Posted by Brian W(IN) on December 15, 1999 at 09:55:25:

What does it mean to have “equitable interest”? Does it mean that you have put in an offer on a property and the seller has accepted your offer? Also, is this the same case in both wholesaling properties and sandwich lease options? Please explain. Thanks

Equitable interest defined - Posted by Brad Crouch

Posted by Brad Crouch on December 15, 1999 at 20:49:38:

Brian,

This is from Black’s Law Dictionary:

Equitable Interest: The interest of a beneficiary under a trust is considered equitable as contrasted with the interest of the trustee which is a legal interest because the trustee has legal as contrasted with equitable title. Restatement, Second, Trusts. See also Equitable ownership.

Equitable ownership: The ownership interest of one who has equitable as contrasted with legal ownership of property as in the case of a trust beneficiary. Ownership rights which are protected in equity. See also equitable interest.

This is me, now (actually you, first):

> What does it mean to have “equitable interest”? Does
> it mean that you have put in an offer on a property
> and the seller has accepted your offer? Also, is
> this the same case in both wholesaling properties and
> sandwich lease options?

If you have an accepted offer to purchase, then you have an equitable interest.

If you have a lease, you technically have an equitable interest.

If you have an option to purchase, you have an equitable interest.

If you have ANY kind of agreement with a seller, that conveys any rights to you, you have an equitable interest.

If you have no such agreement, but are trying to market a property, then you are doing it either for “hire” or “for others” and have no equitable interest in the property.

Usual disclaimer: I am not a lawyer.

Hope this helps,

Brad

Re: Equitable interest defined - Posted by JPiper

Posted by JPiper on December 16, 1999 at 02:07:32:

A lease does not give you an equitable interest. I would also venture to say that “ANY kind of agreement with the seller that conveys rights” would not necessarily be an equitable interest.

An equitable interest is the right to obtain absolute ownership to property when legal title is held in another’s name.

An example of this might be an accepted real estate contract. Another example might be a contract for deed. Again, a lease would not since with a lease alone you cannot obtain title at all.

JPiper

Re: Equitable interest defined - Posted by Brad Crouch

Posted by Brad Crouch on December 16, 1999 at 03:08:10:

Hi Jim,

Thanks for the “heads up”. I have forwarded your posting to Bill Bronchick, the one you are disagreeing with. You may be correct on this, but it would be interesting to see what Bill has to say. It IS certainly possible that I misunderstood (that HAS happened before) . . . and if that turns out to be the case, I will naturally apologize for posting misinformation. But I am not yet convinced. I remember him saying that it’s a little known fact that a lease technically conveys equitable interest. And at the moment I can’t remember how. I will research this further (the best way to learn).

Thanks Jim,

Brad

Re: Equitable interest defined - Posted by JPiper

Posted by JPiper on December 16, 1999 at 08:48:54:

Brad:

This response made my day!

So now you are simply a conduit for words? Next time it?s Bronchick talking and not you, you might indicate that by mentioning his name!

Nonetheless, I can think of no case where the ordinary lease conveys anything, technically or otherwise, than a leasehold interest. I hear that in some case for extremely long-term leases (like 99 years) in some states (not all) could convey more than a leasehold interest?.but that is clearly not the type of lease most people are generally talking about.

I look forward to Bronchick?s answer. I suppose it?s possible he could be wrong too!

JPiper

Re: Equitable interest defined - Posted by Bronchick

Posted by Bronchick on December 18, 1999 at 21:50:51:

A lease conveys an interest in real estate, that is, possession. It is not an equitable mortgage, which I think Brad is getting at.

An option is not an interest in real estate, but simply a unilateral contract right. The two combined has been called an equitable mortgage by a judge or two, if the facts of the case bear it. In that case, the judge says “the lease/option is not really a lease/option, but a contract for deed, which is essentially a mortgage.”

Re: Equitable interest defined - Posted by Brad Crouch

Posted by Brad Crouch on December 16, 1999 at 20:52:11:

Jim,

> So now you are simply a conduit for words?

Do you really see me that way? Ouch!

> Next time it?s Bronchick talking and not you, . . .

Is that the perception? If so, I cannot let it continue. I am just a guy who has acumulated some specialized knowledge in certain areas. I try to post some of this when it is appropriate, and can save someone the time and or expense of “re-inventing this wheel”. I don’t post about things I know nothing about (unless it is a question), as I consider that irresponsible.

> you might indicate that by mentioning his name!

Jim, I post all the time about things I have learned. Some things I have even learned from you. I don’t always remember who the person is that I learned a particular thing from. You all get kind of “jumbled” together and sort of become one big teacher. When I remember who I learned a specific thing from, I usually say so.

When I wrote the words about a lease technically being an equitable interest, I didn’t remember who I had learned that from. Your disagreement on that point caused me to think about it a little more until I recalled whom I had heard teach that. After I knew who it was, I forwarded your message declaring your disagreement, to Bill Bronchick. The purpose of doing so was so that hopefully he could make a clarification, and maybe even cite some law. That would have simplified things a bit.

I wasn’t trying to “pass the buck”. I wrote those words and I own them. I believe this concept is located somewhere in one of his courses, too. I have begun re-reading everything he wrote, hoping that he explained the “why” of it all, and maybe some cites were even provided, that I could pass on. I will continue this research until this issue is resolved, one way or another. If it turns out that I was mistaken or that I misunderstood, I will own that, too.

> I look forward to Bronchick?s answer. I suppose it?s
> possible he could be wrong too!

Yes, I suppose he could be wrong . . . but do you make room for the possibility that he may be right?

Perhaps it’s not Bill that is wrong. Perhaps it’s me instead. However, until the issue is resolved, I am not ready to apologize.

By the way, can you give a hypothetical example of a case where a seller conveys anything (except a license or easement) that does not create an equitable interest?

Thanks,

Brad

Re: Equitable interest defined - Posted by JPiper

Posted by JPiper on December 16, 1999 at 22:19:42:

You left out one possibility…the one that I might be wrong. That’s always possible. In this case I don’t think I am…but it certainly wouldn’t be the first time, or the last.

The examples I had in mind in my post were licenses and permits.

JPiper