If you like to go down an unconventional path in real estate, then consider opting for reverse wholesaling to kick start your real estate business.
Reverse wholesaling is very similar to the real estate wholesaling business but with a slight twist. Nevertheless, both strategies are great for beginner real estate investors who are starting out with little to no capital, aka money. The beauty of it all is that you do not need to spend your own money in real estate wholesaling and/or reverse wholesaling, and it is up to you to choose which strategy works best for you. To put it in simple terms, a real estate wholesaler finds a property first and then hunts for a buyer. On the other hand, reverse wholesaling entails finding the buyer first and then locating a good property that matches the needs of this specific buyer. Essentially, both strategies have the same outcome (if done successfully), but the order is reversed.
Related: Real Estate Wholesaling: Step by Step
What Is Wholesaling?
In basic terms, real estate wholesalers find a good deal on a house for sale and hunt for potential buyers with the right financial means to buy the property off the bat. Of course, wholesalers get a nice commission or fee when they get a buyer to invest in the real estate property. The icing on the cake in real estate wholesaling is the fact that rehab repairs are also the responsibility of the investor or homebuyer, not the wholesaler. Wholesalers do not pay out of their own pocket if they successfully close in a deal on a house.
With that said, the trick in this business is to find a buyer soon enough before the expiry date of the contract. The time period between putting the house under contract and closing is very short and haste, and it is up to the real estate wholesaler to find a buyer in due time or else he/she will be liable to pay for the property out of his/her own pocket. So, if there is no buyer interested in investing in the house, wholesalers are in big trouble, and that is where the risk lies in the real estate wholesaling business. Reverse wholesaling was born to mitigate this risk altogether; the idea is to find the buyer before locating and putting the property under contract.
What Is Reverse Wholesaling?
Generally speaking, the most challenging part of wholesaling is to find a cash buyer with the right financial means to buy the property off the bat. In reverse wholesaling, the idea is to get the hardest step out of the way first and then begin hunting for good properties. You will not feel pressured to find a buyer before the contract term expires and, essentially, there is no deadline for closing in on a deal. In this way, you avoid the risk of paying out of your own pocket and being legally responsible for the house.
To speed up the process, reverse wholesaling gives real estate wholesalers a chance to find out exactly what the buyer is looking for in a house from the get go. You can understand the buyer’s preferences, price range, and what type of investment property he/she wants before you start locating a property. You immediately cut your time in half because you have a good idea where to start hunting for properties to match the buyer’s preferences.
Related: How to Start a Real Estate Business with Little or No Initial Capital
Reverse Wholesaling: Step by Step
1. Compile your buyer’s list. The best way to compile a buyer’s list is through real estate networking and building a rapport. Once you finalize your list, start contacting each investor individually.
2. Choose a buyer from the list. After compiling the list, choose an investor to work with and start building a rapport from the get go. Find out exactly what type of investment properties this buyer is looking for, in which location, in what price range, etc. You will also have to negotiate and agree on your commission for closing in on the deal.
3. Locate the property. After you get a good grasp of what the buyer wants, it will be easier to search for and locate the property to match the buyer’s wants and preferences. You will narrow down your search based on the buyer’s criteria and financial resources.
4. Put it under contract. Once you find a property that meets the buyer’s criteria, make sure you put it under contract. This step is crucial because you do not want the buyer to go straight to the seller and exclude you from the deal altogether.
5. If all else fails, return to your buyer’s list. If for whatever reason you have a fallout with the investor and the contract does not go through, you will need to find a replacement buyer. In this case, return to your buyer’s list and notify the buyers there about the property in question.
Related: 9 Ways to Invest in Real Estate With Little or No Money
Regardless of which strategy you choose, keep in mind of the following:
- In order to profit, you must make sure the buyer/investor also profits. If the buyer doesn’t profit, you don’t profit.
- Never buy a property for more than 70% of the ‘after repair value’ (ARV) minus your wholesaler’s fee.
- Build your potential buyer’s list first, then figure out what a particular buyer looks for in a house and go out and find deals based on this buyer’s preferences.
- Become adept at estimating rehab repairs. As a real estate wholesaler, avoid misleading the investor about the house repair expense he/she will incur. If your estimation is way off, you will lose all credibility soon.
Conclusion
The beauty of real estate investing is the fact that there is a high degree of autonomy and creativity involved in building a wealthy portfolio. You are your own boss and call the shots on the type of investment property, the location, the price range, etc. There is no specific roadmap to make a profitable real estate business, you are capable of making money and succeeding in a real estate business whether it is a conventional method or a very unorthodox and outside the box one. Real estate wholesaling and reverse wholesaling are great strategies if you have little money to start with, and they can kick start your real estate business on a good note. Not only are you building your networks, but you are also gaining experience and knowledge to power through and continue building your portfolio.
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