I’ve talked about the benefits of wholesaling real estate on a couple of posts. In short, wholesaling is the process of getting a property under contract and selling that contract to another investor. (For a more in depth explanation, see “What Is Real Estate Wholesaling?”) In “Marketing Pays Off!” Sue Ann discusses a double-close wholesale deal that brought us a needed cash infusion.
Today, I want to talk about a specific variety of wholesaling called “Reverse Wholesaling.” Now Reverse Wholesaling technically isn’t a different type of wholesaling. It’s really more of a wholesaling strategy. Simply put, it’s all about knowing who is going to want to purchase the rights to your contract before you make the offer. Here’s how it works:
Let’s say you’re out Driving for Dollars (driving around looking for off-market properties you might want to buy). You find someone loading a U-Haul trailer, moving out of a house. So you stop to chat. You find out that they are going to walk away from the house for personal reasons (that matter a lot to them but not to this discussion). You walk through the house with them and realize that you can help salvage their credit score by buying the house. You make the offer and they accept. You now have a marketable interest in the contract to purchase the house.
So far, this scenario fits the wholesaling model perfectly. But what about Reverse Wholesaling?
You know this house is a good investment at the price you now have it under contract—just not for you. But your friend Samantha is looking for exactly this type of deal. You call Samantha and she’s thrilled you found the house for her. You assign the contract to her and collect your assignment fee.
How is that any different from traditional wholesaling?
It’s different because you never had to market the contract. You had a list of buyers, and you knew what they were looking for. You simply called one of the investors you already knew wanted to buy a house like this one.
I was involved in a transaction very similar to this one just last month. Eugene, a wholesaler, blasted a property to an investor group’s email list. I went to see the property and knew immediately that the deal was too thin for the Hermit Haus model, but I knew someone whose model it fit perfectly. I put my friend Larry in touch with the wholesaler, and Larry bought the house. I did not collect a fee because I had no equitable interest; I never owned the contract. But I earned goodwill points from both Larry and Eugene, who has since given me first dibs on several of his wholesale deals.
There are numerous tactics for building your buyers list, but that is the topic of a future post.