Wholesaling is a very popular real estate investment business model right now.
And for good reason.
The wholesaling model requires less upfront capital than most real estate investments and it’s scalable with the right systems and processes in place.
But when you’re just getting started, how do you get the confidence to do deals? More importantly, how do you know if you’ve found a good deal? How do you know if there’ll be an eager cash buyer on the other side?
Those are the questions that often keep people from getting started.
The answer is reverse wholesaling — it’s one of the best, most risk-free methods for starting your real estate investing business.
Here’s our guide to reverse wholesaling!
What is Wholesaling?
In case you’re new to the different real estate investing business models, let’s start with a definition of wholesaling.
For that, we’ll steal from our wholesaling guide:
Real estate wholesaling is the process of finding and securing contracts with home sellers and ‘flipping’ those contracts to buyers for an assignment fee of usually $5,000 to $10,000.
Essentially, you’re playing the middle-man between motivated sellers (people who want to sell their home quickly for cash) and cash buyers (people who are looking for good real estate investments).
Let’s walk through a quick example.
Imagine that you find a property and you estimate the ARV (After Repair Value) to be about $200,000. You also estimate that the cost of repairs to achieve the ARV is around $20,000. Fortunately, the owner is motivated to sell because they inherited the home and don’t know what to do with it (or for one of a thousand other different reasons) and so you offer them $100,000 and they accept.
You and the owner sign a contract saying you have the intent to buy the property for $100,000. You take the details of this property to a cash buyer and tell them it’s theirs for $110,000. They agree to purchase it for that price, knowing that they’ll make about $70,000 when they flip it. You make $10,000, then, just for finding the deal and getting it under contract.
That’s wholesaling. And the more deals you do, the more money you make.
What is Reverse Wholesaling?
Now that you understand wholesaling, let’s talk about reverse wholesaling.
Reverse wholesaling is when you reverse the wholesaling process — instead of seeking out sellers and finding deals, then taking those deals to your cash buyers, you look for buyers first.
As one Reddit user explained, “Reverse wholesaling only differs from wholesaling in that you know what your buyer pool is exactly looking for and you go find it, as opposed to finding a property then matching it with a buyer.”
Once you found a handful of cash buyers, you ask these investors what types of deals they’re looking for and what their ideal deal looks like (including how much they would be willing to pay).
Then you go searching for deals that fit the cash buyer’s criteria.
Once you’ve found something, you know you already have a buyer with interest in this type of property, so it’s usually easier to flip the contract.
Reverse wholesaling is a great tactic for all real estate investors to have in their toolbox, but it’s especially useful for beginners who are trying to learn the ropes of investing and wholesaling.
Pros & Cons of Reverse Wholesaling
Let’s take a moment to look at some of the pros and cons of reverse wholesaling as compared to normal wholesaling…
Pros
- Less risk that you’ll get stuck with a property because you know exactly what your buyers are looking for.
- Great for beginners who are nervous to get started.
- The perfect way to do your first deal!
Cons
- Difficult to scale when you’re only looking for very specific types of deals that your cash buyers are interested in.
- Will usually result in a lower assignment fee because you’re sharing so much information and math with the cash buyer.
When Should You Reverse Wholesale?
If you want to build a wholesaling business, then you’ll probably do less and less reverse wholesaling the further you get down the road. That’s because — as I mentioned above — reverse wholesaling is a little bit more difficult of a process to scale the traditional wholesaling.
We highly recommend reverse wholesaling if you’re a beginner and/or if you’re trying to get your first few deals under your belt.
Still, more experienced investors might find themselves returning to the reverse wholesaling model when the opportunity presents itself — the key is really to just do what’s working in your market and always keep in mind that reverse wholesaling is an option if you’re struggling to find cash buyers for your deals.
How Ryan Dossey used Reverse Wholesaling to Get Started…
Ryan Dossey is the founder of Call Porter, Ballpoint Marketing, and his very own real estate investing business where he wholesales, wholetails, flips, and brrrr’s properties — his portfolio includes over 145 properties that are collectively worth more than $8 million.
Cool, right?
What’s even cooler is that he made a video about how he got started… and as you might have guessed, the answer is reverse wholesaling. He found a buyer first, looked for the perfect deal for that buyer, and was able to close his first deal.
This was the foundation for his real estate investing business.
Check out the video below!
Want to Grow Your Real Estate Business More Quickly? Call Porter Can Help!
6 Steps To Do a Reverse Wholesaling Deal
Now let’s dive into the how-to specifics of reverse wholesaling. We’re going to walk through 6 steps that will help you do your first (or your next) reverse wholesaling deal.
1. Make a List of 10 Cash Buyers
Since we’re reversing the wholesaling process, the first step is to find some cash buyers. We recommend making a list of at least 10 and, ideally, having a decent relationship with each.
The best-case scenario is that each of these cash buyers you find means business and is happy to purchase properties from you so long as they fall within certain criteria. We call these top-shelf buyers.
How do you find these people?
We’ve written a 3-thousand-word guide about just that topic. Check it out: How To Find Cash Buyers For Your Next Real Estate Deal
While we recommend finding at least 10 cash buyers, what you’re really looking for are high-quality cash buyers. Heck, even if you had one high-quality cash buyer who meant business, that would be enough to do a reverse wholesale deal.
The number 10 is assuming that some of the cash buyers aren’t going to be top-shelf.
2. Get The Details From Your Cash Buyers
The next step is to sit down with your cash buyers and get as much detail as possible about what types of deals they’re looking for.
Make this conversation as transparent as possible — be transparent with them and they’ll likely be transparent with you. Tell them that you’re a beginner and you’re trying to get a few deals under your belt.
Here’s the type of information you’ll want to collect…
- What types of deals are they looking for?
- What is their budget?
- What formula do they use to calculate whether something is a good deal or not?
- How much do they prefer to spend on repairs?
- Is there a specific area where they prefer to buy?
Once you have all of that information, hit them with a hypothetical question — “Okay. So if I found a property that hit all of these criteria perfectly — [NAME SOME OF THEM] — would you be willing to buy from a wholesaler like me?”
If they say “Yes”, then get even more specific.
Walkthrough the numbers with them. “If I found a house for $XX,XXX and it needed $XX,XXX in repairs and the ARV was $XX,XXX, would that be a deal that you’d purchase from me?”
If they say “Yes”, tell them that you intend to find a deal just like that for them.
3. Find Deals
Opportunities are everywhere.
And as a wholesaler, it’s your job to seek out these opportunities. That means driving for dollars, knocking on doors, cold calling, sending direct mailers, and/or networking in the community.
Do whatever you can afford.
If you have some money, then you might send mail to save time. If you’re low on money, then you might door-knock or cold call.
When you find people who are interested in selling their homes quickly for cash, learn everything you can. Check out their house, take pictures, get a clear idea of how much work their home needs, and ask them why they want to sell.
The more you learn, the better.
4. Bring The Deal To Your Buyers
Once you’ve got an idea for how much work the home needs, what its ARV is, and how much your buyer stands to make, take that to one of your cash buyers before making the seller an offer.
Bring them as much information as you can.
And don’t leave anything out. Be totally honest about the quality of the home.
Then ask them if this is the type of deal they were looking for and how much they’d be willing to pay for this.
After looking over the comps, they’ll give you a number.
What you’re doing is reverse-engineering the wholesaling process. Rather than putting a home under contract and then finding a buyer… you’re finding a buyer and then putting the home under contract.
This is a safer way to find deals when you’re learning how to wholesale.
5. Take The Buyer’s Price to The Sellers
The next step is to bring the buyer’s price to the seller.
If possible, you’ll want to get them a little lowers than the buyer’s price so that you can make some money in the middle.
If the buyer is willing to pay $100,000, then you might start by offering $80,000 to give you some room for negotiations.
But honestly, don’t sweat it.
Even if you make $1,000 or $2,000 on your first deal — heck, even if you just break even — there’s still power in having done your first deal.
Then you’ll know how to repeat the process and do it again.
In Ryan’s case, there were times where he only made $1,500 and there were times where he made $10,000. But he just kept going because that’s how you become an expert at the wholesaling process.
If the seller agrees to a price that you and your buyer are happy with, you’ve got yourself a deal!
6. Give Up On Trading Your Time For Money
When you do your first deal, it’ll likely feel a little bit crazy.
Maybe you only spent a couple of hours in order to coordinate and close the deal, but you may have made $10,000 or more.
Following the typical per-hour money-making model, that doesn’t seem to make sense.
But to be a successful wholesaler, you’ve got to remember that you’re getting paid for the opportunities that you’re providing for other real estate investors, not the time it took you to find those opportunities.
If you find a deal that’s going to make another investor $100,000 after they flip it, it’s entirely fair that you make $10,000 in the middle.
So give up on the per-hour model and embrace the fact that you’re going to be making much more money… in much less time 😉
Final Thoughts on Reverse Wholesaling
Reverse wholesaling is the perfect way for a beginner to dip their toes into real estate investing.
It’s relatively low-risk, you’ll be working directly with a cash buyer who knows what they’re doing, and, in the end, you’ll have done your first real estate deal!
And like Ryan Dossey… who knows what that first deal will turn into…
An $8 million portfolio, perhaps?