Reverse Wholesaling: How-To Guide For New Investors
Reverse wholesaling is the same as normal wholesaling, but you find a buyer before you find a seller.
Reverse wholesaling is one of the easiest ways for newbies to get into real estate investing and wholesaling.
If you’re just getting started… but feel pretty lost, this guide will show you a fool-proof process (nearly risk-free) for doing your first deal.
It’s called reverse wholesaling.
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What is Reverse Wholesaling?
In a normal wholesale deal, you simply find deals, get them under contract, and then pass those deals onto your list of cash buyers to see who bites.
The primary difference with reverse wholesaling is that you’re working closely with a single buyer to find a deal that they want to buy.
Why Reverse Wholesaling Real Estate is Great For Beginners
This is great for beginner wholesalers and real estate investors because you get to work with someone (the cash buyer) who’s experienced.
If you work with the right buyer — someone who’s diligent, trustworthy, honest, and knowledgable — then reverse wholesaling can be the launchpad for your own investing career.
Additionally, there’s less risk (as with traditional wholesaling) of getting a deal under contract and then not being able to find a buyer for the deal. This is common with new wholesalers who aren’t experienced with estimating rehab costs or running comps… and it’s avoided by working closely with an experienced cash buyer.
The Benefits & Risks of Reverse Wholesaling
Of course, reverse wholesaling — as anything that’s worth doing — is not entirely risk-free.
There are both pros and cons to the process.
Here’s what you should be aware of.
Work With Experienced Investor — Reverse wholesaling requires that you work with an experienced investor. This is the biggest benefit because it means you’ll get to learn the ropes from someone who knows what they’re doing.
Avoid Common Pitfalls — Wholesaling real estate comes with many risks and pitfalls (as anyone who’s learned it on their own knows). Since you’ll be working with an experienced investor, you’ll be able to avoid many of those pitfalls.
Learn a Ton — You’ll learn a ton about wholealing and real estate investing in a relatively risk-free way. The cash buyer gets a good deal and you get a ton of experience.
Lower Assignment Fee — Since you’re taking the place of a student and working directly (and transparently) with a cash buyer, you’ll likely need to accept a lower assignment fee. This is the amount of money you get paid as the wholesaler.
Buyer Integrity — There are a lot of benefits to reverse wholesaling. But those benefits only exist if you work with a cash buyer who’s the real deal. In fact, the most important part of this entire process if finding a diligent and honest cash buyer with integrity and a track-record of successful real estate investments.
Not Long-Term — Reverse wholesaling is great for knocking out your first few deals, but it’s not really a long-term strategy. As your business grows and becomes capable of doing more deals, you’ll want to expand to work with more buyers.
How Much Money Can You Make From Reverse Wholesaling?
Generally speaking, you’ll make a little less than what you would make from a traditional wholesale deal.
It’s not uncommon as an experienced wholesaler to make between $10,000 to $20,000 per deal — but when you’re reverse wholesaling, it’s a little different.
You’re taking the place of a student and expecting the cash buyer to help you along the way. It wouldn’t be fair to expect a fat commission in that context.
So you can likely expect to make between $2,000 and $7,000 from your reverse wholesale deal.
Ultimately, though, it’s completely up to you, your cash buyer, and how good the deal is that you’re able to snag.
How to Reverse Wholesale Your First Deal
Now that you have a basic idea for how reverse wholesaling works, let’s get into the nitty-gritty. Here are seven steps to doing your first reverse wholesale deal!
Step 1. Find a Cash Buyer
This is the most important step of the process.
If you can’t find a good cash buyer, then your entire deal will fall apart. You need to be able to find somebody who’s experienced, has integrity, and is willing to work closely with you on this deal.
Here are a few qualities you're looking for in a cash buyer...
Experience — You want somebody who’s done this before. They don’t need to have closed dozens of deals, but they should at least have a few under their belt.
Track Record — Along with experience, you want to make sure your cash buyer has a track record of successful investments. This will give you some peace of mind that they know what they’re doing.
Access to Capital — This one is pretty self-explanatory. Your cash buyer needs to have the money available to close on the deal.
Willingness to Work With You — This is perhaps the most important quality of all. You’ll be working closely with your cash buyer, so it’s important that they’re somebody you can trust and work well with.
You can find cash buyers in a few different ways:
Networking — The first place to start is by networking with other investors. Ask your friends, family, and acquaintances if they know anyone who’s looking to invest in real estate. If you don’t know any investors, go to your local REIA meetings and introduce yourself.
Online — You can also find cash buyers online. There are a few different websites you can use, such as the Cash Buyers list on BiggerPockets.com or REIBlackBook.com.
Foreclosure Auctions — Another great place to find cash buyers is at foreclosure auctions. These are usually investors who are looking for good deals on properties, have cash on-hand, and are experienced at buying and selling real estate.
Once you've found someone who you might be interested in reverse wholesaling with, offer to buy them lunch. Get to know them. See if the vibe between you and them is comfortable.
If it is, tell them what you're up to and make sure to ask them some version of the following questions...
- What type of properties are you looking for?
- In what price range?
- Are you looking for fixer-uppers or turnkey properties?
- Do you have any experience with rehabbing properties?
- What is your max budget for each deal?
- How many deals do you typically do per year?
That will give you a good idea of if they're a fit. If you think they are, then tell them about how you'd like to do a few wholesale deals with them.
Step 2. Gather Their Criteria
If your buyer agrees to work with you, the next step is to figure out what your buyer is looking for in a deal. That way, you can save them time by only sending them properties that fit their criteria.
Some of the things you'll want to find out include...
- What type of property is your buyer looking for? (e.g. single-family, multi-family, land, etc.)
- In what price range are they looking to buy?
- What areas are they interested in?
- What type of condition are they looking for?
- How quickly can they close on a deal?
- Do they have any other specific requirements or dealbreakers?
- What's do they think is a fair assignment fee for your portion?
This information will be critical when you're looking for deals. You want to bring them a deal that's as close to their criteria as possible.
Make sure to tell them that you're new to this process. You'll do your best to find a deal that fits their criteria, but ask them if it's okay to get some help estimating rehab costs and running comps.
Step 3. Find a Fitting Deal
Now it's time to put your skills to the test and find a deal that fits your buyer's criteria.
There are a few different ways you can find deals. The method you use will largely depend on your budget, time, and resources.
The four most common methods are...
Driving For Dollars — This is the process of driving around looking for properties that look like they may need some work. When you find a property, write down the address and then do some research to find out who owns it (you can use skip tracing to find phone numbers). Call the owner and see if they're interested in selling.
Door Hangers — Another great way to find deals is by door hanging. This involves hanging a door hanger on homes in a certain area that you're interested in. The door hanger should say something like "We buy houses for cash" with your contact information.
Direct Mail — You can also find deals by sending direct mail. To do this, you'll need to buy a list of homeowners in a certain area. Once you have the list, you'll send a letter or postcard to each homeowner letting them know that you're interested in buying their home for cash. Learn more about direct mail marketing for real estate here.
Cold Calling — This method involves calling homeowners in a certain area to see if they're interested in selling. You can get lists of homeowners to call from the same places you'd get a direct mail list.
Using these methods, you'll find people who are interested in hearing what their cash offer is. Tell them that you'll get it to them within the next week.
Step 4. Create a Simple Deal Packet
Now you're on the hook for getting one (or several) people upfront cash offers on their properties.
How are you going to do that?
Well, you're going to leverage your cash buyer.
Start by creating a simple deal packet to email to your cash buyer -- it should include the address, pictures, details you got when talking to the seller, and everything else that's pertinent.
Ask your cash buyer what they think your upfront offer should be for the property.
They'll give you a number.
Step 5. Negotiate With The Seller
Now you can take that number to the seller and see what they say.
Since you'll likely be lowballing them, it's very possible that they tell you to hit the road. If that happens, pull up your bootstraps and explain why your offer is what it is (be sure to get this information from your cash buyer).
If they're still unwilling, then move on to your next lead. It's common to only close one in 20 or one in 25 leads when looking strictly for wholesale deals.
But stick with it and you'll eventually find a deal that works for you and your buyer.
Step 6. Get Pics & Run Comps
Once you find a seller who agrees to the max cash offer that your buyer gave you, it's time to dive a bit deeper. Get the property under contract, schedule a time to visit, take pictures, and run comps.
Your buyer can help you run comps or they will likely know an agent who can help. Your job will be to go to the property, take tons of notes on what needs to be fixed, take tons of pictures (video is even better), and get a feel for the repairs that need to be made.
You'll need to take all of that information to your cash buyer to show them what they're working with.
You might also need to adjust your offer with the seller based on what you find.
Step 7. Close The Deal
Once you've gone through the process of due diligence and have a solid idea of what needs to be done to the property, it's time to close.
You can do this by working with a title company or an attorney (if that's what your buyer prefers). The closing process can vary from state to state, but the goal is always to get the property into your buyer's name with as little hassle as possible.
Final Thoughts on Reverse Wholesaling
Reverse wholesaling is a great way to break into the world of real estate investing.
There's no need for large amounts of cash or good credit. You can get started with very little money and time.
The key is to find a great cash buyer who's willing to work with you. Once you have a buyer lined up, the rest is relatively easy.
If you're looking for a creative way to find deals and make money in real estate, reverse wholesaling is definitely worth considering.
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