What Is Reverse Wholesaling Exactly?
Real estate “wholesaling” is a way of making money in real estate by finding distressed or undervalued properties and then putting them under contract. Then, rather than paying for them yourself, you arrange to sell them to investors, and collect a profit from the transaction which is a sort of commission or finder’s fee. As the wholesaler, you need not repair or rehabilitate the property, but can leave this work and expense to the investor. That is only one way, but the reason you are here is to figure out “What is reverse wholesaling?”
Reverse wholesaling is similar to real estate wholesaling, but the steps taken are in reverse order. Instead of finding the distressed properties first, you find the potential buyer, or buyers, first. There are many people in the real estate market who are looking to become investors or landlords, and they’re interested in buying the properties that you will find for them.
Getting Prepared For the Reverse Wholesaling Process
To successfully complete a reverse wholesaling real estate deal, you need to set up a few things ahead of time. You should have access to a real estate lawyer who can handle your wholesaling contract. This is very important, because this lawyer can help you make sure you know what you’re doing and can draft a contract for you that will ensure that your buyer doesn’t just go for the property you bring to him on his own, and leave you out of the picture. This will also ensure that everything you’re doing is legal.
You will also need funding. Although the contract will give you the right to sell the property to a buyer, you still need some earnest money to put down so that your buyer knows you are serious. If you don’t have the funds yourself, you’ll need a loan of some kind, so you should have a lender in mind. Finding one that you will cut in a piece of the deal with is a good option as it’s always easier to find people when you are handing out some incentive.
You’re also going to need to understand every aspect of the properties you consider contracting for. If it needs repairs, you need to be able to estimate how much those will cost. If you can’t do this, you’ll need help, so you may need to know good contractors, so you can get two or three quotes to compare for the best deal.
Once you’ve got all this set up, it’s time to proceed with the deal!
1. Finding the Buyer
You may find buyers quickly at Real Estate Investors Groups, or REIA groups, which have meetings regularly. You can pass out your business cards and begin forming a network of your own. You can also use classified ads as a possible source of buyers, as well as investment clubs and information you get from property appraisers. Once you find your buyers, you can get an idea from them on what properties to look for, since they’ll specify what they want.
2. Finding the Money
Once you’ve got a buyer, you need to get funds for your earnest money deposit. A loan from a bank or credit union is one option, but you can also use savings, a credit line or cash advance from a credit card. Transactional funding is another option which enables you to borrow the money for a short period of time.
3. Finding the Property
Once you’ve found your potential buyer or buyers, you’ll need to look for properties. There are many ways to find wholesale deals to present to your buyers and we will detail a few here. Choose a particular target area akin to what your buyer’s list is looking for and start putting out signs that tell people that you buy homes in any condition, quickly and for cash. Don’t forget to place an easy to remember email address or even a contact number on this sign too. You can also post or hand deliver card flyers to your target area.
Social media is another avenue. Next, get someone that can help you with a Facebook campaign to your target market. If you have the budget, get help from an expert on Google AdWords who can drive leads to a newly designed website and also consider hiring someone to build a proper SEO campaign.
Another way to find properties is to join PropertyOnion.com if you haven’t yet, and then Upgrade to Premium Membership and search the extensive database for cancelled sales due to suggestion of bankruptcy, properties that have a final judgement that have a month or more time before the foreclosure sale or HOA sales with no mortgage delinquencies.
Once you have created a list of these properties while utilizing the database filters, then you can approach the distressed seller to see if they will sell to you at a discounted price.
Additionally, properties that are in the probate process may also be a source, because a property owner may have passed away and the survivors may not be in a position to use or care for it. They may be looking to sell it at a low price. Even properties that are for sale by owner (known by the acronym of FSBOs), may be good investments for a reverse wholesaler.
Advantages of Reverse Wholesaling
Reverse wholesaling has a number of advantages over traditional real estate wholesaling. First of all, when you’ve got your buyers lined up ahead of time, you’re two steps ahead because you know what kind of property the buyer wants, which narrows down your property search, and because you actually have an interested buyer. If you’ve done your preparation and due diligence on the property and the contract, you’ve significantly reduced your risk of the deal going bad.
Plus, you don’t have to waste time and energy holding on to a property you’ve contracted for without knowing how you’ll sell it. The deal takes place a lot faster with reverse wholesaling, and you can sometimes get it done in one or two days. This means you need not worry about issues like being responsible for a vacant house that someone may vandalize while you are searching for a buyer.
If you’re interested in getting into the real estate business and you need a good place to start, you will probably ponder the important question of “what is reverse wholesaling?” After taking time to learn about the process, you will find that it’s a solid and workable plan that will get you started and help you learn as you go. Networking, building your knowledge base and your business reputation are the elements you’ll need to make reverse wholesaling into a great career you’ll learn to love.