What makes real estate investing so appealing is that there’s no one size fits all strategy to utilize.
Instead, real estate investing is like a grand buffet — there’s so many options to choose from!
From owning rental properties to fixing and flipping houses (even flipping houses in one day!), investing in tax liens, virtual wholesaling and more, you can handpick a perfect strategy that fits your personality and your goals.
There’s another strategy out there that is lesser known, but full of ROI potential: reverse wholesaling.
That’s right — the wholesaling process, but in the opposite order!
(Reverse wholesaling is not to be confused with co-wholesaling, either!)
In this article, we’ll break down the nuances of reverse wholesaling to help you decide if it’s the right fit for your real estate business now and into the future.
What is Reverse Wholesaling?
Reverse wholesaling turns the wholesaling process on its head.
Instead of looking for deals to offer to buyers, you look for buyers first and provide what they need.
With reverse wholesaling, you know exactly what your buyers are looking for, so you’re able to have a more targeted approach when looking for properties.
Reverse wholesaling entails finding out what types of deals your investors are open to and how much they’re willing to shell out — then looking for the exact deals that fit this criteria.
Make sense?
When you do find something that you already know your buyer would be interested in, you have a higher chance of success in flipping the contract.
Reverse Wholesaling Vs. Wholesaling: What’s the Difference?
Now that we’ve broken down reverse wholesaling, let’s take a deeper look at its differences with traditional wholesaling.
In a traditional wholesale deal, you find deals, get them under contract, and then pass them on to your list of cash buyers to see who’s interested.
With reverse wholesaling, you work closely with a single buyer to find exactly what they want.
You can also work with multiple buyers, but the key is to have a focused and dedicated approach to catering to their needs.
Whereas a real estate wholesaler looks for a property first and then finds a buyer, a reverse wholesaler finds a buyer first and then looks for a suitable property that matches the buyer’s needs.
Both strategies essentially have the same outcome, with just the order of doing things reversed.
When Should You Wholesale, and When Should You Reverse Wholesale?
Reverse wholesaling is ideal for beginners looking for their first few deals. However, as you progress in your wholesaling business, you may find it increasingly difficult to pay attention to individual clients’ needs.
Reverse wholesaling is ideal if:
- You’re just starting out and have a lot of time to offer to buyers
- You’re looking to secure a few deals after a lean season
- You’re not looking to scale anytime soon and have a steady clientele that you can serve
- The opportunity for reverse wholesaling presents itself
On the other hand, wholesaling may be more sustainable if you’re looking to scale eventually.
As you grow your network, you’ll find more deals and be able to field them to your list of buyers to see who bites.
Either way, you can always use both methods case-to-case, depending on the market’s dictates.
How to Reverse Wholesale: 5 Steps
Let’s break down the reverse wholesaling process and see how it differs from wholesaling.
Step 1: Find Cash Buyers
The first step in reverse wholesaling is finding your cash buyers.
Instead of looking for properties first, you should ideally have a list of cash buyers with whom you already have a decent working relationship.
Ideally, each cash buyer in your list equates to business and becomes your top-shelf buyer.
Look for high-quality cash buyers, as even a few can provide good business for a reverse wholesale deal.
Step 2: Find Out Their Criteria
The next step is to find out your cash buyers’ criteria. Try to get as much detail as possible regarding the deals they seek.
Find out about the following:
- What types of deals do they want
- What is their budget
- What is their basis for a good/bad deal
- How much they’re willing to spend on repairs
- The specific area they prefer
Step 3: Find Deals
Your next task as a reverse wholesaler is to seek out the kinds of deals and opportunities that your current cash buyers are seeking.
There are many ways to do this. You can:
- knock on doors
- send direct mailers
- utilize the MLS
- network within your community
- do cold calls
- drive for dollars
The method you use to look for deals will largely depend on your budget, so do what works for you and stick to what is affordable.
For example, sending mail may save you time but cost more. In this case, cold calling or door-knocking may be a more sustainable option.
Once you find potential sellers, find out as much as you can, including:
- ask to check out their house
- take photos
- get a clear picture of the work needed (repairs and reconstructions) to get the property in shape
Step 4: Take it to Your Buyers
As soon as you know how much work the property needs and its after-repair value (ARV), take it to your cash buyer (or buyers, if more than one has similar criteria).
Do this before making the seller an offer.
Let your buyers know as much as you can, focusing on being completely honest about the state of the property.
Ask them what they’d be willing to pay for.
You can proceed to the next step once they’ve given you a number.
Note that we’re still reversing the wholesaling process — instead of putting a property under contract and then finding a buyer, you’re finding a buyer and then putting the property under contract!
Step 5: Take the Buyer’s Number to the Seller
The next step in reverse wholesaling is to bring the buyer’s price to the seller.
If possible, try to go lower than the buyer’s price so you can earn from the difference.
For example, if your buyer is willing to pay $120,000, you can start by offering $100,000. This will afford you some room for negotiation.
However, if you’re just starting out, a profit of $1,000 or $2,000 on your first deal may be just what you need.
In some cases, even just breaking will give you the needed confidence and experience to go on and keep reverse wholesaling.
Eventually, you’ll become an expert, have more contacts, and make even more profit.
The Bottom Line: Reverse Wholesaling
When done right, both real estate wholesaling, reverse wholesaling and even co-wholesaling can offer several opportunities for decent earnings.
It’s also a great way to build your confidence as a new real estate investor.
Whether you choose reverse wholesaling, co-wholesaling or traditional wholesaling for your next deal, don’t forget there are a ton of real estate investing strategies out there waiting for you and your real estate investing business!
