Kent Clothier, a national leader in the real estate investing industry, is the Founder and CEO of Real Estate Worldwide (REWW).
If you’re just getting started in real estate, you’re likely still working a full-time job while pursuing this new venture on the side. You may want to make the leap to a full-fledged real estate business, but you need cash. In looking for a way to start generating revenue, consider reverse wholesaling.
In a wholesaling scenario, a wholesaler puts a contract on a property before finding an appropriate buyer. The final sale price is typically a bit more than the list price as a way to pay the wholesaler for their time and effort. Reverse wholesaling, as its name suggests, reverses this process. Buyers are found first, followed by properties.
I discovered this way of conducting business in real estate and wrote a book detailing strategies for entering this part of the market. I have found that with its emphasis on building relationships with active buyers, reverse wholesaling is simply a different way of participating in real estate. Once you understand your buyers and what they want, you can identify the properties they want to buy. With a little time and effort, you can build a steady stream of customers who repeatedly buy real estate from you — many with cash — creating the fuel for your new business.
A Strategy For Cash
First, let’s explore why you should consider reverse wholesaling.
Reverse wholesaling is a good strategy for earning money because buyers take the risk of purchasing a property while you put in the time to find their next investment. It can be especially successful with cash buyers because it avoids lengthy periods of pending transactions and limits interactions with banks. Cash buyers are also active right now, with nearly 20% of all real estate transactions nationwide taking place with people paying cash.
A promising demographic to target with reverse wholesaling is investment buyers because buyers typically don’t pay cash for their primary residence. Instead, many cash buyers are investors.
Investors are looking for a return. They’re putting money out there to get money back — and you want to keep that purchase cycle going. This means that as a real estate wholesaler, you have the opportunity to sell to these people over and over again.
Investors often pay cash, and it’s not uncommon for them to buy multiple times each year — which makes them key customers for your new business.
Relationships Drive Reverse Wholesaling
You can probably see the appeal of having repeat cash buyers. Now, how do you sell to them?
The key to successful reverse wholesaling is building relationships with buyers. This is a client-based business, not a transaction-based business. You should focus 80% of your efforts on becoming the go-to real estate seller for your investment customers. Figure out what your customers want in a property, and then find properties to sell to them, not the other way around.
I call this shopping versus selling. You’re shopping for what buyers want versus selling them what you have. Then you can tie all the compensation to client satisfaction. Every person on your team should prioritize relationship building and perform for the clients.
By “perform for the clients,” I mean market to the buyers. Ask them to pick up the phone and call you. Spend time interviewing them to build a rapport and discover what they want from their investment properties.
It means investing in the relationship first and foremost, which is where the reverse part of reverse wholesaling comes from. Start with the client, and then go after the property.
Finding The Perfect Properties For Your Clients
Once you’ve built a relationship with your clients, your next step is to find the right properties for them. Remember, many cash buyers are investors. If their investments perform well, it’s likely they’ll want to buy more. This opens you up to a potential consistent revenue stream from their continued investments.
When you know what your customers want and how much they’re willing to pay, all you need to do is find properties that fit the bill. For example, if you know your cash buyers are willing to pay $110,000 and you know you want to make a $10,000 wholesale fee, then you know the most you can pay for the property is $100,000. If a house doesn’t fit your budget and your buyers’ needs, then you shouldn’t move on it — period.
When you do find a property that satisfies your customers’ requirements, such as a certain type of house or a particular neighborhood, you put it on the contract and then turn around and flip your interest in the contract right to your cash buyer. Everybody gets what they want, and you make money to put toward growing your business.
Start With The Outcome In Mind
Remember that at the end of the day, this is still a real estate transaction, and there are ways for it to fall through. However, if you focus on client relationships and finding properties they want, it is possible to avoid many of the risks associated with traditional transactions. Reverse wholesaling is a way to not only participate in the real estate market, but grow a business in the industry. It is one of many ways to enter or continue a real estate career, but it has distinct advantages that make it appealing.
An emphasis on finding customers first and properties second allows you to have more confidence that properties will sell because you already know what your customers want. Even better, many buyers are willing and able to pay cash for their investment properties. You can secure your payday without bothering with banks. Best of all, you have the opportunity to build relationships with customers who are often repeat players in the market. As you grow your business, always keep outcomes in mind. Regardless of how you enter or continue in the industry, you want to efficiently earn money that can be put back into your business to encourage growth.