What Is Reverse Wholesaling?

Reciprocity is the psychological word for fair play. When we do something for someone, they usually feel obligated to do something for us. It works both ways.

You can find blank assignment contracts on the Web. I recommend paying the money to have a good lawyer in your area draw one up.

This post originally appeared on the Hermit Haus blog on 2016-08-27.

I’ve talked about the benefits of wholesaling real estate on a couple of posts. In short, wholesaling is the process of getting a property under contract and selling that contract to another investor. (For a more in depth explanation, see “What Is Real Estate Wholesaling?” In “Marketing Pays Off!” Sue Ann discusses a double-close wholesale deal that brought us a needed cash infusion.

Today, I want to talk about a specific variety of wholesaling called “Reverse Wholesaling.” Now Reverse Wholesaling technically isn’t a different type of wholesaling. It’s really more of a wholesaling strategy. Simply put, it’s all about knowing who is going to want to purchase the rights to your contract before you make the offer.

Here’s how it works:

Let’s say you’re out Driving for Dollars (driving around looking for off-market properties you might want to buy). You find someone loading a U-Haul trailer, moving out of a house. So you stop to chat. You find out that they are going to walk away from the house for personal reasons (that matter a lot to them but not to this discussion). You walk through the house with them and realize that you can help salvage their credit score by buying the house. You make the offer and they accept. You now have a marketable interest in the contract to purchase the house.

So far, this scenario fits the wholesaling model perfectly. But what about Reverse Wholesaling?

You know this house is a good investment at the price you now have it under contract—just not for you. But your friend Samantha is looking for exactly this type of deal. You call Samantha and she’s thrilled you found the house for her. You assign the contract to her and collect your assignment fee.

How is that any different from traditional wholesaling?

It’s different because you never had to market the contract. You had a list of buyers, and you knew what they were looking for. You simply called one of the investors you already knew wanted to buy a house like this one.

I was involved in a transaction very similar to this one just last month. Eugene, a wholesaler, blasted a property to an investor group’s email list. I went to see the property and knew immediately that the deal was too thin for the Hermit Haus model, but I knew someone whose model it fit perfectly. I put my friend Larry in touch with the wholesaler, and Larry bought the house. I did not collect a fee because I had no equitable interest; I never owned the contract. But I earned goodwill points from both Larry and Eugene, who has since given me first dibs on several of his wholesale deals.

There are numerous tactics for building your buyers list, but that is the topic of a future post.

Bats in the Belfry, Birds in the Pond

Wouldn’t it be wonderful to live where you could see sites like this? Photo by: Suna

I’ve been looking into ways to continue to make a little money once my current contract with ALE ends. With the economy going south, I have been a little worried about the availability of other contracts. So, I’ve been doing some research.

The first thing I am reminded of—I actually learned this lesson a long time ago—is that the only people who make money from the advice found in entrepreneurial magazines and conferences are the publishers and speakers. I am amazed at the number of ads claiming that you can make ludicrous sums a week by doing nothing and without knowing anything. I am reminded of a Far Side cartoon where a shady character is offering a book for sale to a 40W bulb—the title Double Your IQ in Two Weeks Or No Money Back.

In the day, my parents made a bit of money fixing up and selling old houses. I have the skills for this endeavor, and I know what to look for. The mistake I’ve made in the past was trying to live in the house and do the updates on a shoestring after work. That approach is a recipe for stress and failure. Over the past few evenings, I started doing research on houses that I could afford to look at with this purpose.

Today, Suna and I made the trek through the Hill Country to look at three of the most likely prospects. One was unfindable (the GPS kept trying to route us through closed gates), we decided not to bother with the second, and the third was in a neighborhood that was way too scary. So I have determined that I can’t afford to approach this investment the way I wanted—a very disappointing result. I will just have to be patient and keep looking for an opportunity.

The best part of the day—other than spending time with Suna—was the getting out of the city. We saw some amazing sites, including the wader pictured here. The birds were worth the cost of gasoline.