Table of Contents
There are plenty of ways to make some cash in the real estate investment industry. The most popularly known, perhaps, are the standard residential single-family home and multi-unit building investments. Short-term rentals are becoming popular as the world opens its eyes to the various points of interest dotting Canada. Beginner investors or those investing on a tighter budget are learning about the benefits of REITs.
One of the least-explored avenues in real estate investment is also one of the least understood. Real estate wholesaling is an excellent option for the investor with plenty of hustle, but some are curious about the possibilities involved in reverse wholesaling.
But if you would like to learn more about how reverse wholesaling can impact the wider financials of your investment portfolio, click the link below to book a free strategy call with us at LendCity today.
What is real estate wholesaling?
Investors without the budget to stake their claim in a traditional residential or commercial real estate opportunity and who aren’t interested in the world of crowdfunded or REIT investments just might find something to love in the world of wholesaling. In a real estate wholesaling transaction, the agent (that’d be you) finds a house they feel is worth their time. Then, they secure the home from the seller with a short-term wholesale real estate assignment contract.
The contract gives the wholesaler a small window to find a buyer for the home. When the wholesaler secures a buyer, they’ll receive a commission for their efforts. When they’re pounding the pavement in a thriving real estate market, a wholesaler can close five or more deals every month, securing real estate commissions without spending a dime of their money.
When it works, real estate wholesaling is tremendously beneficial to the middleman. Though the profit on each deal is typically smaller, real estate wholesaling requires no cash infusion and removes the need to deal with tenants, contractors or financial experts. The most obvious drawback to the real estate wholesaling process is the short window of most wholesaling contracts. If a wholesaler cannot get a buyer in the allotted window of time, they could find themselves on the hook for the cost of their real estate property.
Discover How To Develop Real Estate With This Step By Step Guide
So, what’s reverse real estate wholesaling?
Some investors believe they’ve discovered the perfect way to mitigate the risk of real estate wholesaling. They find clients looking for an investment property and then start looking for a home. It’s referred to as reverse real estate wholesaling. The payoff for the buyer is that you’re lending your real estate market expertise to find them the perfect home.
Reverse wholesaling might look like the perfect solution to anyone trying to experiment with the wholesaling model, but it’s not a one-size-fits-all vocation. Here are some questions to ask yourself if you’re considering a foray into reverse real estate wholesaling.
How chatty are you?
Perhaps more than any other kind of real estate investment, wholesaling and reverse wholesaling requires a people person. When you’re acting as the go-between, sometimes on multiple real estate deals at once, there is a whole lot of interaction. If you’re not the kind of person who is willing to build long-term relationships with other people — that means hearing about their kids, learning about their interests and all that stuff — then reverse wholesaling probably isn’t for you.
The bright side here is that there are still plenty of other lucrative options for real estate investment.
How connected are you?
It probably comes as little surprise that one of the most important parts of connecting a buyer with a potential seller (or vice versa) is locating and enlisting the help of individual buyers and sellers. If you’re hoping to make a go of reverse wholesaling, it helps to already know plenty of people who have a claim in the real estate industry.
The upshot is that there are real estate networking groups throughout Canada. Just because you might not know any industry luminaries at the moment doesn’t mean you can’t meet them with a little research and education.
Can you pay for the risk?
As has been said, the most significant risk in real estate wholesaling is finding yourself with a signed contract and no buyer for your home. It’s an excellent way to find yourself on the hook for several thousand dollars. It’s true that while reverse wholesaling can certainly mitigate the risk of this happening, it doesn’t remove it altogether.
Even when you’re working as a middleman on a reverse real estate wholesaling deal, you should make sure that all your ducks are in a row before you pull the trigger.
What does the rest of your portfolio look like?
Veteran real estate professionals should be wary of investing too much of their portfolio into one area of the real estate market. If you’ve got one or two single-family real estate properties under your belt, it might be smart to explore new means of raising money.
When you’re already acquainted with the real estate market, you probably already know a few reliable buyers and sellers. That could make it easier to parlay your free time into a few reverse real estate wholesaling deals. Finding ways to turn short deals into frequent cash payouts could serve as a great way to balance out the long-term earnings and appreciation of a single-family home.
Can you estimate repairs?
When you’re working through reverse wholesaling options, you’ll quickly discover that a lot of buyers will — without realizing it — want homes that require some degree of home repair. Could be a little; could be a lot. As the reverse wholesale agent, one of the chores on your checklist should be to provide a reasonably accurate depiction of the costs that each buyer will incur in repair costs. It’s a question they will inevitably ask, and one they will remember your answer to when the final repair bill comes in.
You might not be financially liable for the repairs of your home, but your reputation could be irreparably damaged if you give too many estimates that miss the mark.
Is reverse wholesaling the right move?
There’s no such thing as risk-free real estate investment, and that’s true for reverse real estate wholesaling. For an entrepreneur willing to contact buyers and cultivate relationships with investors, reverse wholesaling offers much less risk than the alternative.
If you would like to learn more about how reverse wholesaling can impact the wider financials of your investment portfolio, click the link below to book a free strategy call with us today.