article by Tod Snodgrass
Judging by the number of TV shows devoted to the subject on cable TV these days, being a Wholesale Contract Flipper (WCF) would appear to be a great way to make a living. And it can be, if done right. For one thing, compared to first rehabbing and then flipping a property, a wholesale contract flip potentially carries less risk. It also offers the opportunity to do more deals in a shorter period of time as well, which equals greater velocity of your investment capital; all good so far. Now some WCFers are trying their hand at a new niche…what is known as “reverse wholesaling”.
The concept is actually pretty simple. Instead of putting properties under contract, and then trying to find buyers for same, the process is reversed: First you find the end buyer, then fill their order with a property that you go out and put under contract. Think of it as pre-selling.
Makes More Dollars, and Sense
Instead of investing your effort, time and money acquiring properties that may or may not sell (quickly or for a profit), having an order first means you can confidently go about trying to identify specific properties that meet the specs you have been given, since you know the property is already sold before you even start the acquisition process. This can really speed up the process and offers the opportunity for higher profits since your time will be spent more productively, and with greater efficiency, which decreases risk.
Create a List of Potential Qualified Buyers
Each of them should be ready, willing and able to buy one or more properties as you find them, based on the specs provided to you by each buyer.
Ideally, wholesale flips would all involve simply putting the property under contract, and then flipping (assigning) the contract to the end buyer via an assignment (agreement) during the (escrow) contingency period. This may be the easiest and quickest method to wholesale a property, but unfortunately, it is not always possible to accomplish a deal this way. Sometimes legal or lender issues arise that prohibit the contract being assigned. So, instead of a simple assignment (to the ultimate end buyer), you may be required to actually own the property yourself (as opposed to flipping the contract); this is usually referred to as an A-B transaction. Next, you sell the property to your end buyer in a totally separate transaction; this is normally referred to as a B-C transaction. A-B-Cs are often referred to as double-close, double-escrow or back-to-back escrow transactions. Unfortunately, many wholesalers lack the funds to close on the A-B sale. While there are some cooperative title companies who allow you to accomplish a simultaneous closing (using your end buyer’s funds to finance the transaction), most require you to bring your own funds to closing.