Wholesaling can be a great strategy for new real estate investors, as it allows you to begin with limited money and capital. But, successful wholesaling depends on actually finding real estate investors to whom you can assign a contract – frequently cash buyers. As a result, people often ask me about finding cash buyers for real estate wholesaling.
With wholesaling, you put a property under contract and then assign that contract to a real estate investor. That investor then actually purchases the property. Normally, these investors buy properties in cash, meaning that successful wholesalers build strategies to find cash buyers in their markets.
But what is wholesaling and how can you make it work for your real estate investment business? It’s not as difficult as you think! Let’s dive in.
What is Real Estate Wholesaling?
When wholesaling houses, you don’t purchase an investment property. Instead, wholesalers find off-market properties, and they enter contracts to purchase these properties. Rather than close on the purchases, they assign the contracts to a third party, typically a fix & flip investor. And, they assign these contracts for a fee. In a nutshell, wholesalers find deals, connect the sellers with investors, and collect a fee in the process – all without dealing with the headaches of doing any rehab work themselves. In other words, wholesalers complete these four steps in every deal:
- Step 1: Find solid off-market deals, ones that will appeal to fix & flip investors.
- Step 2: The wholesaler then goes under contract to purchase the home, typically a distressed property.
- Step 3: The wholesaler then shops the contract/deal around to potential buyers, generally house flippers.
- Step 4: With a third-party buyer confirmed, the wholesaler assigns the new buyer the contract rights and obligations – for a fee. This new buyer then carries out the remainder of the closing process and actually purchases the home.
When you wholesale, you learn very quickly how to spot good deals for fix & flip investors. If you don’t find good deals, you won’t be able to assign contracts to these people. Simply put, you learn what to look for in a property. Additionally, you have to work closely with house flippers. This gives you the added benefit of learning from them. Pick these people’s brains. They have tons of experience, and you can learn from it. Lastly, wholesaling puts money in your pocket. If disciplined, you can allocate a portion of these funds for a down payment to purchase your own investment property.
Major Advantages to the Wholesaling Strategy
Before going into the detailed considerations of finding cash buyers for wholesaling, I want to outline the major benefits to this investing strategy. In particular, wholesaling offers four great advantages:
Gain Real Estate Investing Experience
One of the primary advantages of wholesaling is that it provides new investors an incredible amount of experience – while limiting risk. Typically, wholesalers assign their contracts to fix & flip investors. As such, wholesalers need to understand exactly what these investors look for in a successful flip deal. If wholesalers put a property under contract that doesn’t meet fix & flip investment criteria, they won’t be able to assign the contract.
This reality means that wholesalers need to learn how to research and analyze deals in the same fashion as fix & flip investors. Actually, they need to find better deals, as the numbers need to support the wholesalers’ and flippers’ profit margins. But, wholesalers have the benefit of finding these deals without the added rehab, holding, and resale risk that comes with a full flip deal.
Little Cash Required
Additionally, wholesalers need very little cash to begin this strategy. I won’t say they don’t need any cash. Realistically, wholesalers will need $2,000 to $3,000 for up-front software, marketing, and other admin costs. But, they definitely don’t need tens or hundreds of thousands of dollars to pursue this strategy.
This low financial barrier to entry makes wholesaling extremely appealing to new investors. You can get your foot in the real estate door, gain some experience, and put some money in your pocket – all without needing a ton of initial capital.
Can Wholesale with Bad Credit
Wholesaling also opens investing doors to people with bad credit. Most traditional lenders won’t approve loans for people with poor credit scores. This makes strategies like buying and holding real estate next to impossible if you don’t have great credit.
On the other hand, with wholesaling, you don’t actually purchase an investment property. This means you have no need to apply and qualify for financing. Instead, wholesalers find deals, connect the sellers with investors, and collect a fee in the process – all without dealing with the headaches and credit requirements of qualifying for a mortgage.
Can Wholesale with Minor Criminal Records
Similar to bad credit scores, criminal records will likely prevent you from qualifying for traditional financing. And, most hard money lenders will need to closely review criminal records on a case-by-case basis to consider approving a loan. With wholesaling, you can find and put deals under contract without needing to go through the criminal background check any loan application would require.
However, if you’ve committed a crime of moral turpitude or one that’s financial in nature, you’ll still likely struggle to find willing investors to take contracts off your hands.
Why Cash Buyers Matter for Wholesalers
Reason 1: Property Condition Doesn’t Matter with Cash Buyers
If a borrower defaults on a traditional mortgage loan, that is, stops paying, the bank still wants its money back. For this reason, lenders require formal home appraisals during the mortgage loan closing process. They want to make sure that they’re not lending you more than the house is actually worth. That way, if you stop paying, they know that they can foreclose on and sell the property, with the proceeds paying off the loan balance. In this vein, most traditional lenders will not provide mortgages for homes in need of major repairs.
And, two common residential real estate investing strategies inherently depend on a property’s distressed nature. In particular, both of the following commonly embraced strategies rely on purchasing a distressed property, one that likely wouldn’t qualify for traditional financing:
- Fix & Flip: With this strategy, investors find a distressed property – typically at a deep discount. They purchase this home and renovate it to a standard that will meet traditional financing standards. Once renovated, these investors then sell the property to someone using a traditional mortgage, normally a primary homebuyer. Investors pocket the difference between this sale price and their acquisition/rehab/holding/transaction costs as profit.
- BRRR: This stands for buy, rehab, rent, and refinance. And, these investors look for a similar property to the above, that is, a distressed home at a deep discount. Next, they complete the rehab process, but they have an aim to rehab a home for tenants – not owners. Once renovated, investors then lease the home to quality, long-term tenants. Once leased, investors can refinance their short-term, high-interest hard money loans into long-term, traditional mortgages. As such, they profit in three ways: 1) cash flow from tenants, 2) property appreciation, and 3) loan amortization.
In addition to being common investing strategies, both of the above clearly hinges upon finding distressed properties in need of major repairs. As a wholesaler, you cannot assign contracts on these sorts of properties to people using traditional mortgages. On the other hand, cash buyers have no restrictions related to property conditions, making them critical to wholesaling success.
Reason 2: Areas with a Large Number of Cash Buyers are Generally Good Wholesaling Areas
As a wholesaler, you need to think in terms of the investors to whom you will ultimately assign your contracts. And, when talking about the best places to invest in real estate, I like to use a fishing analogy: fish where you know there’s fish. As a fisherman, it wouldn’t make sense to spend a bunch of time fishing a water hole or river that doesn’t have any fish. Similarly, as an investor, it doesn’t make sense to look for deals where none exist. And, this is what discourages plenty of new investors. They spend a ton of time looking for deals in areas that simply don’t have them. When they don’t find any opportunities, they get frustrated and call it quits.
But, this situation begs the question: how do you know where the “fish” are in your local area?
Personally, I recommend developing target zip codes geographically, that is, places I’m willing to drive. But, just because a zip code meets my geographic criteria doesn’t mean it meets my investing criteria. To establish my list of actual “target zip codes,” I need to dig into some deal-related details for each of these areas.
In particular, I look for the number of cash sales that occurred in each of my geographic “yes” zip codes over the preceding year. More precisely, I look for the number of cash sales within my purchase range. For instance, I may be willing to consider deals ranging from $75,000 to $500,000, so I’ll filter my search for cash sales that have happened within that range. Back to the fishing analogy: you want to fish where the most fish are. And, the number of cash transactions in an area serves as the best indicator of the number of deals that happened in that area.
When fix & flip or BRRR investors buy homes, they take one of two paths: use a hard money loan or pay with cash. In public records, hard money loan transactions appear the same way as any financed purchase. As a result, these transactions are tough to determine in an area. On the other hand, cash sales are reflected as cash sales. Accordingly, if a zip code has a large number of cash transactions over the past year, you know there are a lot of “fish” there, that is, a ton of deals.
So, while cash sales information doesn’t tell you about total deals in an area (as it ignores deals financed with hard money loans), these numbers provide the absolute best indicator for deal potential in a given zip code. Simply put, a lot of cash deals in an area mean that investors are “pulling fish out” all the time, which makes an area ideal for wholesaling.
How to Find Cash Buyers for Real Estate Wholesaling
Having provided the above wholesaling overview, here are the strategies I recommend for finding cash buyers. And, I want to emphasize that these strategies aren’t mutually exclusive. That is, to compile a solid cash buyers list, you can – and should – use a variety of strategies to determine the most effective approach. Eventually, you’ll have a reliable list of investors to whom you can assign contracts. But, to reach that point, maximize your reach by experimenting with a combination of the following strategies.
Build a Relationship with a Local Real Estate Agent
Typically, real estate agents work with the Multiple Listing Service (MLS). When they represent home sellers, agents list the properties for sale on the MLS. Conversely, when they represent buyers, agents search the MLS for properties falling that fit certain criteria. Accordingly, real estate agents normally work with deals involving people buying primary residences with traditional financing – not cash buyers.
But, most real estate agents also have an intimate understanding of their local markets and the key players in those markets. While they may not deal with cash sales on a daily basis, an established real estate agent likely will have a good idea of who the major cash buyers are in a given area. As a result, building relationships with local agents can be a great way to start building a cash buyers list. And, this should be a mutually beneficial approach. Learning about local cash buyers helps you as a wholesaler, and the real estate agent can potentially represent you in future sales and purchases.
Real Estate Investor Groups
Real estate investor groups are another great way to meet cash buyers. Most cities – and often even towns – have a local investor group. These groups typically meet once a month or so, and the meetings have two general goals. First, each meeting usually has a speaker covering a topic related to some aspect of real estate investing. In this way, they can be great opportunities to expand your general knowledge.
But, more importantly, investor group meetings function as networking events. Before and after the speaker and Q&A session, members chat with each other, often mentioning deals that A) they’re working on, or B) actively seeking fellow investors to join. These networking sessions can be a great opportunity to meet cash buyers. When you introduce yourself as a wholesaler, you can then get contact information for people looking for certain types of deals. Make sure you get the contact information for anyone interested in finding properties to flip or BRRR, as they could potentially become cash buyer partners down the road.
And, these interactions also provide another great way to secure cash buyers: reverse marketing. With this technique, you reverse the sequencing of a wholesale deal. Instead of finding a deal and then finding a buyer, you find the buyer and then find the deal. Essentially, reverse marketing means finding motivated buyers – typically fix & flip investors – and asking what they’re looking for in terms of property and price, and then going out to find those deals. That way, you’ve already secured a buyer before putting a property under contract. As soon as you sign the contract, you contact the buyer, explain that you’ve found a property meeting their requirements, and then you assign the contract.
It may seem “old school,” but Craigslist remains a great resource for connecting with cash buyers in your area. In particular, this platform offers two key functions for finding buyers. First, you can filter based on topic, in this case, cash real estate buyers.
Second, and just as importantly, Craigslist lets you filter based on geographic location. Once you determine your target wholesaling markets, you can filter your searches for cash buyers based on those areas. It wouldn’t make sense to find Los Angeles cash buyers if you live and wholesale in Oklahoma City, and Craigslist embraces this reality.
Online Real Estate Investing Forums
Think of this as a hybrid between a local real estate investor group meeting and Craigslist. With online investing forums like Bigger Pockets, you can use message boards to introduce yourself to real estate investors all over the world. And, similar to Craigslist, you can narrowly focus these introductions.
For example, you could introduce the thread topic “real estate wholesalers looking for cash buyers in Buffalo, New York.” Then, any people searching the message boards for topics related to A) wholesaling, B) all-cash deals, and C) Buffalo, New York would find your introduction. And, if your message aligns with their goals, you could potentially connect with a cash buyer in your area.
If you’ve driven around a neighborhood and seen “we buy houses!” signs, you’ve seen bandit signs. Most American cities have one – or more – of these marketing campaigns running at any given time. You may not have realized it when you drove by one of these signs, but they’re typically posted by cash buyers in the local area – people looking to find distressed properties to flip.
As bandit signs are a marketing tool for cash buyers, they’ll have either an e-mail or phone number included to actually contact those buyers. For wholesalers, taking down this information is an easy, cost-effective way to connect with some local cash buyers. When you see a bandit sign, reach out to the buyer, introduce yourself as a wholesaler, and ask if they’d be interested in hearing about future deals. Chances are, the person you talk with would be thrilled to connect with a local wholesaler, as that’s one more way for house flippers to find deals.
Online Lead Capture Tools
These are apps integrated with your website, so this strategy depends on actually having some sort of online presence. With a lead capture tool, you allow cash buyers to find you, adding their contact information to a fillable form on your website. Once someone adds this contact information, you’ve established a lead. Next, you need to reach out to that lead, confirm that he or she is, in fact, a cash buyer, and then see if you have overlapping markets and target properties.
Of note, any marketing strategy involving a website should include a search engine optimization, or SEO, campaign. SEO campaigns are beyond the scope of this article, but, bottom line, the best lead capture tool in the world won’t make a difference if people can’t organically find your website in a search engine.
Public Tax Records
Real estate transactions are a public record in most municipalities. And, as discussed above, all-cash transactions are recorded in these public records as cash sales. As a result, savvy wholesalers can dig through transaction records to find a history of cash sales in a particular market. While these records likely won’t give you contact information, they will tell you who bought a property. Or, if purchased under an LLC, the records will show the name of the LLC, which can be cross-referenced against state records to find key contact information for that LLC.
This approach can take a lot of work – and certainly requires familiarity with online databases – but can be done from the comfort of your own home. And, if you find a name but not contact information, you can use a skip trace service to actually connect you with the cash buyer.
Real Estate Auction Prospecting
Real estate auctions can be a great place to find deals on properties. But, many lenders won’t finance purchases for auctioned homes. As such, many of the people looking for properties at these auctions are cash buyers. Accordingly, wholesalers can spend a few hours at a real estate auction, see who’s making all-cash offers, and introduce themselves to those cash buyers.
In addition to helping you find buyers, this technique also breaks through the awkwardness of a cold call. When you cold call or e-mail someone, chances are you won’t get a response or at least a positive one. But, when you introduce yourself in person, you break this interpersonal barrier. It may seem insignificant, but a handshake and smile can build a relationship far more effectively than a seemingly random call or e-mail.
Pay-Per-Click (PPC) Ads
If you’re willing to spend some money, you can pay to have your website show up in search engine results. With tools like Google Adwords, wholesalers can bid on certain search engine keywords. For instance, you may bid on a phrase like “find houses to flip in my area” – or any other phrase you think a cash buyer may use. Then, if a user searches for that phrase, your website will show up as a sponsored result, increasing the likelihood that a cash buyer will A) click on your website, and B) contact you to find deals.
Pay for a Cash Buyers List
If willing to spend some money, you can also pay for a cash buyers list. Fix & flip and BRRR strategy cash buyers want to find deals. As a result, many of them sign up with services to connect with potential deals. And, to facilitate finding deals, many of these online services will compile and sell these lists of cash buyers to wholesalers in an area. In this way, cash buyers find deals, and wholesalers find cash buyers – another win-win situation.
Build and Maintain Relationships
This final suggestion is less a strategy to find cash buyers than one to retain them. Regardless of which of the above strategies you use, it’s critical that you nurture and maintain relationships. As a real estate investor, your local market can seem like a very small world, and you never want to burn bridges. Additionally, someone may not be a cash buyer now, but they may be in the future. Alternatively, if you build a strong relationship with a fellow investor, that person may decide to refer you to one of his or her cash buyer acquaintances.
As you use the above strategies to find cash buyers, don’t become dejected. Wholesaling is a numbers game. Not every lead will translate into a solid deal. Similarly, not every cash buyer will want to work with you. What’s important is that you remain disciplined in your approach. Eventually, you will build a reliable list of cash buyers and investors who you can count on as a wholesaler.
And, just because a buyer may not be interested in a given deal doesn’t mean you should stop contacting him or her. As with all real estate investing strategies, the most successful wholesalers build and nurture relationships, actively seeking opportunities that benefit them and their fellow investors. While today’s deal may not make sense for an investor, tomorrow’s wholesaling opportunity may.