Phillip Vincent, who has completed over 500 real estate transactions, created a business plan that allows him to wholesale 25 deals a month. In our recent conversation, he explained the strategy and how he is able to follow it while spending zero dollars out-of-pocket on marketing costs.
The Reverse Wholesaling Process
Instead of following the standard wholesaling model (market for deals, find motivated sellers, and then assign contracts to rehabbers), Phillip does the reverse. First, he finds rehabbers that want a consistent flow of deals. Then, the rehabbers pool together their marketing funds. Finally, Phillip uses the marketing funds to find motivated sellers. His only out-of-pocket costs are his time and the costs of any team members that he employs to help him with the process.
After 2 weeks of marketing his services to investors, stating that he wanted to conduct their marketing and acquisitions for them, that he wanted to make $5,000 to $7,000 on every deal, and he wanted them to put up the funds for marketing, Phillip was able to fill up his 25-investor roster in the St. Louis market. Each investor pays $2000 a month, with a 6-month initial commitment, so Phillip has a marketing budget of $50,000 per month to work with. He has been following this strategy for only 2 weeks, and he has been able to close 1 deal and has 19 more deals under contract.
Addressing Potential Investor Objections
The most common objection that rehabbers have to this strategy is, “why am I paying for the marketing?” When Phillip paid for his own marketing, he had to purchase properties at a deeper discount in order to make a $15,000 to $20,000 wholesale fee to cover the marketing costs and other applicable expenditures. However, when the rehabbers pay for the marketing, Phillip can pay the seller slightly more, which means he is walking away from less deals, and he can sell the deals to rehabbers at a lower price, since he is only taking a $5,000 to $7,000 wholesale fee.
For example, the first deal that Phillip closed following this method was a small ranch with a retail value of $80,000. The owner owed $61,000, she was a heavy smoker, and the house was full of items. If this were a typical wholesale deal, Phillip would have passed. However, since he found this deal using his investors marketing funds, and since he only needed a $5,000 wholesale fee, he was able to make it work. The seller ended up bringing over $30,000 to the closing table to get the house sold, and Phillip wholesaled the property to his investor for $42,000, who stated that he would have paid $48,000, so Phillip probably could have squeezed a little more profit out of the deal.
Another problematic aspect of this strategy is that one investor could purchase all of the deals. Deals are on a first-come-first-serve basis. When Phillip finds a deal, he sends out a starting price and a “buy-it-now” price to the pool of investors. Whoever can hit the “buy-it-now” or highest-price first will be awarded the deal. This means that one investor could scoop up every deal.
But, to mitigate this, Phillip split his market, St. Louis, into 5 zones — with 5 rehabbers in each zone. One of the five investors could still technically purchase every single deal. However, all of Phillip’s investors do 8 to 15 rehabs per year, or approximately one per month, so none of them will be buying more than one property per month.
What are your thoughts on this strategy? What additional questions would you need answered before feeling confident enough to implement this strategy?