Daisy chaining in real estate has been rapidly becoming more popular lately.
Before you dive into the strategy, though, you’ll want to figure out exactly what daisy chain wholesaling is, how it works, whether or not it’s a lucrative strategy to use, and what you need before you start using it.
In this guide, we’re going to break down exactly what a daisy chain is, how it works in real estate, what you can expect when you’re using the strategy, why people daisy chain properties, and some of the advantages and disadvantages of daisy chain wholesaling.
Then, we’ll let you know who it’s for, who should avoid it, and how to get started using the strategy.
What Is A Real Estate Daisy Chain?
For real estate investors, a daisy chain is created whenever a wholesaler puts a property under contract and then assigns that contract to another wholesaler, who then repeats the process with another wholesaler.
This strategy has exploded in popularity over recent years because of the unprecedented demand for land, condos, mobile homes and single-family dwellings.
With the increased demand, the ability for wholesalers to chain together other wholesaler’s deals has never been more popular — or profitable.
For wholesaling real estate, a daisy chain happens whenever the first wholesaler agrees and signs a contract with a property owner.
Then, the first wholesaler will assign that contract to another wholesaler who proceeds to mark up the price and begins either looking for an investor to purchase the contract or another wholesaler to flip it to.
As each new wholesaler enters into the picture the price gets marked up even more.
Once the deal is finalized, each wholesaler involved in the chain will pocket the difference between their fee and the total profit involved in the deal.
Then, the property owner receives the original agreed-upon price that they entered into contract for with the original wholesaler.
Simply put, here’s a quick breakdown to help you visualize a daisy chain in motion:
- Property Owner signs a deal with Wholesaler 1 for $200,000.
- Wholesaler 1 gets into a contract with Wholesaler 2 for $210,000.
- Wholesaler 2 gets into a contract with Wholesaler 3 for $220,000.
- Wholesaler 3 finds a buyer for the property for $230,000.
- That means Wholesaler 3 makes $10,000. Wholesaler 2 makes $10,000. Wholesaler 1 makes $10,000.
- The property owner is paid $200,000 for their property and the deal is finalized.
While real estate daisy chaining holds the potential to be incredibly profitable, you can see from the example above that they can be incredibly complex to navigate.
Using daisy chains can be a great way to turn a profit while also generating new leads, especially for beginner wholesalers looking to grow their list.
It helps them gain much-needed experience from more seasoned wholesalers while also capitalizing on more established buyer and seller lists.
And since daisy chaining requires you to work with other investors, they can be great for networking and building relationships.
However, with all the benefits of daisy chaining deals, there are also potential pitfalls and caveats you need to be aware of before you start using the strategy.
For instance, since there are so many investors involved, newer investors to the chain could sidestep everyone else and go direct to the original wholesaler in order to get the best deal.
Wholesalers earlier in the chain may also get the property sold without notifying other investors on the chain, leaving them spending time, energy, and money marketing a property that is no longer available.
Other times, buyers may sense that a daisy chain is happening and completely avoid the situation altogether because of how complex they can be.
Even with all of this, though, daisy chains can still be incredibly profitable. The key to making money with them is understanding the good from the bad and making sure you can spot legitimate daisy chain deals.
Here’s a few tips to help you spot a good deal and make money with this strategy.
If there’s one thing that makes daisy chains incredibly complicated (and unattractive to potential buyers), it’s having too many hands in the cookie jar
When there are too many wholesalers on a chain it makes it hard to figure out who actually controls the deal and maintain property communication every time a new wholesaler joins on.
So if you’re looking to make money daisy chaining deals, it’s best to avoid long chains. If possible, you want to take part in chains with less than 5 parties. That means the original seller and original wholesaler, a secondary wholesaler, yourself, and the buyer of the property.
This makes it easy to understand who controls the contract and reduces the number of transactions that need to happen while ensuring smooth and open communication channels.
There’s quite a few different ways to find lucrative daisy chains but, by far, one of the easiest and most effective is partnering with an experienced wholesaler.
They’ll typically have a solid network of sellers and deal flow while primarily looking for buyers so a partnership with them unlocks both your access and the ability to continue their daisy chains.
It also lets you tap into their existing network who could potentially feed you other deals down the road.
When it comes to working with other more experienced wholesalers, in-person networking and establishing relationships with other real estate industry professionals is highly advised.
The relationships you build will help you get in on chains early enough to be able to make money while also helping you set the stage for the future growth in your business.
On top of this, building strong relationships with other wholesalers helps keep lines of communication open when you’re daisy chaining a deal — which can make your life significantly easier.
In an effort to keep everyone in the deal as honest and as transparent as possible, you’ll want to make sure you’re getting full disclosure and nondisclosure agreements signed.
A full disclosure agreement helps you understand who else may be involved in the deal while a nondisclosure agreement helps keep other wholesalers on the chain from going behind each other’s back and cutting people out of the deal.
You’ll also want to openly communicate about how you’ll share responsibilities and split profits from the beginning and ensure nothing is left unaccounted for.
When you’re on a daisy chain, you’re only able to earn the difference between your assignment fee and the profits left in the deal — which lowers your overall profit margin.
To help offset this, you’re going to want to think about staying diversified and working with multiple different types of properties to help ensure a better deal flow.
One of the key aspects of making daisy chains profitable is being able to quickly get deals done.
That revolves around having your own buyer’s list ready and waiting for you to send deals through.
If you haven’t already started building your own buyer’s list, we have quite a few guides that can help you get the process started.
You can check out our guide on How To Find Cash Buyers For Your Next Wholesale Deal.
It covers exactly what a great cash buyer looks like, where you can start looking for them, and a dozen different ways to start building your list fast.
The answer to this question ultimately depends on what you’re looking for in business.
If you’re a beginner wholesaler and you want to work with more seasoned professionals to help you gain experience faster and expand your network, then yes — absolutely — you should look into daisy chains.
If you’re a more established investor who is looking to move deals faster while avoiding the heavy lifting and marketing the property, daisy chaining with other wholesalers can help you accomplish that goal.
Daisy chaining wholesale deals comes with a few key advantages, especially if you’re a beginner.
When these contracts are executed properly, working a daisy chain is some of the easiest and fastest ways to make your first money in real estate.
This is because all you’re essentially doing is marketing the property and finding a buyer who may be interested in purchasing the contract.
With multiple people each working on marketing the deal, they tend to move quicker than if you were wholesaling a property on your own.
On top of that, each person involved in the chain can utilize other people’s buyer lists to help lead to a faster closing and earning the assignment fee as quickly as possible.
Besides making the process move quicker, having access to other wholesalers and building relationships with investors makes it easy for you to find even more buyers for your future deals.
It allows you to focus on learning business fundamentals, like finding buyers and motivated sellers while other people are marketing your deals.
This steady stream of motivated sellers and buyers helps benefit everyone on the chain and lets new wholesalers tap into the lists of more seasoned wholesalers.
When it comes to kickstarting your business, daisy chaining provides a huge advantage.
When a daisy chain is well-organized, it involves working cohesively with multiple types of real estate professionals, ranging from individual investors, to agents, brokers, buyers, and sellers.
For beginner investors, this is a huge opportunity to learn the in’s and out’s of the real estate industry while also getting a look into potential red flags they’ll want to avoid during future deals.
At the other end of the spectrum, more seasoned investors and wholesalers get to work with people who specialize in parts of the business they may not already specialize in — like marketing a deal, for instance.
If you’re looking for a way to break into the real estate industry without using any of your own cash or putting your credit on the line, daisy chaining a wholesale deal can be the right play.
Since wholesalers typically spend around $2,000 per deal to get it sold, between marketing, software, and administration costs, you get to save all that money while focusing on finding a buyer.
That means being new to the industry, having no cash, or potentially even having bad credit is no longer a limiting factor to your success when you’re jumping on a daisy chain.
In real estate, your network determines how many deals you’re able to get done, how quickly you can get them done, and (ultimately) how much money you can make.
When you’re daisy chaining deals, you get access to multiple people’s networks so you can start building new relationships and then scale those relationships as you branch out to other models in your business.
While the upside potential with this strategy is huge, there’s also potential downsides you need to think about before you start daisy chaining wholesale deals.
Since there are no limits to how many people can be on a daisy chain, it can be hard to identify or even contact the original deal owner if you’re late to the game.
Since most new wholesalers who join a chain are typically wary of other people stealing the deal from them, they typically aren’t going to offer this type of information upfront.
That means you’re giving up a good amount of control when you’re on someone else’s chain.
When a buyer learns that the deal is part of a daisy chain, they could get turned off and walk away.
This is due to the fact that each additional person on the chain usually means the assignment fee has risen over and over again.
When a buyer chooses to walk away, it negatively impacts every person on the chain since the deal was lost (and their assignment fee went with it).
The longer and more involved a chain is, the more likely it is that one person on the chain will get the deal closed without properly notifying everyone else on the chain.
This means you could spend time and money marketing the deal that has already been closed.
Having so many people in communication can also mean there’s room for people to disagree, which would cause a breakdown of the deal before it gets a chance to move forward.
At the end of the day, daisy chain wholesaling in real estate can be a profitable model to use, especially if you’re brand new to the industry, don’t have a ton of cash, maybe have bad credit, and are looking for a way to kickstart your success.
As long as the advantages outweigh the disadvantages, and you’re confident you can help find a buyer for the deals you’re getting involved it, daisy chaining can be one of the fastest, easiest ways to make your first money as a brand new real estate professional.