A daisy chain is a situation in real estate where a seller and a wholesaler (wholesaler A) sign a contract for the purchase of a property. He then goes on to give the contract to another wholesaler (wholesaler B), who then gives it to another wholesaler (wholesaler C), and so on.
This is a daisy chain, and the market value of the property rises with each link added to the network. Because there is no restriction on the length of a daisy chain, it is challenging to ascertain who is in charge of the transaction.
Read Also: Contract Assignment in Real Estate
How Does Daisy Chain Work?
Basically, the daisy chain is explained by the wholesaling principle. A daisy chain occurs when a wholesaler and a seller have an assignable contract, and that wholesaler then assigns the contract to another wholesaler, who then does the same to the next wholesaler, and so on. The market value rises with each assignment of a contract to a different distributor.
Since real estate brokers, agents, wholesaler partners, and other parties may be engaged, the daisy chain is typically intricate. Typically, these entities enter an agreement that ought to be straightforward but instead complicates it. Due to these factors, a lot of knowledgeable consumers usually avoid daisy chains as soon as they realize what is going on.
Link Between Wholesaling And Daisy-Chaining
It’s not always simple to find homes in real estate that are worth buying and selling. It costs a lot of time and money. However, there are a few ways to invest in real estate without using your own money. Wholesaling is one of these methods.
When an investor meets with a motivated seller—someone who is eager to sell their property at a lower price as quickly as possible—they are engaging in a process known as wholesaling. The wholesaler and the motivated seller come to an agreement, and the property is put under contract. The contract is typically time-based.
The wholesaler then goes on to locate an end customer ready to purchase the property within the predetermined time frame for a somewhat higher price. In most cases, the wholesaler pays the assignment fee but does not actually purchase the property; instead, they either utilize flash cash or locate another interested party that has the cash on hand to buy it outright.
Most states do not need a distributor to complete a course or obtain a real estate license, while some do. The ultimate objective of a wholesaler is to sell each discounted property to a buyer who will pay cash upfront, but in some circumstances, a wholesaler may need to engage with another interested party who may then assign the contract to another wholesaler. A daisy chain is produced in this circumstance.
Why Do Wholesalers Daisy Chain Properties?
All real estate initiatives, including wholesaling, co-wholesaling, flipping, and direct selling among others, have the primary objective of making money. A wholesaler may choose to daisy chain properties to increase the likelihood that they will turn a profit.
The daisy chain is tricky and occasionally fraught with danger. When a potential end customer discovers that the property is being offered in a daisy chain, they can get in touch with the wholesaler offering the best value and complete the transaction. The wholesaler may occasionally neglect to notify other wholesalers after concluding a deal, forcing them to continue seeking buyers for an already sold item.
Handling a Daisy Chain
It is crucial that you as an investor conduct research on any property you are considering purchasing. Despite the daisy chain’s complexity, one can still profit from it if one uses it ethically.
An investor can accomplish this by scheduling a meeting or conference call with the owner of the record and the wholesaler from whom they learned about the offer. The investor can check the roles of each person in the daisy chain by asking pertinent questions (and if a daisy chain exists at all).
The safest course of action for an investor may be to just walk away from the contract if the parties refuse to answer questions.
A daisy chain actually has a benefit since if it is sold, numerous distributors will profit. However, because it can be perplexing, the majority of people try to avoid it. Do your homework on the property in consideration as an investor or buyer to determine whether it is a property worth purchasing or not.