Real estate wholetailing investment technique that combines the best aspects of two of the most common strategies – flipping houses and wholesaling. With wholetailing, you can earn large fees simply by acting as a middleman between a buyer and seller without the added risk of doing a major renovation.
If done correctly, you can earn significantly larger fees than wholesaling with substantially less work than flipping a home. While it may sound too good to be true, it is a viable strategy in specific scenarios. To help you make sense of the concept and decide if it’s right for you, here is everything you need to know about wholetailing.
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What Is Real Estate Wholetailing?
The word “wholetailing” is a combination of “wholesaling” and “retail.” As the name implies, wholetailing in real estate investing is when an investor purchases a property from a motivated seller but sells it to a retail buyer instead of another real estate investor.
Wholesaling involves finding a home that is available to purchase for under the market value, usually because the seller is in foreclosure or otherwise needs fast cash and isn’t looking to get top dollar for the property.
In a traditional wholesale deal, you’re targeting distressed properties that need significant renovations before they would be viable for the average home buyer. So, the wholesaler will connect the seller with a cash buyer who will flip the property and collect a fee for acting as the middleman.
However, in some instances, there may be nothing wrong with the home. People may need to sell quickly for all kinds of reasons, whether it’s a death in the family, a sudden change of life, or financial problems that have nothing to do with the property itself.
If the home requires minimal work outside of a few minor repairs and cleaning, you may consider wholetailing it instead. That would mean purchasing it from the seller at a discount, performing the necessary upgrades and advertising it on the multiple listing service to attract a retail buyer. This strategy requires you to have the capital available to make the purchase or access to fast funding. Yet it’s often far less work than either wholesaling or flipping and the earning potential is the same if not greater.
Wholetailing vs Wholesaling vs House Flipping - What's The Difference?
Wholetailing is somewhat of a combination of the two most popular real estate investing techniques; wholesaling and house flipping. However, they are all unique strategies that carry their own positives and negatives. Here are the differences between each technique.
Wholetailing:
Wholetailing is when you purchase a property from a motivated seller, then turn around and sell it to a regular home buyer. In order for the strategy to be viable, the home should already be in market condition, aside from basic cleaning and quick cosmetic upgrades.
After purchasing the property, you can contact a real estate agent who will help you list it on the MLS to attract buyers. Once the second sale is closed, you will walk away with the difference between what you paid the seller and what it was worth on the open market, minus any fees and closing costs.
Wholesaling:
The wholesaling process starts out a lot like wholetailing, although the end buyer is typically a real estate investor not a homeowner. Wholesalers scout deals on behalf of a real estate investor and collect a fee for bringing them the deal. As a wholesaler, you look for a distressed property that could be a good deal for a house flipper.
You crunch the numbers and then make the seller an offer that will still allow a considerable margin for the repairs and profits. If the seller agrees, you then turn around and sell the property to a house flipper who will renovate it to market condition. You can then collect the difference between the price you offered the seller and the amount paid by the flipper. In most cases, you can complete this process without ever taking ownership of the property yourself.
House Flipping
House flipping is the next leg of that transaction, where the investor purchases the property with the intention of performing the necessary repairs. House flippers look for distressed properties that are undervalued because they require significant repairs to be suitable for a regular homeowner. Flippers may work with a wholesaler to find these properties, or they may do the scouting themselves. Either way, they will purchase the property at a significant discount and then maintain ownership while the necessary repairs are being completed.
Once the house has been renovated to market condition, they will sell it to a buyer who will make it their residence or investment property. The house flipper will then collect the difference between the final sales price that they paid for the home plus the cost of renovations and other expenses.
Wholetailing Example
Here is an example to show you exactly how wholetailing works. Bob is a real estate investor who dabbles in both wholesaling and flipping houses. As part of his regular marketing efforts, he posts signs advertising that he sells distressed homes for cash. Then, he’ll either buy them to renovate himself or wholesale the property to another investor in his network.
One day, Bob gets a call from John, who is looking to sell his home as soon as possible. John tells Bob that he inherited the property from a relative but suddenly has to leave the country on business and won’t be able to keep up with the taxes and maintenance. So John’s willing to take whatever he can get for it as long as they can close quickly.
Bob makes an appointment to see the property. He realizes it’s in great condition aside from some peeling paint and junk in the attic. Before going to look at the house, Bob pulled a few comps to see what it might be worth. A similar property nearby sold for $300,000, while another sold for $280,000, and a third sold for $275,000. Bob decides this would be the perfect wholetailing opportunity and offers John $180,000 and promises they can close within 24 hours.
John accepts the offer, so Bob calls up a private money lender he often works with who agrees to give him a three-month loan at 10% interest. Bob has the funds wired to him the next day and buys the home from John, which cost him about $3,000 in closing fees.
Next, Bob rents a dumpster and hires one of his contractors to come paint the house and perform a few minor upgrades. In total, the renovations cost him about $4,000. Once the work is complete, Bob hires a real estate agent to list the property on the MLS.
There is interest in the home right away and after a few weeks they get an offer for $285,000. Bob ends up spending another $20,000 in real estate commissions and assorted closing costs. But ultimately, he still walked away with a nice profit by doing little more than making a few phone calls.
Here is a breakdown of how much Bob made by wholetaling the property:
- Purchase price: $180,000
- Loan interest: $18,000
- Initial closing costs: $3,000
- Renovations: $4,000
- Final closing costs: $20,000
- Total: $225,000
- Final sales Price: $285,000
- Bob’s Profit: $60,000
Even after the financing, renovations, and closing costs, Bob still made a profit of $60,000, which was far more than he could have made from wholesaling the property. However, it didn’t require nearly as much effort as a gut renovation and he still made a comparable profit. Plus, the entire process only took a few months, allowing him to focus on closing more real estate deals.
How To Find Wholetail Deals
Although wholetailing can be very lucrative, these types of deals can be very difficult to come across. It relies on finding a buyer with a property that is basically in market condition, who is willing to walk away at a significant discount.
While these types of sellers do exist, they tend to be rare. Most people who have a home that is ready to sell will approach a real estate agent as opposed to a cash buyer because they’ll likely get a better offer that way.
However, there are situations where the owner may need the cash right away and isn’t concerned with getting the highest price possible for the property. So they’ll be willing to accept a lower offer as long as you’re able to act fast.
While there isn’t any specific strategy for finding wholetail deals, you can often use the same tactics that you would for finding properties to wholesale. A few common examples include:
- Posting bandit signs
- Running ads on social media
- Posting on Craigslist or Facebook
- Directing leads to your website with SEO
- Checking public records
- Skip tracing
- Sending out direct mail advertisements
One wholesaling strategy that probably won’t work for wholetailing is driving for dollars, which is when you drive around an area looking for abandoned homes. Good wholetail properties are hard to spot because they will appear like any average home on the block. So, unless you have inside information that the owner is looking to sell, you’ll probably need to do more than knock on random doors.
The best way to find wholetail leads is to let as many people as possible know that you buy homes for cash and wait for the right opportunity to come your way. The more you get the word out, the greater the likelihood that the perfect wholetail deal will one day call your phone.
Pros & Cons of Wholetailing Real Estate
While wholetailing can be a smart technique in the right scenario, like any real estate investing strategy, it has its advantages and disadvantages. Here are a few of the pros and cons of wholetaling.
Pros of Wholetailing
- More profitable than wholesaling: Wholetailing deals are often more lucrative than wholesaling because you don’t have another investor in the middle looking to turn a profit.
- Less labor-intensive than house flipping: Wholetailing offers the same earning potential as flipping a house. However, there is much less physical labor involved, and you don’t have to stress about construction delays, budget problems, or other headaches.
- Fast closing: Although every deal is different, wholetaling is usually a very fast process because you don’t need to do any major renovations. In most cases, it shouldn’t take more than a few months from the time you make the purchase until the deal closes. In the best case scenario, it may only take a few days if you find a buyer right away.
Cons of Wholetailing
- Difficult to find leads: Finding qualified leads for any investment strategy can be challenging, but finding a motivated seller with a home that’s in near-market condition is like searching for a needle in a haystack. So you’ll need to be patient and wait for the opportunity to strike rather than dedicating all your time to finding leads for wholetailing.
- Requires upfront capital: One of the benefits of wholesaling is that it can be done without putting up your own capital or leveraging your credit. With wholetailing, you’ll need the funds to purchase the home, and you’ll briefly take ownership of the property while you’re looking for a buyer, which does carry some risks.
- Realtor commissions: Most wholetailers work with a real estate agent who can list the property on the MLS and attract qualified buyers, which means you’ll end up paying a commission. While you can try to sell the home yourself, it’s often more cost-effective to pay the commission and make sure the deal closes as soon as possible.
Should You Adopt This Investing Strategy?
Wholetailing is a great real estate investing strategy if you can find the right deal. It allows you to earn large checks without the added responsibilities of performing a major renovation just to attract homeowners.
However, it isn’t the most predictable strategy, and it may take time to find the right lead. So, it’s a smart technique for real estate investors to be aware of, so they can strike while the iron is hot if a good opportunity comes along. However, if you’re looking for more consistent profits, it’s usually best to practice other real estate investment techniques like wholesaling and flipping until you come across a solid wholetailing opportunity.