Wholesaling is Not Investing

by | BiggerPockets.com

You heard me.

Wholesaling is, however, an excellent job that will give you amazing amounts of experience in the real estate investing field. It is a great way to make connections and network, learn the ropes of investing (especially the numbers) and make some serious cash.

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Why Wholesaling is Thought to Be an Investing Method

Wholesaling is the only job I can think of that is 100% related to real estate investing. In wholesaling, you learn how to negotiate prices, find deals, find motivated sellers, talk to investors, run quick numbers, and understand the physical condition of a property. What other job teaches you all of this about real estate investing?

None I can think of.

Because you are working with investment properties and you are talking mostly to investors and because you are coming out with a nice chunk of change in your hand at the end of it, it’s easy to think that being a wholesaler means you are an investor.

Let’s let good ‘ole Wiki confirm what an “investor” is:

An investor is a person who allocates capital with the expectation of a financial return.

Source: Wikipedia, http://en.wikipedia.org/wiki/Investor

Nowhere in there does it say the person has to work for the financial return. Second, wholesaling is well-known for being a way to get into “real estate investing” with little to no money down, i.e. no capital.

So how does “working” and not having to use any “capital” constitute “investing”? It doesn’t. Wholesaling is not investing.

Why do I bash wholesaling being called an investment method?

Some because it just drives me crazy to see so many people claim to be investors just because they are wholesalers, but more importantly, it makes me realize that those who think wholesaling is investing don’t understand the difference between active and passive income. Not understanding the difference between those is dangerous territory in real estate investing. You have to understand that difference because knowing it is what will allow you to perfect your strategy and potentially make a heck of a lot more money in your “investing” career than you would if you don’t understand the difference.

Active versus Passive Income

Active income means you are doing something in order to receive that income. Some kind of work. Some kind of effort. You are not hands-off. You have to exert some kind of energy and time towards earning that income. Passive income means you are earning regular income with little to no effort required to keep it coming. You are for the most part hands-off.

Why does it matter which one you are earning if it’s all income? It doesn’t in terms of making the money, but it does matter for how you maximize your earnings. Why? Value of time. This is a concept that a surprising number of people don’t truly understand. It took me a long time to understand it fully even. I knew the definition but not how important it really is. Every hour that you spend working is one less hour you are doing something else.

The point of this article isn’t too go into detail about active versus passive income (though if you want a more detailed explanation of these terms, see The Truth About Active Income vs. Passive Income). I define these terms briefly here only to make sure you understand that wholesaling is active income only. There is nothing passive about it.

Wholesaling is Just Fine

As I said, wholesaling is a great way to learn the ropes of investing, make great connections, and make some money.
But it is a job. A job. An actual, job. It can be a full-time job or a part-time job, or even just a small gig on the side. But it is a job. At least with flipping, which is technically an active income investment method as well, there is still a component of passive income to it. When someone flips a property, they invest two things into it- time and money. The flipper, if the deal goes right, gets paid for his time and effort of work he put into the property, but then because of the value increase due to that work, he also gets paid out on the money he invested. So it’s a two-part thing (in an abstract way). Whereas wholesaling, there is no return-on-your-money component, so you are only being paid for your time and effort, i.e. work. Therefore, it is only a job and not an investment method.

Knowing Your Options

The reason most people get into wholesaling is because they want to earn capital that they can use for investing. That is excellent. If you get into wholesaling as a way to fund your future investments, you are setting yourself up to have a great foundation to work with and you are likely to be a lot more solid with your investing decisions because of what you learned during that experience.

However, don’t for a second think that wholesaling is the only way to build capital to fund investments. By getting into wholesaling, you are essentially starting a business. That’s great! It’s what Robert Kiyosaki says you should do- start a business so you can use the income from that business to buy passive income investments. But what people don’t realize is, you can start any kind of business to do that. You can start a cupcake shop, or create a smart phone app, or sell beaded necklaces near the beach. Okay, a couple of those obviously won’t earn you a lot of capital, but you get my point. You can do anything you want. If wholesaling is your thing, and you love it, and you are willing to exert the amount of effort it takes to become successful at it, then go for it. You will learn a ton. But if you are like me, and wholesaling isn’t your thing, do something else!

For any newbie showing up on BiggerPockets or anywhere online or anywhere related to real estate investing, it always seems that wholesaling is the first step. Everyone starts there. It probably seems like it is the only place to start. But it’s not. If you are getting into wholesaling, it’s likely because you think it makes you an investor and it will put a lot of capital in your pocket. However, it doesn’t make you an investor, it makes you a business owner. And it’s not as easy to wholesale as people make it out to be. It’s a simple concept, but it’s like any other business you start, it’s not easy.

So have fun with whatever business you want to start in order to earn capital to buy investments with. If that’s wholesaling, awesome! If you aren’t so much into the wholesaling thing, don’t do it. Do something else that fits you better. It’s not like if you do something else you will miss out on being able to call yourself an investor!

What kinds of things, of businesses have you started, to earn capital that can be used for investing?

Photo Credit: Wayan Vota via Compfight cc

About Author

Ali Boone

Ali Boone is a lifestyle entrepreneur, business consultant, and real estate investor. Ali left her corporate job as an Aerospace Engineer to follow her passion for being her own boss and creating true lifestyle design. She did this through real estate investing, using primarily creative financing to purchase five properties in her first 18 months of investing. Ali’s real estate portfolio started with pre-construction investments in Nicaragua and then moved towards turnkey rental properties in various markets throughout the U.S. With this success, she went on to create her company Hipster Investments, which focuses on turnkey rental properties and offers hands-on support for new investors and those going through the investing process. She’s written nearly 200 articles for BiggerPockets and has been featured in Fox Business, The Motley Fool, and Personal Real Estate Investor Magazine. She still owns her first turnkey rental properties and is a co-owner and the landlord of property local to her in Venice Beach.


  1. I might add mixing REI and other businesses is a good idea as well.
    I bought a commercial building for my shop/office location, the excess area is now residential rentals.
    This also allows me to charge my hvac business the top of the market rent, plus the lease is triple net, with a landlords waiver against all the assets of the business contained in the building. This waiver is a second layer of protection for the business entity against loss of equipment in the case of litigation (never been sued in 30 years of business).

    Capital from both the rental company and the hvac business has been used to by a franchise and as I write this we are negotiating to buy another franchise location of the same business (our closest competitor).

    Good advice to newbies be cheap only in the extent that capital is not wasted on depreciating toys. Instead form a business, run it like one, and if you must use the profits from the business to buy toys. Like you might need a ski boat to inspect the docks of a bay front rental property, or a 4 wheeler to inspect the fence line of some acreage.

    Every year I need to attend some business conference in what just happens to also be a nice resort area. I have to give my wife credit for the business trips. In my idiot days we when on a vacation to Captiva Island near Ft. Myers, FL, while checking in at the resort we both saw a sign which read “Welcome associates of the Maxxon corporation” my wife said too bad we are not associates of the Maxxon corp. Where I quipped actually I am an associate of the Maxxon corp. they were at that time one of my largest supply accounts for radiant floor products. A quick phone call to my supplier in Philadelphia netted us a tax write off. All that was needed was to attend a few boring seminars.

  2. Superb article. Delineating how “punching the clock” is active income and consumes hours is a great highlight that we should all strive to find passive streams of
    Income and build them to achieve financial freedom.

  3. this taught me a lot about the difference but it would be ok to start wholesaling for capital for investing? I want to get into this business with my son but the more I investigate this and ask questions on BP I am learning to start out as an investor takes capital that I nor my son has. So can you give me some advice on how to start with little to no money or am I barking up the wrong tree? I have been watching thi stuff on t.v. and have come very interested in the whole idea but been investigating this for about 2 weeks and going to my first REI meeting tomorrow night. So if anyone can help I would be very grateful.

    • Hi Sandy. Yes wholesaling to build capital is excellent! I definitely recommend it. It will teach you a ton about investing and it can put some great capital in your pocket. It’s not as easy or as quick to succeed in as a lot of people make it out to be, but it is very doable and you can have a lot of fun at it.

  4. Ali…

    Agreed. Further – Also, rehabbing is not investing. Rehabbing is running a remodeling business. You are buying a remodeling job instead of soliciting a job from a home owner. Owning rentals is one way of real estate investing. If you have to work every day to get money or if when you stop working your money stops immediately, you have a job. Investing does require some of your management attention but if you go on vacation your income continues, it does not stop or drop.

    On the topic of a job that helps teach real estate. I work as a hard money loan rep. This is an outside sales job so when I need time out for my own deals it is easily available. It brings me into contact with realtors, investors, appraisers, title and escrow people. Buy seeing what investors and rehabbers are buying I learn about popular areas. Through the loans that do not close I learn about property problems and what it takes to get a deal done. By reviewing loan request for rehab work I learn how much needs to be done to ready a property for sale. I learn the most from listening to all the complaints.

    If you do not like your w-2 job, look at the companies that service the real estate industry and maybe you can earn and learn at the same time. Living on your real estate service job and not having to use rehab or wholesale income for personal expenses will allow you to move into investing much faster than just quitting your “JOB”. Plus the stress level is massively lower.
    Thank you for your article,

    • Bliss. Super cool name, for starters! But name coolness aside, I don’t think your comment could be worded any more perfectly. And an awesome comment about how much you are able to learn working with the lenders. I didn’t even think about working for a lender to learn that kind of stuff, but you are totally right. And you hit the nail on the head… if you can stop working on something for a minute and it continues to produce income, it’s passive. If you stop for a minute and it stops as well, you are working. Excellent wording!

  5. I agree wholesaling is not “investing” but really flipping falls in the same category and should not be categorized as investing either. If you are going to argue “time” and “money” are for flipping to be considering “investing” then you need to put wholesaling in that category too. Top wholesalers spend (read “invest”) a great deal of money in marketing and time working the leads.

    I have been real estate INVESTING in PASSIVE rental properties for over 30 years.

    • I almost agree Samantha. Flipping is a quirky one. It has components of both a job and an investment in it, sometimes dependent on how it’s structured. But you are absolutely right, flipping is not passive income. It is active income investing. There is a huuuge job component to flipping, yes. But there is also a sneakier investment side to it also.

      A way to look at it, not that it clarifies anything specifically but gives you an idea-

      Let’s say you have a nice chunk of money to your name and while you aren’t personally interested in directly doing a real estate thing yourself, you are interested in giving your money to someone who can do something to make you a return on your money. You could give that money to someone doing rentals, and get a return. You could give the money to a flipper and receive returns (and potentially big ones at that), but you could not give your money to a wholesaler and get returns. You wouldn’t be funding anything (unless you count marketing expenses, but that doesn’t leave room for a profit split structure). See the difference? Yes, a flipper absolutely has to do work, but that work can create returns. So there is income from the work itself, but there is also income from the increased value, so that is a return above and beyond payment for the work.

      Hopefully that makes sense. But I am in 100% agreement, flipping is not passive investing. Unless you are really advanced and aren’t doing any of the work yourself.

  6. I see your point yet I must disagree. There’s short-term and then there’s long-term investing aka transactional income and residual income in regards to real estate investing. Real estate investing isn’t just buying and holding residual income properties. Who determines how long one is to hold real estate to be called a real estate investor. Best believe that’s a job as well particularly if you have one or more SFRs with tenants in them. If landlording isn’t a job then the definition of job must have changed without my knowledge.

    Someone could buy a house decides to move 5 months later but doesn’t sell it. Instead they purchase another house via lease/option lets say. They claim the 1st property on their taxes returns every year, get married raises a family works a blue/white collared job for 20+ years down the line. Owner doesn’t repetitively securing realty contracts or properties for a living. Never did just owns two houses. Are they considered a real estate investor? What about someone that purchased a duplex owner-occupied. They take care of the property upgrade and repair as needed to maintain its good liveable condition. Property value increases/decreases with time as they live there. Are they real estate investors?

    In your eyes rehabbing might even be seen as not actual real estate investing. Yet anyone that buys a property and maintains it in hopes of capital gain for say the use of a HELOC to repair the property or put their kids through college might be considered a real estate investor.

    According to the definition of an investor it doesn’t give a set timeframe to start and end the process of allocating the capital for financial gain nor does it specify whether it must be direct or indirectly secured. It seems as though wholesalers and rehabbers, perhaps even anyone that buys a house to live in fit the bill of real estate investing. Even wholesalers that do assignment deals rather than double close fit the bill. **The thing you are hung up on has to do with timeframe, being the lienor( at all or for a set amount of time). However, it doesn’t matter if the time invested to do real estate deals whether they are 1 to 2 weeks, 3 to 6 months or 1 to 10+ years… there’s nothing concrete that disqualifies wholesaling or rehabbing for that matter as real estate investing. What does determine whether one is a real estate investor: Is it for a living? Whether additional or main source of income.
    Thanks for the interesting topic.


    • Mary, thanks for the additional consideration for what deems someone an investor or not. Although I was not trying to say whether or not someone can be considered a real estate investor (except if they only wholesale and call themselves investors), my point was to say that wholesaling by itself is not a real estate investment.

      I never referred to how long someone has to hold something in order to be called an investor. Bliss hit it on the head earlier by saying it’s a matter of whether the money continues to come in if you continue to work on that project or not. Any time you are not doing wholesale work, you do not get paid. Rehabbing is yes and no as to whether you keep getting paid but for the most part no, which means it’s considered an “active income investment” method. Rentals are passive because the money keeps coming in if you stop working on them (however you can’t not work on them forever and you do have to manage them, and if you are landlording it does absolutely become an active income investment versus a passive income investment, although tax-wise it’s still considered passive).

  7. Good stuff Ali and as always I enjoyed your article. I would go a step further and say most wholesalers and people that rehab are marketing for a profession. Unless they are buying from the MLS or other wholesalers, we all market. I project manage a rehabs and sell properties to other investors, but first I must market to get the properties.

    • You’re right Gary, and add to that, as a flipper once told me, you are also looking for money as your profession. He told me, and we laughed but it was true, his primary job as a flipper was looking for money. If you aren’t creative with how you fund your projects, you aren’t going to maximize the returns.

  8. I see your point in the article, but if you’re going to label wholesaling not investing because it involves some work, then is there any such thing as “Real estate investing?” Flippers put in a lot of work, and so do most who buy long term rentals – both up front and continuously.

    • You’re right Adrian, except wholesaling (unlike flipping and rentals) is ALL work. That’s the point. There is no investment side to it. Flipping as I said in a couple other comments is not as clear cut, but there is an investment component to it. It’s mostly work, but not all work. Rentals are mostly not-work, but require some work. Different ratios.

      The only reason the ratios matter is for a) understanding the time and effort requirements to succeed (for your own personal goals) and b) tax implications.

  9. Randy Phillips on

    I do wholesaling and Lease Options and Subject to’s, I dont’t use my money but sometimes make some big profits. I am an Investor, I invest my time, my efforts my skills ect to make money. Your going to split hairs in your dfinition of an investor? I suggest you get a hobby.

    • Well I definitely don’t have time for any more hobbies Randy, but I’ll keep that in mind. 🙂

      “I invest my time, my efforts my skills ect to make money.” – that’s what everyone who has a job does. Just to be clear.

  10. To invest: to place money somewhere and make it grow over time. Like a Mutual Fund, or a Stock, or a Business.

    Wholesaling – Flipping Option Contracts or Lease Option Contracts or Sub2 Contracts is a job. And a Fun one.

    So I am not a real estate investor, I am a Real Estate Problem Solver. I look for Problems and Offer Solutions.

    • Love it Brian! I like the title 🙂 And even better, if you love what you do, that’s all that matters! There’s nothing wrong with wholesaling or flipping or rentals or selling cupcakes, as long as it is what you enjoy doing. If it’s not, time for a re-vamp! 🙂

  11. I would argue that wholesaling, flipping, and buy and hold investments all have a component of active and passive income. It all depends on the systems you have in place, your approach, and which stage of the game you are in. Make no mistake about it, to be successful at any of the three…requires an investment of your money and time.

    • Absolutely Anthony. I totally agree. There is no investment that truly requires zero work. It’s all about the ratio and the differentiation of whether or not income still comes in regardless if you disappear from the earth for a month or a year. Active and passive income are the terms everyone needs to truly understand in order to maximize returns, profit, and enjoyment. Different levels or ratios of each are better for different people.

  12. Tom Sylvester

    It’s a hard truth that some people need to face. It’s not a bad thing to be a wholesaler, but the person doing it needs to understand that it is just another job. And I really like this paragraph.

    “For any newbie showing up on BiggerPockets or anywhere online or anywhere related to real estate investing, it always seems that wholesaling is the first step. Everyone starts there. It probably seems like it is the only place to start. But it’s not. If you are getting into wholesaling, it’s likely because you think it makes you an investor and it will put a lot of capital in your pocket. However, it doesn’t make you an investor, it makes you a business owner. And it’s not as easy to wholesale as people make it out to be. It’s a simple concept, but it’s like any other business you start, it’s not easy.”

    Spot on.

  13. News flash** all Residential property investors have a job. If you are looking for funding to purchase property you have a job. Its called real estate investing. OMG. Likely everyone that’s posting on here has a job in REI. lol look at what you do on the daily regarding real estate investing and ask yourself do you have a job as a real estate investor….


    • You’re correct, Mary. But there are differences in how that ‘job’ affects the outcomes. If I’m a wholesaler and I stop working my ‘job’ for a month, I make no money. If I own rentals and I stop working my ‘job’ for a month, I still make the same amount of money as if I were working it. Plus, as I said in the article, most of us in real estate are constantly doing real estate work, but there’s a difference if you are working on your current projects in order for those to keep making you money or if you are working on ‘the next deal’. Finding money and such is working on ‘the next deal’. That’s different than working to make money right this minute with a current project.

  14. As a wholesaler I must agree that I am not an Real Estate Investor. I may be in real estate but I am not investing my money into properties, I am investing into MARKETING. My money never touches real estate.

    But I must absolutely disagree with the folks who are saying rehabbers are not investors. Aside from wholesaling, I work full time as a project manager for a real estate INVESTMENT company. This company invests its money into properties with the expectation of a greater return. Just as Ali quoted – “An investor is a person who allocates capital with the expectation of a financial return.” That definition seems to fit the bill of a rehabber. And I would definitely think of my boss as a real estate investor. He is not negotiating contracts, picking paint color, or finding our next deal, he has hired people to do those jobs for him, while he invests his money and collects the return. He owns a SYSTEM which makes him money, i.e.; an investor.

    • Totally agreed Chris. Flipping is ‘active income investing’ versus passive, but there still is an investment component too. Your boss has maximized efficiency in making money by flipping if he’s able to have the work contracted out and he just manages. That’s excellent and the best way to make the most amount of money.

      So there are two differentiations in general-
      1. investing vs working a job
      2. active vs passive investing

      Wholesaling: Working a job.
      Flipping: Active investing.
      Rentals: Passive investing.

  15. Herein lies the problem with your assertion, Ali. The term, wholesaling, has inaccurately become synonymous with “assigning contracts” in the real estate investing ‘education’ circles. Wholesaling simply means selling below market value. Whether or not a wholesaler is an investor depends entirely on whether or not the wholesaler uses his own capital.

    If I flip a contract, I’m a wholesaler and not an investor.

    If I use a funding partner to purchase an REO, which I then wholesale, I am a wholesaler and not an investor. My partner, even if he knows nothing at all about real estate, is a real estate investor.

    But if I purchase an REO with my own money, and then I wholesale the property, I, in fact, am a real estate investor.

    • I totally agree John. Great to differentiate there so people understand better what exactly wholesaling can entail. I was referring only to the assigning contracts version of wholesaling, as I believe it is what most people believe wholesaling to be, but you are right that there are other ways to do it. Regardless it is all still active income so you are still working, but the latter side does bring an investment component into it. Good put.

  16. Great article Ali. I almost made Wholesaling my thing a couple of times but I was thinking about it one day on a run (meditation) and realized that I wasn’t passionate about any of the activities a wholesaler needs to do…except for the end result of making the money. So I think that would make me just as unfulfilled as my cubicle. I can say though that a lot of the wholesaling can be automated and/or outsourced if done right but to build out those processes in an “E-myth” fashion would take a lot of time and probably money. It is a business that would build on itself over many years until you because well known in your target area…but again, when people hear my name I don’t want them to picture “The Wholesaling Guy”, so my advice is to find your passion and then create your life around it.

    • Hi Jeremy,

      I look at the Wholesaling business like the car auction business:

      The A to B to C is…
      A = Car Auctioneer
      B = You the REI
      C = the Auto Dealer

      You have to buy REALLY cheap from the auctioneer, with many competing for a good cheap deal, and sell to a really good negotiator (car dealer).

      There is another way…
      What about the 20 million homes that have little equity? Pretty houses? No work needed? No rehabs?

      The Wall Street Journal had a great article about these 20 million houses…

      Say you explain to them about their options:

      1. Sell with an Agent and pay the Costs to Sell.
      A. Agent’s Commissions
      B. Holding Costs (3 – 6 months PITI)
      C. Repair – Spruce up Costs (Curb appeal, etc)
      D. Staging Costs
      E. Seller’s Concessions for FHA or conventional

      Maybe #1 is not a good idea because they might have to bring 10% OR MORE of the value of the home as cash to close.

      So number 2….

      2. Rent it out
      Renting it out to an unproven tenant, rolling the dice of a pretty house, nice floors, beautiful fixtures, etc. Then dealing with evictiotion, wasting 2 months or more getting them out….then cleaning it up and re renting it……


      Look at selling on terms, like rent to own or installment sale and see if that model might make more sense for you.

      You are the seller’s champion: helping them maximize their equity dollars out of their home.

      See the presentation here..https://www.biggerpockets.com/blogs/3/blog_posts/29012-how-i-talk-to-sellers-with-no-equity


  17. I agree with you Ali.
    I’d actually go farther and say that rehabbing is not investing either.
    While it does involve a bigger “investment” it is still generating active income and is based on selling the asset. BTW rehabbing is my main gig at this stage.

    You can invest in your business and it is certainly possible to get a wholesale business so systematized and outsourced that one won’t have to do anything other than cash the checks that come in. You still aren’t a REAL ESTATE investor you have invested in a BUSINESS that happens to be in the real estate industry.

    Most of us are entrepreneurs building a business of making active profits in real estate. In reality we aren’t any more investors than a real estate agent is. However, as you have pointed out, these can be great jobs that can make you a ton of money and can also give you amazing amounts of experience and knowledge to buy long term assets with the capital generated.

  18. Hi, Ali,

    Another awesome article. I like your idea of lifestyle businesses and working on creating passive income, overcoming the “it takes money to make money” hurdles. Obviously, for turn-key rentals you need some cash to put in a down-payment. You get that cash through various ways like wholesaling or developing mobile apps, etc… This definitely answered some questions that were bothering me today as I was driving to my J.O.B. How does wholesaling work, can it be a viable way to build capital to begin investing, and is it the only game in town. In my particular situation, I need to raise capital to invest in the turn-key rentals niche. I might give wholesaling a shot and see how it goes. I might start “flipping” mobile apps and build some capital that way, too! Thanks for opening my mind. I tend to “wall” myself in sometimes as to what the “correct” and “appropriate” way is to get started with investing.

    Keep up the awesome articles! I certainly connect with them.

  19. Awesome David! Definitely keep us posted on how your pursuits go. And the only “correct” or “appropriate” ways to start investing are by doing what fits your goals and your interests rather than doing something just because someone tells you to. The latter is the only way you can get it wrong! Good luck.

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