I Used to Write Off Wholesaling: Here’s What Changed My Mind
For those of you that know me, this article may come as quite a shock! I have nine flips in progress, and technically, I have never wholesaled a house.
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In the past two years, I have learned so much about investing from my blog and BiggerPockets, it is mind blowing. I thought I knew it all when I started my online journey, since I have been buying and selling flips for years as well as buying rental proprieties. I realized I did not know it all very quickly when I started hearing terms like the “70 percent rule,” which I had never heard of.
Once I got over the fact that there was a lot I did not know, I started to soak in as much information as I could. I am now a much better investor, making much more money than when I first found the online real estate investing world.
My Initial Viewpoint on Wholesaling
When I first heard of wholesaling, I knew what it was, but I had never researched it or paid much attention to it. I did well with flipping, and I thought wholesaling was a lesser form of investing.
Over the last year, I have learned a lot about wholesaling and have had to put my own personal beliefs to the side — because I realized they were wrong. My first thoughts about wholesaling was it was a way to try to start investing in real estate without much money, but that most people failed at it and that there was not much profit in it.
I then saw some people having success with wholesaling, and I discovered direct marketing and how you can get more deals moving away from the MLS. I thought wholesaling had a place in investing for those looking to start learning the business and their market. I thought, Wholesaling is a great way to learn to find deals, which is a very important skill to have in the real estate investing world.
Then, this last week, I attended a meeting with some very high level real estate people from throughout the country. The common theme was they all wholesaled properties, except for me.
Why Wholesaling May Be Better Than Flipping Houses
When I discussed with other investors what we did and how we made money, people were not very impressed when I said I flipped 10-15 houses a year. In fact, a few had a look of how can you do that and stay sane? I quickly discovered that many in the group were making more money wholesaling than I was flipping houses — and they had no intentions of “moving up” from wholesaling to flipping. In fact, a growing group of investors had gone from flipping to wholesaling. Their thoughts were that it took less money to wholesale, there were fewer headaches involved, and you can do so many more deals wholesaling than flipping that it was by far a better business model.
After some deep thought about my own business, I was starting to think they may be right. Here are some advantages to wholesaling properties:
- No cash is needed when you wholesale if you use an assignment of contract or double close
- No contractors are needed when you wholesale
- The buyers are investors who are paying cash; no financed offers and picky owner occupied buyers
- You don’t hold houses for months while they are being repaired and listed
- You eliminate the risk of a market change when holding properties for months
Less Money Per Deal in Wholesaling?
Wholesaling a house usually nets less money than when you flip one, but not always. On my flips, I usually average about $30,000 in profits, but it takes me six months to flip a home because I am constantly waiting on contractors.
Although I might make $30,000 on a flip and a wholesaler may make $5,000 to $10,000, they can do five wholesale deals in the time I can do one flip. Given the time it takes to flip a home, I am not making more money than if I were doing more deals.
How Many Wholesale Deals Can Be Done a Month?
The guys I met with are doing 5 to 15 wholesale deals every month and making on average over $5,000 on each wholesale deal. That is a lot of money, and they never have to hire any contractors!
One of my biggest headaches is contractors and getting to them to fix houses in a quick manner. When I saw the money these guys were making wholesaling, I had to completely rethink my business and how I was doing things. They were making more money with wholesaling than I was flipping, and they had a lot less risk.
It takes a lot of work to wholesale that many properties. It takes a lot of direct mail, a lot of follow up, great staff working for you and a great system. The funny thing is, I have most of those things already in place; I just need to change the way I do business.
Will I Stop Flipping and Become a Wholesaler?
No, I don't think I will stop flipping, because even after all the contractor headaches, I still love doing it. But I may still start wholesaling more properties and only keep the flips with the most profit. I am going to change the way I market to people, and hopefully, I will have many more deals that I can wholesale or flip and make money in both worlds.
What’s your opinion on wholesaling? Is this an avenue of real estate investing you’d be willing to try?
Leave me a comment with your thoughts on wholesaling below!