Are you familiar with whole-tailing? Nope, not wholesaling—whole-tailing.
This specific investment strategy is rarely used. It is similar to wholesaling, but there’s one key difference.
In this video, I’ll explain while showing you a new project we just bought in Tahoma, Wash.
What Is Whole-Tailing?
Whole-tailing is a lot like wholesaling—only different. In a wholesale deal, you get a property under contract and then assign it to an end user (an investor, fix and flipper, whatever) for a fee. They will then close on the property.
In a whole-tail deal, however, you end up going through with the purchase of the property and closing it in escrow. You own it, but then you turn around and immediately put it right back on the MLS or market, and sell it to an end user.
For the property in this video, our idea is to sell it to an end user who’s actually going to live in the home.
Those interested in whole-tailing should beware of a few red flags that could potentially deter an end buyer—or, more importantly, upset a buyer’s inspector. So we (and you!) need to fix all those health and safety issues, those little nooks and crannies that might scare someone away before putting the house on the market.
Related: Flip Walk-Through: Small Ranch to Luxury Home ($179K Expected Profit!)
What to Consider When Whole-Tailing:
1. Comparables (aka Comps)
When we’re considering what to fix and what to leave alone in the property in the above video, we’re thinking about comps in the neighborhood. We don’t want to spend tens of thousands to rehab this home, but we also can’t expect to get top dollar if all the other homes in the neighborhood have been completely remodeled and gutted out.
That being said, we’re planning to redo a poorly installed backsplash in the kitchen, put in a new faucet, replace the counter with granite, and swap out the sink. Once we find out what all that will cost, we’ll consider adding in some sort of wow factor that could really take it to the next level and help it sell.
2. Details
People don’t want to live among other people’s dirt or other people’s memories (i.e., growth charts penned on the wall). So we’re going to pay for this property to be deep-cleaned.
We’re also going to touch up the paint. And we’re going to clean up the bathroom and re-caulk anything that looks grimy. We’ll replace any damaged doors and add a door where one is missing, too.
3. Noticeable Issues
This house is a 1910 Craftsman without a full foundation. It’s a post and pier system.
So are we going to hoist the house up and level everything out? No. Why? It could cause more damage than it’s worth, and this is a first-time home buyer area of the city. The last buyer bought the property just like this.
Plus, we’ve had a full inspection done and engineers come out and take a look, and this house isn’t sinking. It just didn’t settle evenly.
Here’s what we’re going to do instead. We’ll rip out the vinyl/carpet, find the areas that have sunken in the most, and pour on a watery, liquid-like concrete material you can buy at big box hardware stores that will even this all out. Then, we’ll replace the flooring.
4. Structure
In the crawlspace, we’re going to make sure everything is completely sound, too. We’re going to strap all the beams and the posts.
Why? I’m thinking, “What is a buyer inspector going to be looking at?”
If they start seeing beams and posts that aren’t strapped down, it could raise issues. Even though it’s not really needed on this property, I want to make it look cleaner, neater, more structurally sound.
5. Exterior/Other Major Issues
Outside, we’re going to paint the deck. It’s not very expensive—only a couple hundred bucks for some really high quality deck paint.
But far more important than that is the roof. From the front, when we bought this property, the roof looked fine. But once we got into the backyard and inspected it further, we realized it’s an older roof.
We weren’t expecting to replace the roof on this property though. We bought the house quickly; we didn’t inspect the roof thoroughly.
This is why it’s important to inspect carefully for problems with things like the roof, the foundation, electrical, and plumbing—costly things to fix that could throw your whole project off.
Conclusion
So remember, whole-tailing is a great idea if you can close on the deal, especially if your assignment fee is huge and you don’t want the seller to see how much it is. It’s also a great idea if you want to get through a flip quickly.
But it’s extremely important to not overdo the project and to inspect thoroughly throughout the whole process so that the buyer inspector doesn’t catch anything on the backend. Watch the video above for further details about whole-tailing and to find out some of the numbers associated with this deal.
Does the concept of whole-tailing make sense to you? Any additional questions I can answer about the process?
Ask me in the comment section!
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4 Comments
Wearing a Jocko shirt? Good. Now I don’t have to decide whether or not to watch the video. 🙂
Thanks for sharing the walk-through. It’s great to be able to learn from the others through actual experiences.
This sounds like the same thing as flipping…what am I missing here?
I agree. Just another name for a flip.
1. I have to get this off my chest first: It was not cool that you mentioned where in the country this abuse victim moved to. The abuser might use that information to stalk her. Also, I hope the names of the kids you mentioned were not their real names.
2. Back to real estate: Do you have a contractor friend that comes along with you before you buy a house? If not, do you have the expertise yourself to estimate costs? I wouldn’t know how to estimate costs except perhaps paint, carpet, and cleaning.