Should I Be Working Towards Landlording or Build My Wholesale Business

25 Replies

Should I Be Working Towards Landlording or Build My Wholesale Business

One of the "gurus" I follow, flat out said, "wealth is only built by buying and holding."

Most of the "gurus" I follow, hint at that buying houses on leverage and renting them off, with renters paying off the loan and thereby both paying off the loan, building equity / wealth and giving them cash flow, to also build wealth.

This all sounds very convincing and logical. So the question is, is wholesaling a pipe-dream of building wealth? And, should I be striving to build a rental empire?

@Kevin Cardinale  

Have you listened to Aaron's method of building his rental portfolio by wholesaling (podcast 37)? Good stuff.

Its a great question, Kevin, personally I need to generate revenue before I invest it for long term wealth so the question was answered for me.

@Russell Ponce  

Thanks for the reference! My two primary focuses at this point in time is wholesaling and building a rental portfolio...when you said his "method of building a rental portfolio BY wholesaling," my eyes popped! Going to get on that podcast now! Thanks again. 

We are buy and hold investors! We have built out portfolio through investor and personal loans. We have built equity through short sale and foreclosures. These were right off the mls. There are ways other than wholesaling in building equity. 

@Damon Armstrong  

Yeah check it out, Aaron is a beast.

I think the secret sauce is because he is a wholesaler he's got deal flow and can cherry pick great rental properties at great discounts.

For me personally, I started out wholesaling to build up cash to buy and hold properties for cash flow. So, I did a little bit of both.

Though, it's different for everyone. Only experience will help you to see what you like and do not like. This was the case for me and helped me to find my niche. As @Sharon Vornholt says, sometimes your niche may find you.

Hope that helps!

Originally posted by @Russell Ponce :
@Kevin Cardinale

Have you listened to Aaron's method of building his rental portfolio by wholesaling (podcast 37)? Good stuff.

Its a great question, Kevin, personally I need to generate revenue before I invest it for long term wealth so the question was answered for me.

Sorry I'm a noob... Aaron Mazrillo? I couldn't find the podcast.

Sorry, I found it. I'm special in the head. *sigh* And yeah, I was going to say the only Aaron I know is Aaron Mazrillo.

Elizabeth Colegrove 

No doubt! Wholesaling and Landlording are not usually used in same sentence. 

BTW I see you are from Hanford, lots of former Bull Pups on my family tree.

ok, Aaron is saying being a rehabber is what someone new to REI is supposed to be doing, since wholesaling requires:

  • marketing
  • writing contracts
  • figuring rehab costs
  • getting a deal that includes a spread for both the wholesaler and the rehabber

Whereas the rehabber simply walks along, gets deals thrown at him by wholesalers and simply manages contractors and then rakes in cash. ( yes i'm simplifying what he said. )

I think Aaron told me, if the deal is really good, a HML WILL lend me money for a rehab, with me not having to come up with out of pocket money. In fact a few people wrote and emailed me that same sentiment. But, the HMLers that I contacted, one said, don't have anything less than 4 houses and most said, have 20% down on the house.

I don't have $60k in the bank. In case you were wondering.

@Kevin Cardinale  

Yeah his point was interesting if for no other reason than it is unique. But you are already a wholesaler so...

Aaron is right, as you know there are a lot of aspects to wholesaling but if someone can learn to market for and find motivated sellers its easy to get help with the rest. And once we help people make money doors start to open.

Yes, I'm a wholesaler, but i'm a really bad, inconsistent, low motivation, stutter stop, investor. I would prefer to be a rehabber, actually. But, I don't have $60k.

I was surprised to hear that I'm doing some things right, as he was going through points. But I've only made... a few thousand at wholesaling. Trust me i'm bad.

Talk to your HMLers and explain to them your situation...explain to them the reason you came to them was because you don't have money for things like down payments...Even if you have to take extra money out of your personal profit to have them follow through, some is better than none. When pay day comes, you'll give them what they originally made, and 25% of your personal profit to help make up for covering those expenses. It may spud like a pain but it really is better than nothing. Your gaining money, experience, and knowledge. Tell the HML that after the first few flips you'll have the down payment saved up...and then you can go about your regular partnership. That 25% is negotiable too...it could go up or down depending on what your HML says. Of course all of this will be eventually written up into a contract. If none go for it, looks like you better start wholesaling to put 60k in the bank...

Maybe you could do one of the 4 houses for free...no profit at all for you on that one house to help make up for a large chunk of that down payment. Find our from him what his ROI would have to be in order for him to fund the deal 100%...once you find out what he wants his ROI to be, you give it to him, and keep what's left.

On Danny Johnson's podcast #18 he talks about how he would find the deal and partner with an experienced rehabber when he first got started. 

Originally posted by @Damon Armstrong :
Maybe you could do one of the 4 houses for free...no profit at all for you on that one house to help make up for a large chunk of that down payment. Find our from him what his ROI would have to be in order for him to fund the deal 100%...once you find out what he wants his ROI to be, you give it to him, and keep what's left.

Wow that is an amazing idea. I was really rather feeling low when the emails came in saying NOPE NOPE NOPE NOPE NOPE. I even have a buyer who is sitting right next to me, waiting for me to get him a house. I have several properties that look like they would be a good deal.

I put all of that in my email. NOPE! *sigh*

I'll try your ideas, they're fantastique.

@Kevin Cardinale  - I didn't read everything above, but you do know that the possibility exists to lose money don't you?

I ran the numbers on a potential rental earlier this morning.  Looking at a $25,000 house that rents for 425 per month.  I actually have one very similar to this.  I also assumed financing at a credit union which gives a great rate of 4.65%.  Assuming the 50% rule, that leaves only about $50 per month of positive cash-flow.  That's a great, big whopping $600 per year.  That money (and much more) can get eaten up really fast with a really bad tenant or a new roof, or a new heat/air unit.  And the loan pay-down over 5 years is only about 4-5K.  Again, this can get eaten up in new carpet, closing costs, and Realtors commission if you need to sell it.

This is just one example, and there are plenty of people out there doing really great with rental properties, but I just wanted to point out that it's not necessarily all that.

What specifically were the emails saying "nope" to?

Sounds like you have a good buyer but you feel like you need to sharpen up your game (so do I), why not be a bird dog? You market and sort for motivation and let someone else negotiate the sale.

@Kevin Cardinale   If you see a deal, be the first to call it out. This game is about keeping your eyes open. Check this out:

A while ago I saw a SFH for 60k in Phoenix near the Biltmore (which is fantastic in terrible condition) but I thought:

1. I don't have 60k, which I honestly didn't

2. It's probably under contract by now

3. Nobody would pay more than 60k to live there, its not a beautiful but not a war zone either

A week later I come to find out that a colleague of mine, who is starting out put in an offer for 56k and won the home, which only needed 12k work to it. 

    

So far that is 68k into the home

After 1 month, correct ONE month of some rehab, it was sold at 94k

I learned also that he didn't have the cash either, you don't need cash to play, just trust, credibility, and amazing connections

NETWORK NETWORK NETWORK

Medium live cash deals logo 4x 100Andrew LeBaron, Live Cash Deals | [email protected] | 4809809022 | http://trustedcashoffer.com

To answer the original question, wholesaling does not build wealth and is an active business. It s great for building experience and capital. Buy and hold builds wealth through market appreciation, forced appreciation, tax benefits, amortization, and provides both cash flow for income as well as cash out refi income which is tax free.

Wholesale to build capital for down payments and wholesale for income. Buy and hold for long term wealth building and a semi passive income stream.

Rehabbing is another active business that is great for capital building and income, but that income stops the moment you stop.

Medium be logoWill Barnard, Barnard Enterprises, Inc. | http://www.barnardenterprises.com | Podcast Guest on Show #130

Semi passive. I like that

Originally posted by @Russell Ponce:

Semi passive. I like that

Thanks. No matter hat any money grubbing guru says, buy and hold is never passive unless you invest in a fund via PPM or the like. As a landlord, and even with a hired management company, you still have to manage the manager, make legal and accounting decisions, and make cap ex decisions. You also have to stay on top of your local market conditions to stay ahead of the game.

If you want to be passive,invest in a fund, buy performing notes, or roll the dice and invest in a CD :)- 

Medium be logoWill Barnard, Barnard Enterprises, Inc. | http://www.barnardenterprises.com | Podcast Guest on Show #130

Kevin, have you considered gap funding? There are companies that'll do that to help you.

I've heard that Fundmygap.com will work with you when the deal is good enough.

Kevin, 

I've seen you post here and there for a while. How is Wholesaling going for you? 

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