Wholesaling vs. Flipping

10 Replies

I am a newbie and learning the ropes. I just finished the beginners guide and am deciding between wholesaling vs. flipping for my area of expertise. I have some experience with flipping, I recently flipped/sold a house (rehabbed down to the studs) so I was thankful to learn a bit during that process. One niche that peaked my interest during the beginners guide was wholesaling. I am continuing my education but am hoping for some quick guidance here:

What markets (city vs. suburb vs. rural) and dynamics (economics) are best for wholesaling? Massachusetts as an example.

Is there a particular sweet spot (lower end of the market vs. middle or high end) for doing high volume wholesaling?

From a marketing perspective how long is the ramp up to get your funnel flowing and which methods are most successful? Website vs. Direct Mail vs. Social Media

I am looking for income from either of these two methods 15k per month as an example.

Thank you for the guidance. 

RE investing in general is best done in cities and suburbs where there is a strong demand for housing and it's easy to determine home values based on recent sold comparables.  In rural markets, it's hard to figure out what a house is worth, and that's a big problem for us.

Your sweet spot will be in lower 1/2 of market values, so if the median home price in your area is $250K, you want to looking well below that.  Expensive homes tie up too much or your capital, rehabs are expensive, and you put all that capital at risk on 1 deal.  Better to diversify your risk by doing multiple cheap houses rather than one expensive one.

Last, wholesaling is really just FINDING the property and getting it under contract.  You then assign to contract to a cash buyer (REHABBER) and they do the project.  So there is no difference in marketing between the two methods.

As a wholesaler, you need to buy the house cheaper than a cash buyer will pay for it, or you make no money.  A cash buyer can come in and beat your offer.  Plus, marketing for deals has gotten so expensive in many markets that wholesaling is not even viable.  If it costs you $3,000 in marketing cost to get a deal under contract, and you get a $3,000 assignment fee, you made $0.

Most new people in the business GROSSLY UNDERESTIMATE the marketing cost to consistently bring in a flow of deals.  To make $15,000 profit in a month you really need to look at "flipping" (cash purchase + rehab), not wholesaling.  You can make $15K on a flip doing 1 house a month.  But be prepared to spend $5,000 in marketing every month to get those deals.

Hope that helps.  Wish you the best!

"The wise make more opportunities than they find." ~ Francis Bacon

Completely agree with Dev. The marketing costs are underestimated by most newbies. I also think it is best to have several exit strategies.  Wholesaling and rehabbing is a good start. 

Also, not knowing where you are in MA, Dev's point about tying up all your money on one rehab project is spot on. In my area there are $5-600K tear downs that are routinely bought by cash buyers to throw up a million dollar mansion. Very easy to tie up your money or worse lose a lot of it doing that. 

Maybe try to use your successful flip to get other people's money and spread the risk. 

Thank you, Dev and Robbie for the quick responses. Very helpful advice as I continue my education. The marketing costs for wholesaling definitely make sense. Best, Michael

One follow on question for everyone. In an ideal situation, how much time (total) should you take from closing/getting keys & rehabing to listing? I know you want to do this as quickly as possible but was wondering for a more accurate time table... 1 month? Thank you.

Originally posted by @Michael S. Brooks :

One follow on question for everyone. In an ideal situation, how much time (total) should you take from closing/getting keys & rehabing to listing? I know you want to do this as quickly as possible but was wondering for a more accurate time table... 1 month? Thank you.

Yes as fast as possible is always what you want.

This number will vary a ton depending on the scope of work involved.

Generally around here I would say ideal is 6-8 weeks for anything above pure cosmetics.  Once you start pulling permits the time goes up and there is a LOT of work that can get done in that 2 week fudge factor since the things that will slow you down the most are getting the permits and getting the inspections done, then the finish work is the longest part of the actual work which will be about the same on any level of project (for similar sized places).

This is assuming you have your contractors waiting to start as soon as you close, all materials are off the shelf or are ordered with the appropriate lead time (Which can mean doing things like ordering custom cabinets before you even close), no delays in getting permits (usually only a few days but have had it take over 5 weeks), the inspectors come out in a reasonable amount of time (no more than 3-5 days after calling), no major change orders come up, you start a job in Jan and then 115" of snow falls in the next 6 weeks and it is impossible to work over 20% of the days during that time, etc...   

I pretty much assume at least 10-12 weeks for most jobs since some of this crap always comes up no matter how well you plan and how good your contractors might be.

Thanks for the detail, Sean. My first Rehab was definitely to slow but we also decided to live there for a bit. My next investment will be a straight flip, so I appreciate the guidance. 

Hi Michael,

A lot of great advise from this string so far. In my opinion, wholesaling is one of the more difficult areas to master. Not saying flipping is easy by any stretch, but if you learn to flip and understand the rehab costs you will ultimately be a better wholesaler. Also you will most likely want to source your own deals as a flipper so marketing will become part of your business. Ultimately if you are sourcing your own deals from your marketing you get to cherry pick the ones you want to rehab and wholesale the rest which puts you in a much better situation.

Good luck!! -Bob

@Michael S. Brooks

Hi Michael,

I was reading the posts here, and I think you are on the right track. I might be going against the grain here a bit, but I feel that wholesaling is bit more simple than flipping. I have done both wholesaling and flipping. When I initially started real estate investing, I had no $ to invest, so I started out like most newbies, and I wholesaled deals. My goal in my mind was to wholesale deals until I built enough capital so I could be a flipper (The join the "Real Professionals), because that's where the real $ was in real estate investing I thought (Even though I don't know how to swing a hammer).  I wholesaled for my first 3 years, and It was great, and I finally built enough capital to buy and flip. The next 3 years I spent flipping properties.  We I didn't count on many different factors when flipping as follows...

~ The flips always cost more $ and time than I thought, which cut into my profit tremendously

~ I didn't manage contractors very well (A lot of $ was wasted and stolen)

~ Inspection responses cost a lot of $

~ FHA has the 90 Day rule (an FHA Buyer can't get a loan until you own the home for 90 Days, again this was more time into the project and more $)

~ I only wanted to go to these properties like 3 times during the whole rehab process, but I found myself going there about a dozen times per project.

So with that said, I personally was a mediocre house flipper, because of some of these reasons (I made $, but not near as much as I did wholesaling. My biggest strength is finding the deal...  so the past two years, I have gone back to wholesaling and it's been great.

You sound like to know more about rehabbing than I did, and if that's what you choose, Good luck, and I know it can be successful with the right "Team" in place.

As far as marketing costs... yes, it is expensive. I would stick in or around some of the major cities that have stable economy's.  We are spending about $1000 in Marketing per deal. So we know that in order to get 5 deals per month, we need to spend about $5K in marketing. This might not be the case for all areas, as I live around the Indianapolis area. 

Thanks for posting and I wish you the best of luck, Have a blessed day.

Brett

Originally posted by @Brett Snodgrass :

@Michael S. Brooks

Hi Michael,

I was reading the posts here, and I think you are on the right track. I might be going against the grain here a bit, but I feel that wholesaling is bit more simple than flipping. I have done both wholesaling and flipping. When I initially started real estate investing, I had no $ to invest, so I started out like most newbies, and I wholesaled deals. My goal in my mind was to wholesale deals until I built enough capital so I could be a flipper (The join the "Real Professionals), because that's where the real $ was in real estate investing I thought (Even though I don't know how to swing a hammer).  I wholesaled for my first 3 years, and It was great, and I finally built enough capital to buy and flip. The next 3 years I spent flipping properties.  We I didn't count on many different factors when flipping as follows...

~ The flips always cost more $ and time than I thought, which cut into my profit tremendously

~ I didn't manage contractors very well (A lot of $ was wasted and stolen)

~ Inspection responses cost a lot of $

~ FHA has the 90 Day rule (an FHA Buyer can't get a loan until you own the home for 90 Days, again this was more time into the project and more $)

~ I only wanted to go to these properties like 3 times during the whole rehab process, but I found myself going there about a dozen times per project.

So with that said, I personally was a mediocre house flipper, because of some of these reasons (I made $, but not near as much as I did wholesaling. My biggest strength is finding the deal...  so the past two years, I have gone back to wholesaling and it's been great.

You sound like to know more about rehabbing than I did, and if that's what you choose, Good luck, and I know it can be successful with the right "Team" in place.

As far as marketing costs... yes, it is expensive. I would stick in or around some of the major cities that have stable economy's.  We are spending about $1000 in Marketing per deal. So we know that in order to get 5 deals per month, we need to spend about $5K in marketing. This might not be the case for all areas, as I live around the Indianapolis area. 

Thanks for posting and I wish you the best of luck, Have a blessed day.

Brett

Hey Brett, regarding the 90 day FHA point you made, did you ever rent-to-own any of them til the 90 day requirement passed? Is that possible? Otherwise are there any other workarounds to this rule? Thanks.

@Benjamin Cowles

I have not Found any work-around strategy's to this 90 day rule...   I have never done a Rent to Own until the 90 days is up, just because if your exit strategy is to flip, and you move them into the home, and then for some reason they can't get the loan... now you have a tenant in the home.

Usually the rule is... FHA won't look at a purchase agreement until you have owned the home 90 days... However, some lenders will go ahead and submit the loan, even if you have owned it for less. We just did a deal, where we owned the home for 45 days, and got an offer for FHA. The lender got everything approved before the 90 days, and then when the 90 days hit, he cancelled the loan, and just rewrote a purchase agreement and re-dated it and closed it 8 days after the 90s hit. But we haven't gotten around this rule where we closed before the 90 days with the Buyer using FHA.

Thanks, Brett

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.