Best entry way for a new investor. Wholesaling or House Hacking?

Question

Hello fellow Realestate junkies! My question is simple. What is the best approach when attempting to enter into the real estate game especially in this economic climate? Should I house hack, save some money for BRRR deals down the road or get straight into wholesaling so I can purchase larger deals? My ultimate goal and end strategy is to become a buy and hold investor that uses 10-31 tax exchange to continue purchasing massive properties and gain equity along the way. What would some of you experienced investors changed about the way you started your careers? And how would entering in during a time like this effect long term investment strategies? Also is it best to mix and match different strategies or find one niche to stick with? I’m trying to get in the game and get rolling quick. Please let me know what you guys think.

Michael Carbonare · Answer

I understand the appeal of wholesaling for the new investor.  In theory it's wonderful.  In the real world, not so much.  Your business model is simple:  find homeowners desperate enough to sell you their property for .40 on the dollar.  Quickly resell it for a fast, easy profit.  Rinse and repeat.  How many homeowners do you think you'll find willing to sell with that discount?  The competition is fierce, to say the least.  A successful investor friend of mine in south FL drops 10,000 pieces of mail each month to find his deals   Ten thousand!  He needs $30K in profits each month to break even. There are easier ways to get started investing in real estate.

Richi Brown · Answer

@Devon Suits

Im still a rookie, but my question to you is why not both? House hacking and wholesaling are not mutually exclusive of each other. They say both house hacking and wholesaling is a great way for new REI’s to start get involved in real estate, and the way I see it is if you begin the funnel of looking for your property, but wholesaling the ones that doesnt meet your house hacking criteria then it would be a great way to get exposure and experience.

Chris Stroup · Answer

Some wholesalers are just trying to make money any way they can.  I'll give you an example.  I went and looked at a property that was listed on the MLS with a contractor.  The contractor said the foundation was going to need at least 30k of work due to termite damage.  A wholesaler listed the same property on Facebook marketplace.  I sent him a message about what I knew and he told me I was wrong and he continued to market the property stating that it was in good condition.  This was on a house listed for about 60k with an ARV around 70k.

A good wholesaler provides value.  They provide an accurate rent rate, a reno quote from a trusted contractor, an ARV that is reasonable, a property that isn't about to fall apart.  The wholesalers that I like to work with are honest and upfront about anything that is important to the deal.

Chris Stroup · Answer

Why not do both?  Start building your wholesale pipeline and while doing so find a nice property to house hack.  Then use your knowledge of that process to help others do the same.  If you are going to get into wholesaling, learn everything you can about the process.  Find someone that you can bounce ideas off of and make sure you are on the right path.

John Warren · Answer

@Devon Suits I am in the near western suburbs of Chicago. The market definitely allows for good cash flow as well as some appreciation. I feel fortunate to be here when I look at other markets! I still think most people should focus locally though. You may need to look at towns a few minutes further out in your area, but most areas have pockets that make sense.

Adam LeZotte · Answer

@Devon Suits you don’t have to spend $30k starting out to “break even”. You will have to learn your customer acquisition cost however. How much would it cost in mailing and advertising to make one deal and what could you safely estimate a typical wholesale deal bring in. You may find it will cost $2000 in marketing to acquire just one wholesale deal that earns you $5000, or $3000 in profit after the cost you put in to find the deal. Start small but I think wholesaling is fierce right now. Go after just trying to make your first deal but know it’s costly because of competition.

Drew Holland · Answer

What makes some wholesalers good and others not?  I've been in the REI space for a while and want to step up my wholesale production/operation.  Appreciate any insights you have.

Happy Investing!

Chris Stroup · Answer

@Devon Suits I am a Realtor and I have helped people house hack.  Small multi-family properties where the other units will cover your mortgage.  I also work with many wholesalers to be able to bring good deals to my clients.  Some wholesalers are good and others are not.  There are many different ways to do it you just need to figure out what works for you.  Just remember you are looking to add value to the seller and your buyer.

There are a lot of tools that you can use to help make wholesaling easier but they all cost money.

John Warren · Answer

@Devon Suits house hacking is most definitely the easiest and best way to become an investor. Buying high quality rental property will undoubtedly put you in a great position in 10-15 years and if you are aggressive, save a lot, and work hard, you can get into those larger properties you are dreaming off. Just keep in mind that wholesaling and other strategies like it involve a lot of time and money to be successful. You are essentially running a business just like a realtor, mortgage broker, insurance agent, etc except you are operating in the "grey" zone where you will have a hard time explaining why you do what you do to sellers.

Drew Holland · Answer

Got it and thank you.

Best entry way for a new investor. Wholesaling or House Hacking?

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