Wholesaling vs. Buying and Holding

Wholesaling vs. Buying and Holding

Fort Eustis, VA · Member since 2016 · 54 posts · 18 votes

Hi all! I'm coming back with an update (a little shift in perspective from my first post) and also some tips/advice.

I initially came to BP with the a goal of buying and holding MF units in the VA Beach and Newport News areas. Due to the fact that I don't have the capital, I approached my dad because he's had some (failed) rental properties and experience under his belt; not to mention, the capital. Now, although he has the money and experience, I have sufficient more "book knowledge" and have done more research that can supplement his experince. I told him that if he puts up the capital, I'd be more than willing to do all the due diligence and work that it would take to find the deals, tenants, find contractors, etc. without his paying me because I would gain significant experience in the process and simultaneously, he would profit. After some more conversation with him, he mentioned he might look into wholesaling as opposed to rental properties because theROI on rental properties is very minimal (and I don't disagree). Like stocks, rental properties can be more of a long-term investment whereas with wholesaling, one can make quicker money in larger amounts. Both avenues require a substantial amount of work, both require time and effort, both require a set of skills (different for both), but with rental properties, one can expect a steady flow of income (hopefully), every month, on the same day, with minimal work. With wholesaling, if one isn't actively searching for deals and bringing people together, there's no cash flow.

These are juse speculations based on research I've been doing and people that I have talked to because again, I don't have a bit of actual hands-on experince under my belt. Any tips on which route I should look into pursuing or is this more of a personal, subjective decision?

Thanks in advance for the input! :)

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Investor · Madison, CT · Member since 2014 · 710 posts · 458 votes
9y

@Jessenia Munoz. Your exploration of the ideas here is all valid. I stick with buy and hold for a few reasons. 

1) Passive Income: My money, not my time, is making me money. Yes, I am putting time into looking for new places, making offers, doing the books, etc., but I have hired a property management company that takes good care of things. Sure, you could call owning rentals a job, but it's not a job the same way wholesaling is a job if you're looking to make equivalent money.

2) Taxes: Plenty on other posts, blogs, podcasts about that - no need to explain here.

3) Long-term wealth building: Each property I buy adds to my monthly cash flow and to my long-term net worth. If I were to make a quick four-figure check on a wholesale, that does nothing for my long-term wealth until I invest it somewhere else. I am back to square one, having to put all the same work into finding another wholesaling deal. 

So those are my reasons for sticking with buy and hold rentals as opposed to wholesaling. Who has a different perspective?

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  • Investor · Madison, CT · Member since 2014 · 710 posts · 458 votes
    9y

    @Jessenia Munoz. Your exploration of the ideas here is all valid. I stick with buy and hold for a few reasons. 

    1) Passive Income: My money, not my time, is making me money. Yes, I am putting time into looking for new places, making offers, doing the books, etc., but I have hired a property management company that takes good care of things. Sure, you could call owning rentals a job, but it's not a job the same way wholesaling is a job if you're looking to make equivalent money.

    2) Taxes: Plenty on other posts, blogs, podcasts about that - no need to explain here.

    3) Long-term wealth building: Each property I buy adds to my monthly cash flow and to my long-term net worth. If I were to make a quick four-figure check on a wholesale, that does nothing for my long-term wealth until I invest it somewhere else. I am back to square one, having to put all the same work into finding another wholesaling deal. 

    So those are my reasons for sticking with buy and hold rentals as opposed to wholesaling. Who has a different perspective?

  • Fort Eustis, VA · Member since 2016 · 54 posts · 18 votes
    9y

    @Kevin Siedlecki That was my argument as well! That's what attracts me to rental properties, the fact that it's more passive than any other method. Granted, I know that there is still a substantial amount of work that needs to be done but once a contract is signed, I'll receive steady income (given that I did the due diligence of finding a reliable tenant) every month without having to do any more extensive work until I want to find my next deal. It's definitely something that beckons me to take that road.

  • Investor · Downers Grove, IL · Member since 2015 · 1k+ posts · 955 votes
    9y

    @Jessenia Munoz @Kevin Siedlecki

    Agreed with all your points. But why does it have to be 1 or the other? why not both? and not to mention other areas of real estate investing as well. (flips / notes / tax liens / trailer parks / self storage etc.)

  • Fort Eustis, VA · Member since 2016 · 54 posts · 18 votes
    9y

    @Chris T. That's the thing! I've also entertained the idea (as a way to compromise with my dad) off starting of with a wholesale deal and using that profit to finance a rental property or two and sort of perpetuate that strategy to get exposure to both avenues which may consequently lead to our continuing this strategy or choosing one of the two that  we may favor more than the other. So we'll see! Of course if the situation arises that we find ourselves not liking either strategy, we will delve into other facts of real estate.

  • Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @Jessenia Munoz:

    ...After some more conversation with him, he mentioned he might look into wholesaling as opposed to rental properties because the ROI on rental properties is very minimal (and I don't disagree). Like stocks, rental properties can be more of a long-term investment whereas with wholesaling, one can make quicker money in larger amounts. ... with rental properties, one can expect a steady flow of income (hopefully), every month, on the same day, with minimal work. With wholesaling, if one isn't actively searching for deals and bringing people together, there's no cash flow.


     I'm a B&H investor on a MFU 6-unit apt and have operated it for 19yrs.  Here's my thoughts:

    Wholesaling:

    There's lots of discussion on whether wholesaling is legal and it varies from state to state. 

    It's transactional; profits only come from closed deals and you must keep at it to see YE returns.

    B&H Rentals:

    There are only two transactions: the original purchase and the exit sail.

    The monthly NOI gets annualized into a nice YE PnL with deposits every month, even when you're laid-up sick.

    The MFU will have a large NOI/ROI depending upon the number of units

    I recently sold a 6-plex for $775k with a GSI of $64,800; that's 4+ wholesale transaction (assuming 15k per)

  • Fort Eustis, VA · Member since 2016 · 54 posts · 18 votes
    9y

    @Jeff B.  Thanks for the break down! I'm actually glad you reached out because on my first post on BP I mentioned that I wanted to look into buying and holding solely MFU because I find it logical and comforting that if I have - let's use your example - a 6-plex and am renting out all 6 units but then I have to evict one or they leave and all of a sudden have 1 empty unit, I'll be OK because although I'm down one tenant, I still have 5 others that I'm generating profit from. If I, on the other hand, invest in a single-family and it's vacant for 6 months, I'm now in a tough place. You reiterated a very important factor in my favoring B&H MFU in saying that it's far less hassle than wholesaling and it guarantees a monthly deposit whether I feel like doing any work that month or not (assuming that everything flows smoothly with the tenants that month). I compare it to an entreprenuer who has scaled his business to such heights that they can take a month's vacation to Thailand without working for that entire month but still profit from his business. It just makes sense!

  • Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @Jessenia Munoz:

    @Jeff B.  ... but then I have to evict one or they leave and all of a sudden have 1 empty unit, I'll be OK because although I'm down one tenant, I still have 5 others that I'm generating profit from. If I, on the other hand, invest in a single-family and it's vacant for 6 months, I'm now in a tough place.

     YEP, that was the go-no-go point for me.  Additionally, some expenses get amortized by the number of units; eg property taxes, insurance, roofing, owner paid  utilities/services.

  • Fort Eustis, VA · Member since 2016 · 54 posts · 18 votes
    9y

    @Jeff B. Thanks for the words, Jeff! Truly enlightening.

  • Investor · Madison, CT · Member since 2014 · 710 posts · 458 votes
    9y
    Originally posted by @Chris T.:

    The answer for me is that the return on my time is more valuable (financially and in terms of lifestyle) finding buy and holds, working my full-time job, and having time to relax and have fun. If I had more time to put into it, I might consider wholesaling or flipping, but my the return on my time invested is better working my job and finding/buying/maintaining rentals.

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    Thanks for the invitation to speak up. I am VERY outspoken on unlicensed brokering. Frankly, I don't like it for several reasons. The assignment clause in real estate contracts was NOT written so that a bunch of yahoos with no education, no money, many with no integrity, etc could act as brokers and circumvent the state laws. Laws do vary by state. In some states, you CANNOT advertise the house UNLESS you own in. In Florida, to advertise real estate, you just either be licensed through the state, be a part owner, or have equitable interest. There are lots of scammers on BP advertising properties in Florida that they have NO legal interest in. That is a 3rd degree felony per Chapter 475. If these fringe operators believe so strongly in brokering real estate, they should get a license. That in itself will lend SOME credibility. Few if any unlicensed brokers will succeed and you can find dozens of posters on BP that found NO value in trying to work with these operators. Now, to the much MORE important question that you raised: buy and hold real estate will pay you every day you own it. The more you buy, the bigger your paychecks will be. As another poster stated, if you want to work as a broker, licensed or unlicensed, you will always need that next deal to keep your income stream. So, your two choices are: buy and hold and build sustainable income, or continue to work work work to keep your income. Which sounds easier? Which would give you financial freedom? IMO, there is really NO choice. Do you have to start big with MF or will SFR work? I believe you should buy anything and everything if the deal makes sense and you can get it funded. I personally don't own any MF because I am too picky on what I want to own. I purchase newer homes in better neighborhoods. These yield higher income than most MF, have less turnover, and the appreciation is just a bonus.

  • Fort Eustis, VA · Member since 2016 · 54 posts · 18 votes
    9y

    @Kevin Siedlecki Agreed. I still plan to continue and grow in my career because it's something that I truly enjoy doing and I do not want to stop working, not yet. Nonetheless, I'm all for being in control of my financial destiny and I know that investing in assets outside of putting away money in a slowly appreciating 401K and the like (although great tools) won't give me the freedom I desire later on in life when I do reach a point that I want to stop working or take a break or just want to travel or whatever else entices me. At which point - as you mentioned - I may want to lean more towards a few wholesaling deals because my time won't be consumed or restricted (for lack of better words) by my full-time job. Like I said, I'm just interested in real estate and would love to use it as a supplement!

  • Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @John Thedford:

     I purchase newer homes in better neighborhoods. These yield higher income than most MF, have less turnover, and the appreciation is just a bonus. 

    My head spins when I hear this. My little 6-plex generates $5,400 GSI each month. Those SFRs must be mansions in Beverly Hills, Palm Beach or Newport, RI

  • Lehi, UT · Member since 2016 · 10 posts · 7 votes
    9y

    @Jessenia Munoz Thank you for the post, this is the same sort of question I have been contemplating for quite a while now. The more I read and learn I am starting to get the same impression that wholesaling, while not illegal in my state, needs to be done with care (if that makes sense.) So with that said I have started to also look to rental propertiers, plus as everyone else has already stated, it's PASSIVE INCOME!!! Who wouldn't want passive income. 

    Anyway good luck on your adventure, let us know what you decide and where it takes you. 

  • Fort Eustis, VA · Member since 2016 · 54 posts · 18 votes
    9y

    @John Thedford Thanks John! I was actually reading some BP posts and listening to some other podcasts (BP and others) trying to figure out whether it would be absolutely critical that I get a RE license in order to wholesale. I know that it adds an element of credibility and professionalism, not to mention, it doesn't hurt to have the knowledge and know that you have a much less possibility of breaking the law. On the other hand, one has more freedoms as a non-licensed wholesaler because they don't have as many restrictions but again, that leads to many of the frauds that you mentioned.

    Thanks again!

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    @Jeff B.

    Sir..didn't mean to make you dizzy:) My "mansions" in SW Florida are plain Jane mansions. Only one has a cement pond! 13K a month gross rents gets me by:)

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    @Jessenia Munoz

    Contrary to your beliefs, I believe having a license is an advantage in all respects. The only real "advantage" an unlicensed broker may have is being dishonest with sellers (if you call THAT an advantage). You can purchase outright. You can list it. You can sell it. You can sell others listings. And yes, you can make a legal commission on other licensees assignments. I have found my license to be a definite advantage in many ways. My last two purchases came about because I am a licensee. 

  • Real Estate Investor · San Diego, CA · Member since 2008 · 23 posts · 17 votes
    9y

    Buying that first property was terrifying, buying the second seems a little easier (I'm currently shopping).  My wife talked me into it and I'm kicking myself in the butt for not doing it years ago..

  • Fort Eustis, VA · Member since 2016 · 54 posts · 18 votes
    9y

    @Nate Hollingshead Yes! I'll share what I learn along the way and maybe I'll learn from you as you start on your path as well :)

  • Fort Eustis, VA · Member since 2016 · 54 posts · 18 votes
    9y

    @John Thedford That's good to know! Again, being that I've not yet "gotten my feet wet," this is all speculation so it's good to see that having a license really does provide benefits not only for us as the investors but it gives some assurance to the other party as well; we both win!

  • Fort Eustis, VA · Member since 2016 · 54 posts · 18 votes
    9y

    @James Taylor That's why I'm so adamant in finally starting! I've got what they call "analysis paralysis!" I've studies RE now for over a year and have learned all that I can without having any applied experience so it's time. 

    Best on your endeavors!

  • Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @John Thedford:

    @Jeff B.

    Sir..didn't mean to make you dizzy:) My "mansions" in SW Florida are plain Jane mansions. Only one has a cement pond! 13K a month gross rents gets me by:)

     my my; envious :=)

  • Real Estate Investor · San Diego, CA · Member since 2008 · 23 posts · 17 votes
    9y
    Originally posted by @Jessenia Munoz:

    @James Taylor That's why I'm so adamant in finally starting! I've got what they call "analysis paralysis!" I've studies RE now for over a year and have learned all that I can without having any applied experience so it's time. 

    Best on your endeavors!

     It is easy to analyze and analyze.. the next step is just contacting people and making it happen.  YOU CAN DO IT! You'll be surprised that actually getting a prop at the price you want can be the next challenging part of the process.. 

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    @Jeff B.

    I would be more than happy to help you find something in this area if you desire! I can go on and on about our area and market. You can STILL find an occasional deal that makes sense. Our appreciation has been very strong. Almost HALF of our buyers are cash buyers which gives insulation from panicked selling due to market movement. Feel free to give me a call anytime. 

  • Fort Eustis, VA · Member since 2016 · 54 posts · 18 votes
    9y

    @James Taylor If you don't mind me asking, how did you go about acquiring your first property?

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    @Jeff B.

    This is the newest one. Cost me 138K. Probably was a little strong on price but had to move on it or walk. Pre-foreclosure. Friend of mine. I purchased it and leased it back to them at closing. Average quality construction and certainly NOT a mansion. No cement pond either:)

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