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

    @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. ... Feel free to give me a call anytime. 

    Thanks John, but my property profile is MFUs in blue-collar neighborhoods. I couldn't deal with affluent arrogance in an SFR.

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

    @Jessenia Munoz 

    I actually bought my parent's house.  They were leaving the state and I wanted a rental property.  I know all the in's and outs of that house so I felt comfortable buying it.  It might be frowned upon on here by people, but my parents took offers, and we took off 15% off their highest offer.  That is how we determined market price.  

    We then took that number and calculated what we thought would could get for rent (rentometer.com/craigslist ads in the same area) .

    We then calculated what we would pay for taxes (you can get that on zillow) added buffers for what it may cost to do some fixing up, added 5% of maintenance, 5% for capital expenditures, 8% for property management (we already had an agreement). 5% for vacancy into the expenses.  (There is a really great calculator in the tools -> rental property calculator portion of this site)

    Based on what we saw for insurance, what utilities I have to pay, (one furnace so I have to pay heat approx. 6 months a year, which we got a fixed rate thermostat so they can raise it past 72) .  Once we looked at all the calculations we got a loan and had to put I think 25% down due to already owning our home.  That was that.  My Property manager is great, she does a lot of vetting for people, it has been relatively hassle free *knock on wood*

  • Wholesaler · Tampa, FL · Member since 2016 · 53 posts · 27 votes
    9y

    Florida Homes up 11.6% in October from last October, 2015. That follows an 11.3% rise in September from 2015.

    Home ownership is at the lowest level in 50 years, and interest rates are still very low at around 4%.

    Home inventory is low at an average 3 months, in some zip codes it's down to 1 month; 6 months is the normal average.

    Arguments for buy & hold!

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

    @Jeff B.

    LOL Jeff. These are blue collar houses! We don't have the least expensive standard of living and most of my properties are typical 3/2/2. Prices have moved up quite a bit in the last 4 years. The really SMART money started buying in 2010. You could have purchased houses for 40K and 50K then that are worth four times that. We do have great climates in common:) Now, if you want to talk arrogance google "port royal". Porsches, Lambos, Ferraris, 5 carat diamonds, Patek Phillippe watches, butlers, etc. Got the pleasure of being in one of those beachfront houses a few years ago. 14M. They don't live there. They fly down in their private jets a few times and year and of course bring their servants, etc. The owners of that house are in the jewerly biz in NY. Saw another one down there...the guy made multiple millions buying NPN and other debt! Too late for me to chase new endeavors..living life now and enjoying it! Great wife. Good kids. Health.

  • Fort Eustis, VA · Member since 2016 · 54 posts · 18 votes
    9y
    James Taylor that's awesome! I'm glad it worked out for you.
  • Real Estate Investor · San Diego, CA · Member since 2008 · 23 posts · 17 votes
    9y

    @Jessenia 

    @Jessenia Munoz if you are unsure of your calculations, you can post them on the site, and people will look at them and point things out if you are missing something, I have a wife that is a an accountant/financial analyst so it made things easier for me.  I don't know your situation yet but if you are nervous it could help you feel better about things.

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

    @Jeff B.

    LOL Jeff. These are blue collar houses! We don't have the least expensive standard of living and most of my properties are typical 3/2/2.

     Well our market is 700k for SFRs, but I still prefer MFUs.

  • Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    @Jessenia Munoz, either way, you're talking about needing to find GREAT deals, right?

    ie. Deals that OTHER investors would pay you more for, because they're actually WORTH more!

    So, why not rent them out, STILL own them, and BUY more - with their borrowable equity?

    Yes, the ROI for 1x rental is not much, but the LEVERAGING ability they can generate = GOLD!

    Your priority can be: finding your FIRST great deal! (ie. Undervalued by 30-50% for some reason).

    Make sure both you and your Dad know about "BRRRR". Well done for asking. All the best...

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @John Thedford  believe it not your transaction you described above would be illegal in Oregon .

    its against the law to buy a home in foreclosure and lease it back to the owner you bought it from.

  • Pittsburgh, PA · Member since 2015 · 33 posts · 6 votes
    9y

    @Jessenia Munoz 

    If you're up for it try and do both. For every 4-5 wholesale deals you complete funnel that profit into a buy and hold property to create passive income. As long as you don't need the wholesale profit to live I feel like that would be a good plan. That way you won't be using any money out of your pocket to purchase buy and hold properties. Just a thought though, hopefully it helps.

  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    Wholesaling is a fantastic place to start in this business.  It teaches you marketing, how to find a real deal and puts you in touch with the players in your market.  The risk is lower than most other forms of investing.  

  • Rental Property Investor · Jackson, MS · Member since 2014 · 21 posts · 11 votes
    9y

    I prefer to buy and hold. Wholesaling will possibly make you some quick money, but can you sustainably build a business with that method. i like passive activities and that one is definitely not passive. You live and die by the deal. If you can't put a deal together, you don't eat!!!

    On the other hand, when you own a property, if you you bought it right, it should throw off monthly cash flow and free you up to keep adding properties to your portfolio. 

    No method is either wrong or right, it just depends on what your long term goals are for your business.

  • Investor · Saint Joseph, MI · Member since 2015 · 93 posts · 50 votes
    9y

    @Jessenia Munoz great discussion, I'd like to add my own 2 cents here.  I started investing into real estate about 18 mos. ago, and original intent was simply buy and hold to create additional passive income. I LOVE passive income, it's what drove me to build my first networking marketing business.  My returns were so strong on the properties I bought, that I started telling my friends and network, and they jumped on pretty quick.  I received a referral credit towards my rehabs, and then quickly realized I could wholesale and flip to create cash quicker to then purchase buy and holds faster.  My ultimate goal is not to do wholesale or flips, although I do highly enjoy making deals and helping other investors.  My primary goal is buy and hold passive income - but I'm scaling so much faster doing both (I'm over 100 units as of now, next week a chunk of them will be sold and I'll rebuy). I have my primary business, my rental income, my wholesale, and my flip cash - all of that each month allows me to add a property or 2 every month - compounding how fast I grow the portfolio.  So, I don't think there's a wrong answer here, but there is definitely nothing wrong with MSI's - multiple streams of income - it's how most get wealthy.  Hope that helps!

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

    @James Taylor thanks for the tip! Be on the lookout for that for my first deal :D

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

    @Brent Coombs I was actually listening to another podcast where Brandon from BP was a guest and they were discussing what BRRRR deals are an they also seemed like something that would be worth looking into. But thanks for that perspective!

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

    @Ryan Howard For sure! This is something I was also looking into persuing as well because I'm a big believer in using investments to invest in other investments and this is just that. Not to mention, I'd be getting exposure to both aspects of real estate - wholesaling and B&H - which would help me narrow down which one I would like to stick with (if any) or if I would like to venture into another avenue of RE. 

    Is this the method/strategy that you use?

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

    @Ian Walsh That's not something I had initially thought about, that one can really make some valuable connections with people in the industry and even build a positive rapport that may even facilitate other kinds of REI deals (flipping, B&H, etc.).

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

    @Anthony Griffin That point precisely is why I'm a bit hesitant to venture into wholesaling - if I'm not bringing buyers and sellers together, I'm not making money; I can be breaking my back to bring them together, using up precious time but without contracts being signed, I'm not profiting. I get that this is a low-risk form on REI because one doesn't have to buy a house without first having a buyer in lined up thus they wouldn't be losing any money but I don't know that it makes up for the time that may have been utilized.

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

    @Jack Gibson Firstly, congrats on your success! This is the sort of platform that I hope to function in ever since my dad and I spoke about the possibility of switching to wholesaling. If anything, it just makes sense. 

    If I can ask you ask well, how did you come across your first property and what kind of financing did you use?

  • Investor · Saint Joseph, MI · Member since 2015 · 93 posts · 50 votes
    9y

    @Jessenia Munoz, thank you! My very first property was my first SFH that I purchased right out of college. We had a baby on the way, it was 2007, so we wanted to upgrade - great timing! So we couldn't sell it, we have just rented it for the last 10 years. Starting a year ago, I found my current source through a series of podcasts, then I purchased a property, which triggered a direct sales letter to me that showed me better returns, so I hopped on board with them a year ago and have been building up most of my inventory through them. PM me and I can get you some more details and suggestions on what to do.

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

    @Jack Gibson Will do! Thanks again.

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

    @Jay Hinrichs

    Yes Jay you had taught me that fact. A handful of other states may also have similar legislation. In a way, that is bad for owners in a tight spot but I can see the other side of the argument to help protect owners. I don't normally target pre-foreclosures but I am aware they are heavily marketed to. 

  • Flipper/Rehabber · Sacramento, CA · Member since 2016 · 807 posts · 815 votes
    9y

    @Jessenia Munoz

    If you have the money, I would actually do both because you can get the best of both worlds. Here's why.

    With a 'successful' wholesaling business, you would be at the forefront of great deals. Since you're an expert marketer and deal finder, you can find the great multifamily deals and close on them yourself for your portfolio. Anything else, you can wholesale to your investor network. The business will also generate you quick cash as you do more volume, which you can funnel into more MF deals. I know wholesalers who are grossing 60k a month with a successful wholesaling business. 

    With Buy and Hold, in my opinion, SFRs are not worth it. Multifamily is the way to go for a number of reasons. So you could start with learning how to analyze MF deals, then close on one in your area. Also, find a great management company because I'm pretty sure you don't want to manage all your rentals in the future. 

    Doing both of these will definitely take a lot of effort and dedication. I'm not saying either are easy. But if you choose to only buy-and-hold, you'll need to network really well with wholesalers and agents in your area that will bring you deals before they hit the market. 

  • Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes
    9y

    Hi @Jessenia Munoz, I love seeing the posts from ambitious young people asking how to get started, and I admire your chutzpah. That said, I suspect that the vast majority of those posting don't end up getting too far when they actually see the grind it takes to get started. Here's my recommendation, although if parts don't work for you, feel free to pick the pieces you like: 

    1. Get a real estate license. It takes like 2 months and less than $1000, it'll add to your knowledge, and gives you access to the all-important MLS. It's a much easier job than wholesaling in a sellers market, and it'll allow you to make your own capital so you don't have to compromise. Also, everyone prefers to hear stories about self-made millionaires vs. those who got a step up from family (not that there's anything wrong with that).

    2. BRRR (or however many Rs people are adding to it these days). I won't go too deep into it as it's been discussed many times before, but it'll allow you to use a subsidized loan (read: little money down), and it is one of the easiest ways to build wealth when you're starting out, provided you're willing to be flexible.

    3. Go to real estate meetups and find a mentor other than your father. By all means, still use your dad as a resource, but you mentioned yourself that he's failed at his attempts and it also sounds as though he's a bit unsure as to how to proceed. Don't bring up the "book smarts" thing, it means little in this industry, unless you've studied the minutia of local real estate laws and systems or tax law. I often view people like that with skepticism, because I was one of those kids too, and all it really means is that you don't yet know how much you don't know. Let your mentor know that you're willing to do all the terrible, boring, uncomfortable, and dirty jobs that make this industry so profitable for most of us.

    4. Don't get discouraged. I think a lot of people think that real estate is more glamorous than it really is. It is actually painfully easy to make money in this industry, but you have to be a problem solver who has thick skin and is willing to get her hands dirty and grind to make it work.

    I look forward to seeing your first post in the "success stories" section in a few years. Good luck.

  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    9y
    Originally posted by @Jessenia Munoz:

    @Ian Walsh That's not something I had initially thought about, that one can really make some valuable connections with people in the industry and even build a positive rapport that may even facilitate other kinds of REI deals (flipping, B&H, etc.).

     Yea.  The benefits to Wholesaling are far more than most realize.   I started with it myself and looking back it is what allowed me to do what I do today.

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