Does it make sense to stay with wholesaling permanently?
FL · Member since 2016 · 912 posts · 107 votes
Does it make sense to stay with wholesaling permanently?
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Investor · Charleston, SC · Member since 2015 · 113 posts · 50 votes
9ySome people do very well wholesaling but wholesaling is only a job if you are doing the work, not a common business structure. A business runs without you putting in the hours and doing all the work.
A portfolio of properties can be managed by someone else and become mailbox money. Over time wealth accumulates with the right properties. This is why Hedge Funds and other Institutional Investors are buying heavily in the rental market. They are not wholesaling for cash flow but creating cash flow through the margin on each rental plus appreciation.
Long Term Capital Gains and other tax advantages also come into the picture on property owned for over 1 year. This becomes more and more important as you move up into higher tax brackets. Hope this is helpful.
38 Replies
- Investor · Charleston, SC · Member since 2015 · 113 posts · 50 votes9y
Some people do very well wholesaling but wholesaling is only a job if you are doing the work, not a common business structure. A business runs without you putting in the hours and doing all the work.
A portfolio of properties can be managed by someone else and become mailbox money. Over time wealth accumulates with the right properties. This is why Hedge Funds and other Institutional Investors are buying heavily in the rental market. They are not wholesaling for cash flow but creating cash flow through the margin on each rental plus appreciation.
Long Term Capital Gains and other tax advantages also come into the picture on property owned for over 1 year. This becomes more and more important as you move up into higher tax brackets. Hope this is helpful.
- Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes9yAgree with what David Benton said. Wholesaling isn't investing, it's a business.
- FL · Member since 2016 · 912 posts · 107 votes9y
@Mark Allen well whatever it is, it's seems the way to go for me right now. Who wants a portfolio of properties producing $250/month with all the stress of being a landlord?
- Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes9y
@Patrick Philip I think you missed David's post/points. But hey, check this out. If you want to run a business and not invest with your own money... What if you found a 200 unit apartment at $10M. It produces $700,000/year or $58,333/month in cash flow. You raise the down payment of $2.5M and charge a 2% fee for putting the deal together and you take a small equity position. You come out with $200k in a matter of 4-5 months just from the fee alone, and you get a little cash flow each month.
You put together several deals and maybe you just want to buy your own. So you find a $3M deal that's poorly managed and under market rents, so you acquire with 20% down ($600k)... You put in a better 3rd party mgmt company, push rents, and after 3 years, the deal is now worth $5.9M. You cash out and walk away with $3M. Maybe you even exchange it for a larger property of $5M and walk away with $5M this time, now you're up to $8,000,000. Then you decide to size up... Get where I'm going. This is just a general, small example. Expand your mind.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Mark Allen average person does not have the street creds to do as you delianted above.
and its HUGELY risky to invest like this with beginner sponosrs.. they have no skin in the game they usually have the opposite of deep pockets.. and if it goes bad they move on..
- FL · Member since 2016 · 912 posts · 107 votes9y
@Mark Allen that seems like something to think about. But isn't 2% of 2.5M $50,000, not $200,000?
And "raise $2.5M" is a little harder than it sounds.
But it's something to think about. I don't WANT to be a wholesaler my whole life, but I need to do what makes sense.
Originally posted by @Patrick Philip:
Originally posted by @Jeff B.:
Your assumptions on rents is questionable, especially discounting MFUs where NOI/mo can be very nice (my 6plex returned 5400/mo).
Is $5,400/month before or after the mortgage payment.
Before, but P+I was only $1200 and the balanced declined on the ARM to the point it was laughable - - $485. The MFU can easily become a cash-cow.
- FL · Member since 2016 · 912 posts · 107 votes9y
Originally posted by @Jeff B.:
Originally posted by @Patrick Philip:
Originally posted by @Jeff B.:
Your assumptions on rents is questionable, especially discounting MFUs where NOI/mo can be very nice (my 6plex returned 5400/mo).
Is $5,400/month before or after the mortgage payment.
Before, but P+I was only $1200 and the balanced declined on the ARM to the point it was laughable - - $485. The MFU can easily become a cash-cow.
How did you find this property? Was it on the MLS? I would be interested in MFU if I can make them work, but also consider that $5,400 is basically the income from one wholesale deal.
- Investor · Charleston, SC · Member since 2015 · 113 posts · 50 votes9y
Read the post by Mark Allen again. The 2% acquisition fee happens all the time in deals like this. That is 2% of $10M which is $200,000 upon closing of escrow.
If you keep a rental property it's the gift that keeps on giving. Wholesaling is a one time fee, and you're only making as much as your next deal. As the market tightens up and there's less and less deals out there, it's going to be difficult to sustain the wholesale model of getting more deals to keep the bills paid. But a rental will keep cranking out rents regardless of the market.
But it's a personal choice, do what you enjoy.
- FL · Member since 2016 · 912 posts · 107 votes9y
Originally posted by @Nick C.:
If you keep a rental property it's the gift that keeps on giving. Wholesaling is a one time fee, and you're only making as much as your next deal. As the market tightens up and there's less and less deals out there, it's going to be difficult to sustain the wholesale model of getting more deals to keep the bills paid. But a rental will keep cranking out rents regardless of the market.
But it's a personal choice, do what you enjoy.
That's true, but how much do your rental properties produce after all bills are paid? If it's $300/month, that means you would need 17 properties to equal one wholesale deal.
- FL · Member since 2016 · 912 posts · 107 votes9y
Originally posted by @David Benton:
Read the post by Mark Allen again. The 2% acquisition fee happens all the time in deals like this. That is 2% of $10M which is $200,000 upon closing of escrow.
So where do I find these apartment complexes? Are they on LoopNet or do I have to work harder?
In your example you're only taking 1 month into account. Those 17 rentals equal 1 wholesale deal every month, so 12 a year basically, 60 over a 5 year span. Not to mention appreciation, refinance potential, etc. But that 1 wholesale deal is still just that.
Personally I'd rather own 17 rentals than wholesale 1 deal, but like I said do what you enjoy. There's more than one way to make money in real estate, that's for sure.
- Los Angeles, CA · Member since 2017 · 45 posts · 22 votes9y
@Patrick Philip, I agree with @Nick C., @David Benton, and @Mark Allen. Wholesaling is not a means to an end for investors. It can be a great way to get started in the industry and build up enough experience and capital in order to make investments, but it all depends on your goals. I don't think you're going to be interested in the "wholesaling grind" after putting in many years in the game. We all want to be able to have the ability to check out sooner than later, but it takes patience and hard work. There is no quick way to reach true wealth. I think you may be thinking too short term here. Your numbers seem off, but even if they aren't, at $300/month, if you can build up a portfolio of 100 units, that's $30,000 a month of money coming in that you don't work for. All passive.
Focus on the short term goals in order to get closer to the long term goals my friend.
Originally posted by @Patrick Philip:
Originally posted by @Jeff B.:
Originally posted by @Patrick Philip:
Originally posted by @Jeff B.:
Your assumptions on rents is questionable, especially discounting MFUs where NOI/mo can be very nice (my 6plex returned 5400/mo).
Is $5,400/month before or after the mortgage payment.
Before, but P+I was only $1200 and the balanced declined on the ARM to the point it was laughable - - $485. The MFU can easily become a cash-cow.
How did you find this property? Was it on the MLS? I would be interested in MFU if I can make them work, but also consider that $5,400 is basically the income from one wholesale deal.
Fine, stick with what you know and are willing to work at. I went B&H long term MFU as the vacancies were few & far between allowing long periods of "just collecting rents". I could turnover a vacancy in 30-45 days and go back to sleep.
I got into the MFU via a SFR 1031 and had to scramble to find it and to determine what occupancy would be the break even point (net zero profits). The market is more difficult today, but it's doable. The trick is to be able to make the down payment to get the LTV the lender requires. When I sold last spring, my buyer understood how and he how has the cash flow. You just can't expect ROI with $1.95 down
- Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes9yJay Hinrichs Partnerships? I didn't have the knowledge or money, but I know how to bring value to a syndicator to grow... deals and money.
- FL · Member since 2016 · 912 posts · 107 votes9y
Originally posted by @Josh Gorokhovsky:
@Patrick Philip, I agree with @Nick C., @David Benton, and @Mark Allen. Wholesaling is not a means to an end for investors. It can be a great way to get started in the industry and build up enough experience and capital in order to make investments, but it all depends on your goals. I don't think you're going to be interested in the "wholesaling grind" after putting in many years in the game. We all want to be able to have the ability to check out sooner than later, but it takes patience and hard work. There is no quick way to reach true wealth. I think you may be thinking too short term here. Your numbers seem off, but even if they aren't, at $300/month, if you can build up a portfolio of 100 units, that's $30,000 a month of money coming in that you don't work for. All passive.
Focus on the short term goals in order to get closer to the long term goals my friend.
100 rental properties sounds nice, but how do I come up with 100 down payments?
- FL · Member since 2016 · 912 posts · 107 votes9y
Originally posted by @Jeff B.:
Originally posted by @Patrick Philip:
Originally posted by @Jeff B.:
Originally posted by @Patrick Philip:
Originally posted by @Jeff B.:
Your assumptions on rents is questionable, especially discounting MFUs where NOI/mo can be very nice (my 6plex returned 5400/mo).
Is $5,400/month before or after the mortgage payment.
Before, but P+I was only $1200 and the balanced declined on the ARM to the point it was laughable - - $485. The MFU can easily become a cash-cow.
How did you find this property? Was it on the MLS? I would be interested in MFU if I can make them work, but also consider that $5,400 is basically the income from one wholesale deal.
Fine, stick with what you know and are willing to work at. I went B&H long term MFU as the vacancies were few & far between allowing long periods of "just collecting rents". I could turnover a vacancy in 30-45 days and go back to sleep.
I got into the MFU via a SFR 1031 and had to scramble to find it and to determine what occupancy would be the break even point (net zero profits). The market is more difficult today, but it's doable. The trick is to be able to make the down payment to get the LTV the lender requires. When I sold last spring, my buyer understood how and he how has the cash flow. You just can't expect ROI with $1.95 down
Once again, the trick is the down payment. Who has 20% of an apartment complex lying around.
- Los Angeles, CA · Member since 2017 · 45 posts · 22 votes9y
Originally posted by @Patrick Philip:
Originally posted by @Josh Gorokhovsky:
@Patrick Philip, I agree with @Nick C., @David Benton, and @Mark Allen. Wholesaling is not a means to an end for investors. It can be a great way to get started in the industry and build up enough experience and capital in order to make investments, but it all depends on your goals. I don't think you're going to be interested in the "wholesaling grind" after putting in many years in the game. We all want to be able to have the ability to check out sooner than later, but it takes patience and hard work. There is no quick way to reach true wealth. I think you may be thinking too short term here. Your numbers seem off, but even if they aren't, at $300/month, if you can build up a portfolio of 100 units, that's $30,000 a month of money coming in that you don't work for. All passive.
Focus on the short term goals in order to get closer to the long term goals my friend.
100 rental properties sounds nice, but how do I come up with 100 down payments?
Good question, and one that doesn't have a simple answer. Same way I'm trying to do it brother. Hard work, patience, and increase your passive income piece by piece while trying to do larger flips/wholesales at the same time.
- FL · Member since 2016 · 912 posts · 107 votes9y
Originally posted by @Josh Gorokhovsky:
Originally posted by @Patrick Philip:
Originally posted by @Josh Gorokhovsky:
@Patrick Philip, I agree with @Nick C., @David Benton, and @Mark Allen. Wholesaling is not a means to an end for investors. It can be a great way to get started in the industry and build up enough experience and capital in order to make investments, but it all depends on your goals. I don't think you're going to be interested in the "wholesaling grind" after putting in many years in the game. We all want to be able to have the ability to check out sooner than later, but it takes patience and hard work. There is no quick way to reach true wealth. I think you may be thinking too short term here. Your numbers seem off, but even if they aren't, at $300/month, if you can build up a portfolio of 100 units, that's $30,000 a month of money coming in that you don't work for. All passive.
Focus on the short term goals in order to get closer to the long term goals my friend.
100 rental properties sounds nice, but how do I come up with 100 down payments?
Good question, and one that doesn't have a simple answer. Same way I'm trying to do it brother. Hard work, patience, and increase your passive income piece by piece while trying to do larger flips/wholesales at the same time.
Do you buy all your rentals from the MLS? What criteria do you use to find good ones?
- Los Angeles, CA · Member since 2017 · 45 posts · 22 votes9y
In this market, it's very hard to find deals on the MLS. Not impossible.
I would focus on building relationships with agents in your farm area and get them to source deals for you if possible. Criteria for me is something that's either a ground-up build or something I can add sqft and/or units to. A simple cosmetic flip won't pencil most of the time in Los Angeles. So an example would be a SFR built on a R2-R4 lot where we can add units.
Like others have mentioned wholesaling is more of a business than investing. There are some big players in the field like Sean Terry who have a whole team set up and even an office building. They send out HUGE mailings and gross $100k+ a month.
So yes, if scaled property, wholesaling can be a great "machine" that will give you passive income. I'm a fan of having multiple income streams so I would do both wholesaling and buy-and-hold at the very least.
- FL · Member since 2016 · 912 posts · 107 votes9y
Originally posted by @Josh Gorokhovsky:
In this market, it's very hard to find deals on the MLS. Not impossible.
I would focus on building relationships with agents in your farm area and get them to source deals for you if possible. Criteria for me is something that's either a ground-up build or something I can add sqft and/or units to. A simple cosmetic flip won't pencil most of the time in Los Angeles. So an example would be a SFR built on a R2-R4 lot where we can add units.
If I read correctly, you don't use agents/MLS most often. Then how do you find them? Wholesalers? Craigslist?
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