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?
Most Popular Reply
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
Originally posted by @Patrick Philip:
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 now 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.
Like I said, my 1031 generated my down payment and my buyer made a down payment of $195k to pick-up my cash flow. It's very much like no limit Texas-Holdem - - you got to have money to play.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
@Nick C. has it right. Owning rentals is sustainable income. Want to work as an agent? When you quit working the income stops. Want to flip? When you quit, the income stops. You cannot do assignments as a business in FL without running foul of 475. So, you get licensed and start trying to assign. Everything is great (IF you have success) until you quit. When you do, the income does. Now, acquire rentals that will pay you every month you own them. I probably put in less than 5 hours per month and generate roughly 170K a year in gross rents. After expenses, I am still netting out well over 100K a year. On top of that, I get 3.6% a year depreciation with is an automatic writeoff whether I incurred the CapEx or not. I suggest you read "Hold" as well as "The Millionaire Real Estate Investor". They are excellent books and very motivational. Last but not least remember there is no FAST path to wealth-it will take time.
- FL · Member since 2016 · 912 posts · 107 votes9y
Originally posted by @Pratik P.:
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.
I'm about ready to start mailing out 5,000 letters/month. I want to expand that to eventually get big enough to be profiting $100k/month. It's all about creating a system.
- Los Angeles, CA · Member since 2017 · 45 posts · 22 votes9y
Yes, wholesalers and personal relationships with agents that are willing to partner with investors on off-market deals before they decide to send it to the MLS
- 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.:
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 now 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.
Like I said, my 1031 generated my down payment and my buyer made a down payment of $195k to pick-up my cash flow. It's very much like no limit Texas-Holdem - - you got to have money to play.
Can you explain the 1031 transaction in layman's terms? I just Googled it, but not sure I understand it in a real world scenario.
Originally posted by @Patrick Philip:
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.:
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 now 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.
Like I said, my 1031 generated my down payment and my buyer made a down payment of $195k to pick-up my cash flow. It's very much like no limit Texas-Holdem - - you got to have money to play.
Can you explain the 1031 transaction in layman's terms? I just Googled it, but not sure I understand it in a real world scenario.
The 1031 is an exchange of one income producing property for another - - "like for like". It is ideal for the investor when trading up in value. Lots of conditions and details to be met, but when done correctly, the capital gains from the sell are 'deferred' on to the replacement property. Repeat as often as you like and the tax man takes his bite only on the final sale w/o a 1031.
One strategy here is using the Living Trust to hold the property and naming the family as the beneficiaries. When you demise, they inherit tax free and their basis becomes the FMV at the time of title recording.
For 1031 details, lookup "1031 accommodators" and get a lawyer in your state to create the Living Trust, aka "inter vivos" or "revocable" trust
- 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.:
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 now 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.
Like I said, my 1031 generated my down payment and my buyer made a down payment of $195k to pick-up my cash flow. It's very much like no limit Texas-Holdem - - you got to have money to play.
Can you explain the 1031 transaction in layman's terms? I just Googled it, but not sure I understand it in a real world scenario.
The 1031 is an exchange of one income producing property for another - - "like for like". It is ideal for the investor when trading up in value. Lots of conditions and details to be met, but when done correctly, the capital gains from the sell are 'deferred' on to the replacement property. Repeat as often as you like and the tax man takes his bite only on the final sale w/o a 1031.
One strategy here is using the Living Trust to hold the property and naming the family as the beneficiaries. When you demise, they inherit tax free and their basis becomes the FMV at the time of title recording.
For 1031 details, lookup "1031 accommodators" and get a lawyer in your state to create the Living Trust, aka "inter vivos" or "revocable" trust
Okay I get it now.
- Real Estate Agent · Brooklyn, NY · Member since 2014 · 250 posts · 60 votes9y
Wholesaling is like a full time job. If you're not actively finding and sourcing out deals, then you are not making any money. With buy and hold/BRRRR, you are getting paid every month for doing very little. If wholesaling is something that piques your fancy, then by all means do it but I think its better to have multiple streams of income.
- 9yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
@Patrick Philip, A 1031 exchange in practice is you selling an investment property and buying replacement properties under a strict process documented by an independent 3rd party the qualified intermediary. (you sell and then buy just as you would normally).
In effect then if you follow the process you get to carry over the basis of the old property into the new property (in laymans terms you get to defer the tax on the profit into the next property). So you get to use the tax dollars you normally would have paid to the govt. to fund more real estate purchase.
You can
sell one and purchase several
sell several and purchase one
sell and use the proceeds as down payments
sell free and clear and buy free and clear
sell free and clear and buy a mix of free and clear and leveraged
sell a type (like SF) and buy another type (like commercial)
sell actively managed and buy more passive managed properties
sell in one region and buy in another region
Die and pass the property to your heirs at a step up in basis so the tax goes away
sell and buy a property that you eventually move into and convert at least some of the gain from tax deferred to tax free
And you do this all the while using deferred tax dollars you get to spend on growing your own portfolio
The 1031 Investor5137 Reviews - Business Owner · Madison, WI · Member since 2017 · 79 posts · 59 votes9yI'm not sure why people get into Wholesaling and ignore the fact that they're starting a business that shouldn't be treated as a hobby. Just like any other business you need people, processes and systems in place to scale and rid yourself from that "J.O.B" feeling. I believe a systemized Wholesaling or Wholetailing business is absolutely 100% better than buying up rentals for more than a few reasons. But everyone has their own style
- FL · Member since 2016 · 912 posts · 107 votes9y
Originally posted by @Account Closed:
I'm not sure why people get into Wholesaling and ignore the fact that they're starting a business that shouldn't be treated as a hobby.Just like any other business you need people, processes and systems in place to scale and rid yourself from that "J.O.B" feeling.
I believe a systemized Wholesaling or Wholetailing business is absolutely 100% better than buying up rentals for more than a few reasons. But everyone has their own style
I agree, but once you start making money wholesaling, you need a place to put the cash, which is why I still need to know how to do traditional investing.
- Business Owner · Madison, WI · Member since 2017 · 79 posts · 59 votes9y
Originally posted by @Patrick Philip:
Originally posted by @Account Closed:
I'm not sure why people get into Wholesaling and ignore the fact that they're starting a business that shouldn't be treated as a hobby.Just like any other business you need people, processes and systems in place to scale and rid yourself from that "J.O.B" feeling.
I believe a systemized Wholesaling or Wholetailing business is absolutely 100% better than buying up rentals for more than a few reasons. But everyone has their own style
I agree, but once you start making money wholesaling, you need a place to put the cash, which is why I still need to know how to do traditional investing.
Understood. Honestly it depends on what your interests are, why not reinvest the money back into your own business or education?
- Business Owner · Madison, WI · Member since 2017 · 79 posts · 59 votes9y
The way I was taught:
If you've accumulated a lot of capital and you're just looking to earn a decent return, without substantial risk (preserve capital) invest in single family rentals, multifamilies, fixed assets like Bonds...You get the idea.
If you're an active investor, systemize your business and use the Free Cash Flow to buy up assets during tougher times when they're more likely to sell at a discount to intrinsic value and/or start another business, invest in start ups, etc.
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