Whole-Tailing? What is it?

Question

Hey, everyone. Quick question here: What is Whole-tailing?

So far I haven't found an exact explanation anywhere online. It'd be great if someone could clarify or post a link to a blog.

Thanks,

Kenny

Marvin McTaw · Answer

@Kenny Breeze whole-tailing is a combination of a wholesale deal and a retail sale. A typical wholesale deal sells to a cash or privately financed buyers for usually 45-65% of After Repair Value. A typical retail deal is usually at 100% of ARV.

The idea is to combine buying a wholesale property at a wholesale price that's usually in OK to good shape, doing little to nothing to the house and then listing the property on the MLS to quickly sell to a retail buyer at a retail price and in doing so increase your revenue spread on the transaction. Most wholetail deals are funded by either private lenders, cash or hard money lenders.

As an example, say you've got a $150,000 ARV house that's in good but not great shape. You would typically not be able to wholesale that for more than say $100,000 meaning you'd have to buy it at say $90,000 if you want a $10,000 spread. Under a wholesale deal you'd buy for $90,000 and sell for $100,000 and make the spread in between.

With a wholetail deal, you'd buy for $90,000, list on the MLS for say $135,000 (i.e. 10% below market which looks like a good deal for a retail buyer) and make the $45,000 spread in between less the points, interest, fees and holding costs you'd probably pay a hard money lender, let's say that's all less than $10,000 so you'd end up netting about $35,000 on a wholetail deal versus the $10,000 on a wholesale deal.

There are definitely benefits (i.e. larger spreads) but also considerations (e.g. higher costs, risks of ownership or swift market decline, etc.). Hope it helps!