When to Flip, When to Wholesale

by | BiggerPockets.com

One of the greatest aspects of real estate investing is all of the different tools and strategies you have at your disposal to be profitable and successful in this business.  It took me a few years to get here, but I’ve learned the art of analyzing every deal from different angles in deciding how best to approach a potential purchase.

Most people outside of this industry probably have a fairly narrow view of real estate investing – renting properties and flipping properties.  Anyone who has spent any amount of time on this site knows that there is a heck of a lot more to being a real estate investor. Yes, many investors fall into one of these two categories, but most active real estate investors employ any number of different techniques and strategies to create profit through real estate.

These days, when I analyze a property for purchase, I look at the big picture to figure out what makes the most sense for the particular property. The truth is, I get a lot of properties under contract that simply don’t make great retail flips (i.e. fix the property and list it on the MLS in hopes of finding a retail buyer that wants to own and live in the home). This decision making process is different for everybody. Somebody else may look at the same property and decide it makes sense within their framework.

At a high level, I begin this process by analyzing the retail comps in the neighborhood and within a mile to determine a realistic sale price for the property once it’s been renovated. Once you have a number you feel comfortable with (and I would advise that you always err on the conservative side), you simply back out expenses to determine what kind of potential profit remains (expenses include: loan costs, interest, taxes, insurance, repairs, utilities, HOA, selling costs, potential seller contributions, etc).  If the profit number you come up with after these calculations is something that makes sense to you, it may make a good retail flip.

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To Flip or Not to Flip

So the big question most new investors ask is what’s a reasonable profit on a flip?  This is obviously a loaded question because every market is different, different price points warrant different thresholds for profit, and every scenario will have different nuances that may make or break the decision. However, I can tell you that if you are borrowing over 100K to squeeze out a $10,000 profit, you are dangerously close to losing money.  Personally, I think it’s tough to justify a projected profit of less than $20,000 on a property that will have upwards of $150,000 invested.  Why? Because I’ve sold enough properties over the years to know that nothing ever goes as planned.  You’re only one flooded basement away from being in the red.

So what do you do with the property that looks pretty good, but not quite good enough for your retail flip? It really depends on what tools you have at your disposal …. But chances are there is a way to make money.  The easy answer is to try to wholesale the property.  Wholesaling is simply selling the property to another investor at a slight mark-up.  This can be anywhere from $1,000 to $10,000 dollars.  One of the great things about wholesaling is you don’t necessarily have to purchase the property to make this money. There are many different ways to assign contracts or close simultaneously where you never need to shell out the money to purchase the property.  For those folks who don’t know where to start, there are a number of great articles on BP about becoming  a wholesaler.

What about Keeping the Property?

If flipping isn’t a good option and you don’t want to go the wholesale route, why not consider keeping the property as a rental? If the rents are strong compared to your acquisition costs, perhaps it makes sense to put longer term financing on the property and keep it for cash flow.  Even if the cash flow isn’t stellar, what are the chances you can sell the property a year or two from now and get the number you had originally hoped for?  I know in my market, values are increasing very quickly … I believe we’re actually in a window of opportunity where it makes sense to buy for quick appreciation.  I’ve actually got a property under contract right now that I’m going to hold short term in anticipation of some quick gains through rising values.

The bottom line is there are so many different ways to look at a potential purchase.  Real estate investors ought not limit themselves to only those properties that can be flipped for a profit right now. It’s important to analyze every deal from a number of different angles to determine how to best minimize risk and maximize profitability.

Photo: LancerE

About Author

Ken Corsini

Ken Corsini G+ is the host of the Deal Farm Podcast (on iTunes) and has 10 years of full-time real estate investing experience. His company, Georgia Residential Partners buys and sells an average of 100 deals per year and has helped hundreds of investors around the country make great investments in the Atlanta market. Ken has a business degree from the University of Georgia and a Master Degree in Building Construction from Georgia Tech. He currently resides in Woodstock, Georgia with his wife and 3 children.


  1. Great tips, may I recommend another option? Flip, wholesale, or KEEP. In my smaller market (which is admittedly more affordable than many), I choose not to flip much. When I buy them cheaply enough, rather than selling off another golden goose, it often makes more sense to fix it to at least neighborhood standards plus a little more, and rent it for a year or more. Esp. with rising values. I don’t think your story was intended to cover all exit strategies, but if you can tie up the cash you spent or borrowed to buy property (and/or are able to refi at a local bank or credit union, credit’s easier now),, it’s sure worth considering. Many tax benefits, too. I started ten years ago planning to fix and flip, but soon found out it’s like a caffeine rush, whoosh, nice payday, but you gotta keep doing it over and over, seemed like a lot of work. So instead of flipping or wholesaling in the recent down market, I kept most of my good buys, now I get about sixty rent (and a few owner-carry contract) payments every month. And I get to keep my equity as it grows.

  2. Renting is always an option.
    My first fix and flip went splendidly. Financed the home with nothing down and 5K for the rehab out of pocket. I did my own rehabs on the first 4 because I enjoy it. My wife worked a second job on the weekends to make the $900/mth payments. Walked away with 61K profit. She’s ruined, thinks they all should be like that.
    The learning curve started on the next one. Financed 100% in 2007. Spent $1700 on rehab. The market got worse. I’m not under water, but couldn’t get asking price or near it. Been renting to the same tenant for 6 years, cash flowing over $500 monthly.
    In 2011 I decided to make real estate investment my livelihood. Bought another F&F. Financed 75% of purchase and rehab with hard money. 90 days later I couldn’t sell it. No offers. I refinanced conventional with no cash out. It has cash flowed $500 a month as rental for 2 years. Went under contract last night for 10K over asking price.
    Fourth deal, this was a wholesale no brainer. Just blocks from the southwest Denver war zone. 35K. Tenants in place for 10 years and did not want to move. Put it out on 3 wholesale sites, including BP. Asked 39K. I valued at 50K, rehab 10K, ARV 80K. No offers. Still cash flowing $500/ month.
    I now do 2 or 3 fix and flips per year. I don’t do the rehabs myself because I now have a 28 month old daughter. I have spent every single day with her.
    Lesson learned, If I can’t make 25K or $500 a month, I’m not doing it.

  3. Ken:
    Your statement, “You’re only one flooded basement away from being in the red,” made me cringe.

    Years ago, I bought a house that I didn’t have inspected prior to purchase. Just bought from a sweet little old lady who needed to sell. Was a good deal for me, saved her from impending financial ruin. Renovated and held it as a rental. Spring came along as did our famous April Showers that bring our fabulous May Flowers. They also flooded the renovated basement that was being used as a family room with about 3 feet of water.

    Ugh. Pre-close inspection lesson learned.

    • Thanks for the post Karen – I feel your pain … a couple of years ago I had a flip where the basement got flooded – TWICE! … then had a mold problem. Sometimes an inspection isn’t going to help either, you just can’t know everything about a house until you own it and spend a little time with it.

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