I recently had lunch with a friend who’s considering investing in real estate to help save money for retirement. She doesn’t have any professional real estate experience. Still, she has been a homeowner for nearly twenty years and, in that time, has bought, sold, and made minor repairs on several properties. She has access to the capital to purchase properties but feels intimidated by major fix-and-flip projects. She wanted to know if I had any suggestions for leveraging her existing knowledge and experience to earn some extra cash while also potentially building new skills and contacts in the field.

For someone in her position, I think wholetailing is an excellent opportunity to invest in real estate. But what is wholetailing in real estate investing?

Wholetailing: Wholesaling and House Flipping Combined

Wholetailing is a relatively new real estate concept that combines two traditional investing strategies: wholesaling and house flipping. Let’s explore these concepts more to understand better what wholetailing is all about.

Wholesaling

Before I explain how wholetailing works, you need to understand wholesaling real estate. A real estate wholesaler works with homeowners of distressed properties—which usually need extensive repairs or renovations—and tries to find other real estate investors who’d be interested in purchasing and flipping the home. As a wholesaler, you never actually buy the property yourself. Instead, you enter into a contract with the homeowner stating you’ll find a buyer within a specific period of time.

Your goal is to find an investor who will purchase the home at a higher price than you contracted with the homeowner for, so you can keep the profits as an “assignment’s fee.” You’ll likely need to put down a small deposit on the contract—$100 is typical in some markets—and if you don’t find a buyer within the specified time frame, you’ll lose the deposit. However, the property is never in your name, so there’s no additional risk involved to you as a wholesaler.

House Flipping

By comparison, if you choose to invest in real estate by flipping houses, you will need to purchase a property. You’ll still work with distressed homes, but the goal is to conduct the repairs and renovations and sell the home yourself so you can keep the total profits. As a house flipper, you can potentially earn a lot more money than as a wholesaler, but there’s also more expense and risk involved. Not only do you need the capital to purchase the home, but you also need to pay for extensive renovation projects and holding costs while the flip is in progress. Plus, there’s never any guarantee that you’ll be able to sell the home quickly enough or at a high enough price to actually make a profit on the investment.

What Is Wholetailing in Real Estate Investing?

Wholetailing is like a hybrid of wholesaling and house flipping. As a real estate wholetailer, you’ll look for cheap, distressed properties the same way a wholesaler would. However, instead of finding a third-party investor to purchase and flip the property, you will purchase the home yourself. Then, instead of conducting a full-scale renovation to bring the home to its full retail sale value, you pick a few high-impact repairs to bring the home up to safety codes and make the property more attractive to homebuyers. Then you sell the property as quickly as possible at a slightly discounted rate, typically to buyers who are looking for a fixer-upper and don’t mind finishing the renovations themselves. Since you’re not holding the property for very long, and the repairs you’re responsible for are less expensive than a full-scale flip, you carry less risk but can still see a high ROI.

The Advantages of Wholetailing Real Estate

Wholetailing real estate provides numerous advantages over wholesaling or house flipping. There’s less overall risk since you’re spending less time and money on renovations than you would on a traditional fix-and-flip. However, you could potentially see much higher returns on a wholetailing deal than you would as a wholesaler. To illustrate why that is, let’s crunch some numbers:

Let’s say you find a distressed property on the market for $50,000. Using your industry experience or a property valuation tool, you determine that the retail value for the home, after complete renovations, is $150,000. However, those renovations would cost around $70,000 to complete.

• As a wholesaler, you put down a $100 deposit on the contract (which you’ll get back if you complete a sale) and then go to work finding a buyer. Since the property is in such a distressed state, and may not be habitable, you’re primarily marketing to other real estate investors, which limits your buying pool a bit. However, within your contracted timeframe, you find an investor to buy the property for $60,000. Since you don’t have to purchase the property or perform any renovations yourself, you only spend around $1,000 on marketing and advertising costs, so you walk away with a $9,000 profit.
• As a house flipper, you spend $50,000 purchasing the property, then another $70,000 on renovations. Plus, it takes you 90 days to finish your fix and flip, so you pay around $3,000 in holding costs. Then, you need to list the home for sale, either on your own or with the assistance of a real estate agent, so let’s estimate you spend around $5,000 on marketing, staging, open houses, etc. That brings the total cost of your flip up to $128,000. If you get your $150,000 asking price, you wind up with a $22,000 profit. However, that’s assuming everything goes as expected. If you find surprise problems with the property, or the repairs cost more than you estimated, or the house sits on the market for longer than you expected, that number will quickly shrink.
• Conversely, as a wholetailer, you notice that there are a few small repairs that could really spruce up the property. The carpet needs to be replaced, some plumbing issues need to be fixed, and the yard could use some new sod. You estimate that you could sell the home for around $100,000–less than the full retail price, but still a significant improvement over what you paid for it. Your minor repairs cost about $15,000, and you hold onto the property for about a month, which adds $1,000. Since the property is perfectly habitable, but still a fixer-upper, you can market to both investors and regular homebuyers, which decreases the amount of time it sits on the market. If we estimate your marketing and listing costs to be around $1,000, that brings your total investment cost to $67,000. If you’re then able to sell the home at your $100,000 asking price, your total profit on the wholetailing deal comes to a whopping $33,000.

When you run the numbers, it turns out that wholetailing could potentially earn the highest profits of all three real estate investment strategies, even though you’re incurring less overall risk and expense.

What is Wholetailing Real Estate, and Why Isn’t Everyone Doing It?

Looking at the numbers above, you may wonder why everyone doesn’t wholetail real estate instead of flipping or wholesaling. Part of the reason is that it’s a relatively new and unheard-of strategy even among veteran real estate investors. The other reason is that finding wholetail properties, especially in current market conditions, can be quite a challenge. The right candidate for a wholetailing deal needs to be in poor enough condition that you can purchase it on the cheap, but not so distressed that you’ll need to perform extensive renovations to make it sellable. If you’re just dipping your toe into the world of real estate investing, like my friend from earlier, this can be an intimidating prospect. How do you find leads on distressed properties, and then how do you determine if a house can be wholetailed?

My advice is to find comprehensive training and mentorship in the real estate industry as you’ll get as an independently owned and operated HomeVestors® franchisee. When you join the HomeVestors® network, you’re assigned a Development Agent, a local real estate investing veteran who will provide one-on-one support and guidance with generating leads, spotting opportunities, and closing deals. All HomeVestors® franchisees also get access to the industry-leading UGVille® proprietary software platform, which includes the ValueChek® property valuation tool to help you crunch your wholetailing numbers.

For more answers to questions like “What is wholetailing real estate?” contact HomeVestors® today to become an independently owned and operated real estate investing franchise.

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