After my friend, Troy, and I discussed the reasons why he should take his long-held dream of leaving his desk job to start investing in real estate as a business seriously, we got busy getting down to details. He was already leaning towards flipping houses, like me. But, he wasn’t sure which house flipping business model would suit him best.
So, the next item on our agenda was to review the two main models that most investors decide between—wholesaling and buying, renovating, then selling—and why they make their choices. I offered a recommendation that he’d likely find not only fit his level of experience, but would help him reach his business and financial goals faster. It’s the model I use and, coupled with my strong work ethic, it’s helped me build my own professional real estate investing business.
Which Business Model for Flipping Houses is Best for You?
Like me, every successful house flipper has taken the time to formulate a real estate investment strategy for building their business that takes into account several factors. And, depending on who you talk to, some factors are given more weight than others. For new investors, like Troy, the strategy that seems to accommodate the least amount of expertise—wholesaling—might be given the most consideration. But, for those with experience, the goal of building wealth more quickly by renovating and selling may rank at the top of their list.
Additionally, the house-flipping business model you use today may not work for you tomorrow. So, it’s good to have a firm grasp on both. With that in mind, let’s take a look at the two main models that I reviewed with Troy and how they can each benefit where you are as a real estate investor as well as where you’d like to be.
Get Your Feet Wet With Wholesaling
When you wholesale property, your goal is to purchase a home at below-market value and resell it fast—usually to another investor—without making repairs. Most often this involves assigning your contract rights to your investor buyer at a slightly higher price while the property is still in escrow. So, the investor closes on the home, not you. The new buyer gets a house that they can, then, renovate and sell or rent out while you get a few extra bucks in your pocket.
Though new and seasoned investors alike wholesale properties, it’s a particularly great house-flipping model for new investors, like Troy. Aside from the initial deposit, you provide to secure the contract in the first place, your investment of money and time is minimal. You don’t have to fork up a lot of cash or get a hard money loan to fund the purchase and renovation. You don’t have to know anything about rehabs or spend any time finding experts to help you perform one, either. Most of the time, you just need to find another buyer before the close of escrow. It’s a great way to quickly turn a profit on a deal and build capital for your business—especially if you’re a new investor with little-to-no experience.
There are a few challenges associated with wholesaling that you should be aware of, however, before deciding if this house-flipping business model is made for you. First and foremost, it is not a get-rich-quick scheme. For another investor to even consider taking over the transaction, the home has to be priced low enough that they stand to make a profit, too. And, out of necessity, that narrows your profit margin. As a result, most wholesalers don’t make a lot on a single deal. Typically, it takes buying and selling a lot of wholesale properties to build capital and even more to make a living.
Of course, in order to buy and wholesale a lot of homes, you’ll need to have access to a good number of cheap properties and a pool of other investors who might buy them. That can be particularly challenging as a new investor. It takes time to figure out how to find the best deals on undervalued homes, not to mention a network of investors to whom you can pitch your properties. And, without a strategy in place that handles these tasks for you, your efforts at building your business can slow down.
Buying, Renovating, and Selling With Confidence
Buying residential investment property to renovate and sell to an owner-occupier requires a different skillset and risk tolerance that is best suited to more experienced investors. You still have to buy a home at below-market value, of course. But, just as the name of the business model suggests, you’ll also be responsible for performing repairs and selling the property at or above its After Repair Value (ARV) in order to realize potentially good returns. The better you are at running your numbers to keep all of your costs in check, the easier this is—and the larger your ROI could potentially be. If you also buy where home values are rising, it’s even possible to see a significantly higher margin of profit per deal than you would on a wholesale.
When you take the time to renovate a property, even if you just remodel the kitchen and bathrooms or update the electrical and repair the roof, the improvements you make get reflected in the home’s ARV. A higher ARV equals potentially more money in the bank than a fixer you’re trying to assign to another buyer. Plus, the more rehabs you perform, the better and faster you’ll get. And, over time, the higher returns will help you fund more deals, take on bigger projects, and build a strong career flipping houses.
You may run into a few of the same challenges with this house-flipping business model that you’ll run into with wholesaling, however, and then some. You’ll still need to implement a lead-finding strategy that helps you locate low-cost deals that leave room for good returns. And, though there are a lot of methods out there, few successfully produce consistent leads at a fast enough rate that will help you build a strong business.
You’ll also have to work quickly within a fairly tight timeline to take advantage of current, or rising, property values—somewhere between three to nine months. While that’s not nearly as fast as wholesaling a home, without a lot of rehab experience or a network of industry pros to call on, even a nine-month turnaround can be hard to achieve.
In thinking about which of these two house-flipping business models may suit you best, it’s equally compelling—if not more so—to also factor in what is best for each deal. Since the exit strategy you choose impacts the returns you’ll potentially see, performing a real estate investment analysis and valuation on every property you want to flip is critical. In this business, it’s all about the numbers. And, that means it’s always possible the numbers will tell you that what you originally thought might be a good wholesale opportunity may actually provide more bang for your buck if you rehab and sell it.
And, that brings me to the recommendation I made to Troy. Whether you wholesale or rehab and sell properties as your house flipping business model, or vary your strategy from deal to deal, you’ll need to learn how to do both well. But, starting a real estate investing company from scratch can slow your learning curve down. Implementing a built-in-a-box business model that helps you accomplish both right out of the gate, however, increases your chances of turning flipping houses into a good business fast—no matter which strategy you choose, when, or why.
A Built-in-a-Box Model That Helps You Learn to Flip Houses Fast
Back when I started professionally investing in real estate, I needed to implement a business model for flipping houses to help me quickly build a professional career. And, I wanted a reliable model that gave me confidence in both wholesaling and rehabbing to sell houses fast. That is a lot to ask but, as it turns out, it’s not necessarily impossible to get—if you become an independently owned and operated HomeVestors® franchisee like I did.
That’s because the tried-and-true house-flipping business model that includes a built-in network of other HomeVestors® franchisees has stood the test of time. In fact, it’s helped me and other HomeVestors® franchisees buy more than 140,000 houses in 47 states and D.C. since 1996. That’s one heck of a track record for successfully flipping houses if I’ve ever seen one. With a little bit of elbow grease and your own HomeVestors® franchise, you could acquire an impressive track record for flipping houses, too.
If you want to learn how to wholesale and buy, rehab, and sell houses as a professional real estate investor, use the only established business model that helps you do both with confidence. Call HomeVestors® about becoming a franchisee today!
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