Wholetailing is a popular method in real estate investing, but there’s a common question of when this exit strategy makes sense to use. First, let’s break down what exactly wholetailing is.
Wholetailing is essentially doing the bare minimum to just clean up the property so it’s ready to list. A deep clean including getting bad odors out of the property is the main thing that is done. Sometimes a bit of yard work to improve the curb appeal… and if necessary, fixing only the mechanical or structural repairs so that the property is in liveable condition.
Cosmetic repairs are not a concern when you’re wholetailing. Your goal is to make it in liveable condition and clean it up just so potential homeowners can see the potential of the property without worrying about filth in the property.
Your target audience is typically a homeowner who doesn’t mind a bit of “sweat equity”, meaning they will get a better price, knowing they’ll have to do some of the repairs and improvements on their own dime, in their own time.
In some cases, an investor who might make the property a rental would be interested as well because those buying as a rental don’t typically need as deep of a discount up front.
Wholetailing works when the market is hot and you don’t have to be the prettiest house on the block. In a Seller’s market, you can put a less-than-beautiful house on MLS and note that the price is discounted because of cosmetic repairs needed. Some people specifically look for properties like this in order to get into a neighborhood at a lower price point.
When listing a wholetail property on MLS, it’s important to note that the property is being sold in “as-is” condition. This sets the expectations up appropriately from the beginning.
In a down market, more investors do full rehabs instead of simple wholetail deals. This is because you need to make the property stand out more.
In addition, you should consider all of your exit strategies for each property to see which makes the most sense. Calculate what you could make if you did a full rehab, taking into consideration your time and holding costs. Then consider a simple wholesale deal where you will make a portion of what you’d make on a full rehab and also a wholetail where you can put it on MLS and sell it for a slight discount.
Every property will have different repairs needed and it’s very situational. Look at other properties in the area and see most of them are fixed up or still needing updates.
Make the best decision based on what will sell the best and a price you’re happy with.