If you’ve been in the real estate investing game for a while, you’ve probably realized that your tactics that worked 6-8 years ago are not working as well nowadays. A common change in this industry is choosing to wholetail instead of a straight wholesale.
What’s the difference, you ask?
Traditional wholesaling is buying a property at a deep discount and acting as a middleman since your buyer is going to be another investor. You don’t make as much money compared to a rehab but it is also low risk and quick.
Wholetailing involves you still buying at a deep discount but instead of selling to another investor, you rehab the property “just enough” so that it can be sold on the MLS for retail profits.
Essentially, it’s a mix between a wholesale deal and rehab deal. You reap the benefits of both strategies though.
Have we caught your attention?
This exit strategy allows you less time and cost holding the property and can significantly increase your profits.
Wholetailing Case Study
Let’s do a real life example from a property in Georgia.
This property was built in 1999 and is roughly 2,100 square feet. The ARV is $185K and approximately $28K is needed in mostly cosmetic repairs.
You buy the property for $105K, which is 72% of ARV. In a seller’s market, 72% is a great deal.
If you decide to wholesale it, you’re looking at selling to an investor for $114.5K with a potential of $9.5K profit. The benefit to wholesaling it was that there was no risk and it was a quick transaction. The downside was that with a little clean up, you could have profited more.
If you decide to wholetail the property, you spend $2K fixing it up so it’s able to be put on the MLS. Keep in mind with a wholetail deal, you’ll have holding cost, financing cost, and closing cost which in this deal, was $17.4K. It’s important to consider all costs involved or you risk losing money in a deal.
While there are more costs involved, your wholetailing profit after you close this deal at $145K is still $20.6K! Yes, there was more risk and cost involved, but you doubled the amount of money you would have made compared to a wholesale deal.
When considering a wholetail deal, it’s critical to calculate the extra costs involved with closing on a property, lightly rehabbing it, and selling it to a retail buyer.
Adapting to a Seller’s Market
For real estate investors who have notoriously stuck with wholesaling, wholetailing can be a strategy that provides higher profits during a seller’s market and that doesn’t veer too far off of your normal exit strategy.
Rehabbing, while it can bring in substantial profits, involves more risk than a wholesale or wholetail deal. You have to worry about holding costs, labor cost, cost of materials, inspections, appraisals, going over budget, project delays, etc. with a rehab so there’s more room for something to go wrong.
By doing a light rehab just to make it “liveable”, you don’t have as much risk since it will be minimal updates involved.
When marketing your wholetail deals on MLS, you can mention that it’s a great property for investors and is in “as-is” condition for flippers. This will attract retail buyers who are wanting to do some of the repair work on the property and will appreciate the discount you’ve given off of a true retail price (while you’re still making great profits).
As the market changes, you should watch and see what’s working for other investors. Just because it’s a difficult market right now doesn’t mean you have less opportunity.
Get creative and consider doing some wholetail deals!