Wholetailing? Is that a typo? You mean wholesaling, right? Not necessarily!
Wholetailing is a hybrid real estate concept in the world of real estate investing. Wholetailing combines the principles of wholesaling and rehabbing a distressed property.
It is a relatively newer investing concept and is utilized by novice and experienced real estate investors alike. Wholetailing is a unique strategy because it allows a lot of flexibility around purchasing, financing options, potential buyers, and investing exit strategies.
Wholetailing can also be part of a larger strategic financial portfolio, providing passive income and financial security to your family for many years to come.
With average life spans increasing every year (now at 78 years old), it is critical for investors to create thoughtful and sustainable portfolios now.
In this article, you will learn all of the benefits of adding wholetailing to your real estate investing strategy, including:
To better understand wholetailing, let’s first review wholesaling and rehabbing/house flipping.
Wholesaling is locating properties at a deep discount (these types of properties typically will require extensive renovation and/or have a distressed owner situation). The wholesaler will secure the property at a discounted purchase price and get it under contract.
The wholesaling investor will then locate a third-party investor who is willing to purchase the property and assign the contract to them.
This third party will then purchase the property. In a traditional wholesale deal, the wholesaler never purchases the property and instead will typically receive a “finder’s fee” from the third party investor for locating and securing the property.
The third-party purchaser typically then renovates and flips the property for full resale value.
Many real estate investors start their investing careers with wholesaling as a way to generate income relatively quickly while learning their local market, building a strong network, and saving up capital for larger investing projects down the road.
Wholesaling is a legal real estate investing strategy, but every state will have particular laws and rules that must be followed. It is important to work with a real estate attorney to help you understand the nuances of your local area.
Do you want to learn more about traditional wholesaling? Check out the Beginner’s Guide to Wholesaling!
Rehabbing/House Flipping is when an investor purchases a distressed property, renovates the property, and then sells the property for full retail price. These investors often find their deals from wholesalers. These rehabbed properties will usually be listed on the Multiple Listing Service (MLS) and sold for top dollar.
Using the ARV rule, these investors will calculate the maximum price they can purchase the property for while taking into account their necessary rehab, holding and selling costs. The ARV will help the rehabbing investor understand their total investment and potential profit margin.
House flipping typically requires more upfront capital and a longer timeline than wholesaling. Rehabbing investors are also taking on more risk as they must supply the upfront resources to flip the property effectively.
Rehabbing and flipping a home for profit is not an easy undertaking, and flippers must understand the hidden pitfalls and potential issues that can arise during this type of project.
Now that we have had a refresher on wholesaling and house flipping, let’s dive into wholetailing---a combination of wholesaling and flipping.
Let’s look at wholetailing in more depth and show you how you can use this method to jumpstart or accelerate your own real estate investing career.
Use the guide below to jump to different sections in this Ultimate Guide:
Think of wholetailing as a unique combination of wholesaling and traditionally flipping a property.
Wholetailing is a step beyond wholesaling because as the investor, you will purchase the property rather than simply assign the contract and collect a finder’s fee.
Yet, it is not quite a full real estate flip because you will likely not complete a full renovation but only a select few projects to enhance the property value over what you paid.
Therefore, wholetailing is a real estate investing term of the “in-between” phase of wholesaling and flipping.
When investors wholetail a property, they typically will purchase the property. They do not get the property under contract and then assign it to a third party. Additionally, the end buyer of a wholetail deal can be a typical retail buyer or consumer, not an investor.
Because the investor is holding the property, making updates to it and marketing to a wider buyer pool, they have a chance for a higher profit margin versus wholesaling.
Conversely, wholetailing can help real estate investors make more money than they would have through a standard wholesaling transaction. Purchasing the property and doing minimal repairs before selling can often generate higher profits than just collecting a wholesaling assignment or “finder’s” fee.
Wholetailing can also be advantageous because the investor can effectively market the property to a much larger pool of buyers. Rather than focusing exclusively on other investors, the wholetailing investor can market the property to both investors AND regular buyers through the Multiple Listing Service (MLS).
When investors wholetail a property, they typically purchase the property and complete the basic and necessary repairs to get it resold at retail market price.
Rather than completing a full-blown renovation, the investor will do the basic upgrades and essential repairs to get the property up to a minimum market price standard.
Wholetailing can be a savvy tactic that allows investors to maximize profits in a shorter frame of time over traditional flipping.
Many traditional flips can take a long time to rehab: 60 days, 90 days, even 120 days for extensive projects!
By wholetailing, an investor can save on all of these factors, including liability, repair/maintenance costs and holding costs (for example, insurance, and utility bills).
Let’s walk through an example of how you could wholetail a property.
Through your direct marketing campaign, you find a distressed property for $55,000. You know that with a full rehab on this property, the After Repair Value (ARV) is $130,000.
You know this ARV based on your local research and comps (read more on how to pull accurate comps).
You run the numbers and see that a full rehab on this property will cost you $30,000. If you are a flipper intending to do a full renovation project, your numbers may look something like this:
If you are able to sell the property for $130,000, your gross profit could be approximately $29,200.
After you do a walkthrough, you realize that instead of completing a full $30,000 rehab project, you can focus on three projects only:
This will limit your light rehab costs to $9,000.
By focusing only on the essential health and safety item (damaged plumbing) and two minor projects to spruce up the property (carpet and paint), you can list the property for a slightly lower market value price.
This may appeal to buyers willing to take on the rest of the cosmetic work in exchange for a lower market price.
While it may not sell for a full retail price that a full renovation could bring, the house will attract a more diverse buyer pool and allow you to get out of the project faster with a potentially higher gross profit.
If you wholetail this property and do the minimal rehab listed above, your numbers would look something like this:
If you are able to sell the property for $115,000 your gross profit could be approximately $38,100.
By wholetailing this investment, you will make approximately $8,900 MORE than a traditional full rehab and flip. You will reduce risk, capital investment and time while reaping a greater financial reward. This is a win-win scenario!
To get started with wholetailing (or any real estate investing), you must have a great marketing plan in place. Direct mail, networking, social media marketing, bird dogs, door knocking and cold calling are all methods which can lead to great real estate deals.
You should also consider targeting and adding many different types of real estate investors to your cash buyers list, including investors with rental properties, flippers, other wholesalers, and note investors.
Once a potential deal presents itself through your marketing efforts, you should visit the property and meet the owner(s). Conduct a walkthrough of the property and take note of any repairs and renovation that must take place in order to get the house up to full retail value.
You should take a checklist of potential repairs and upgrades with you so you don’t overlook anything critical. You may consider hiring a licensed general contractor to walk the property with you and offer professional opinions on repair options.
Next, you should conduct your due diligence and pull comps in the surrounding neighborhood to get a good idea of sold prices in the local area. You can work with a realtor or build a comparative market analysis (CMA) on your own if you have past real estate selling or investing experience.
Pulling accurate comps is critical so you have an accurate After Repair Value (ARV). The ARV is essentially what you can sell the property for on the market. As with wholesalers and flippers, having an accurate ARV will help the investor understand both the maximum allowable offer you can make as well as understand the scope of repair costs.
Remember to look at sold comps only because sold comps indicate the real, actual prices at which you can sell your house.
(Zillow image features recently sold properties under $500K in Erie, Colorado. Sold comps are essential in understanding accurate local market values).
Determine which repairs you will tackle in order to get the property up to a minimum acceptable status for the MLS. Use this figure in your ARV calculations.
Once the property is purchased, complete your necessary repairs. While you are doing your repairs, you should be marketing the property to flipper investors (who may want to purchase the property to do more extensive renovation work) and cash buyers willing to take on a project.
If you are planning to work with a local real estate agent to list it on the MLS, you should begin those conversations for the listing and marketing strategy of the property.
Once the property repairs are complete, work with your agent to officially list the house on the market.
Get the property under contract and get it sold!
Wholetailing deals can be found in the same places that all real estate investing deals are found! Start with your investor network.
Any real estate investor should be attending networking and educational events to learn about the investing process and to meet as many fellow investors as possible.
Investors can also work with real estate brokers (or consider becoming agents themselves) in order to have access to the multiple listing service (MLS). Great real estate brokers will know their local markets inside and out and will know how and what to research to find the data you need.
You can give your agent certain keywords to be on the lookout for, including “sold as-is”, “no repairs will be done”, “handyman special” or any other words which hint that the property is not in a prime, top resale condition. You can also search for homes in gentrifying or “up and coming” neighborhoods.
Many investors will hire bird dogs to generate leads for them. Utilizing bird dogs and other employees is a great way for investors to free up their time, leverage their network and build sustainable business systems for long-term growth.
Most property types can be wholetailed! This includes single family homes, condos, townhomes, multi-unit buildings, and commercial properties. As with any deal, it is important for the investor to crunch the numbers, analyze the deal accurately and determine the type and level of repairs needed to get the property up to a minimum retail price point.
Remember, a wholetailing deal is unique in that the real estate investor is actually purchasing the property, not just getting it under contract and assigning it to a third party. These investors can fund wholetail deals using the same methods as any other real estate investor.
Let’s take a look at different financial source options for real estate investors:
Hard Money Lenders: Hard money lenders are businesses or individuals who will make a short term loan to an investor. The loan is typically secured by the investment property. Interest rates and terms will be higher than traditional loans given the higher risk the hard money lender is taking on to fund the investor’s project.
Hard money lenders also will tend to lend on properties that would not otherwise be eligible for financing through traditional mortgages, making this a viable option for flippers seeking capital. Because of the higher interest rates and strict terms, many investors only use hard money as a last resort.
Private Money Lenders: Private money lenders are typically individuals with a high net worth who are searching for investment opportunities outside of traditional means and markets.
They are often willing to loan money on real estate deals because they can earn a higher return on their investment over other investing options.
Private money sources can include family, friends and connections from real estate investing networking groups.
Personal Savings or Investments: Investors can utilize their own money to fund a deal. This can be from an investor’s own savings or checking accounts, self-directed IRA’s, home equity lines of credit or any other personal finance sources. Many investors shy away from utilizing their own funds based on the principle of OPM (Other People’s Money) leverage.
Peer-to-Peer Lending Groups: Peer-to-peer lending groups are individuals who are willing to pool their resources to make various investments. This is also known as crowdsourcing. These groups offer flexibility on loan terms, eligibility, and payback timelines.
Traditional Mortgage Loans (FHA, Conventional, VA): Investors can seek traditional mortgage funding for certain deals, but each loan type will carry its own restrictions, terms, and eligibility requirements. Many properties that require extensive renovations or repairs will not be eligible for traditional financing.
Investors seeking financial assistance with wholetailing deals can explore all of these options. To learn more about utilizing OPM and other real estate investing money sources, click here.
The types of renovation projects that a wholetailing investor will decide to take on will depend on the individual property. Factors that an investor may consider include:
Health and Safety Items: This can include items such as a leaking roof, foundational cracks or broken pipes. These are critical repair items that ensure the house’s stability and integrity.
Prehabbing: This may include doing some of the heavy lifting on repairs or starting the “hard” work while leaving room for the next flipper investor to come in and finish the job. For example, you may rip out old walls and replace the electrical wiring, but leave the new drywall project for the next investor to finish.
Cosmetic or Aesthetic Items: This includes design and cosmetic upgrades such as a fancier kitchen backsplash, updated tile work in bathrooms, extensive landscaping, paint or certain flooring upgrades.
Some wholetailing investors may simply deep clean a property, mow the grass and paint a few walls before putting it back up for sale at an increased price. Other investors will decide to tackle the bigger projects while foregoing any cosmetic upgrades.
Every investor will choose projects based on their individual available timelines, budgets, and risk tolerance.
You may be thinking that wholetailing can become a solid part of your own real estate investing strategy. Many of the traditional methods for getting in the real estate investing game are great for wholetailing as well.
Wholetailing is also an appealing option for new investors as the time and financial commitment can be considerably less daunting than taking on a full rehab project.
Savvy investors can easily work wholetailing deals into their overall real estate investing portfolio. The first step for the investor is understanding the overall financial goals for the year. Take time to sit down and chart out your annual and monthly income goals.
Next, the investor should consider multiple exit strategies for any given property. For example, you can research a property and run numbers to support different outcomes, such as the following options:
Ideally, an investor should consider properties that can meet more than one of these strategies. This way, the investor adds a level of risk mitigation and diversification to the portfolio and mitigates unnecessary risk.
Wholetailing real estate deals can be an incredibly lucrative exit strategy for any real estate investor. This active form of real estate investing can round out an investor’s overall portfolio.
As with any real estate investing, wholetailing is not a “get rich quick” plan. All forms of real estate investing require discipline, focus, a commitment to learning and a willingness to play the long game and not give up.
It is very important to have a solid business plan and financing options in place as you take on any type of real estate investing.
We hope you enjoyed the Ultimate Guide to Wholetailing! What are your thoughts on wholetailing? Have you completed a wholetailing deal before? Tell us your thoughts in the comments below!
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