What is Wholetailing in Real Estate?
How Does Wholetailing Work?
In order to understand how wholetailing works, it’s helpful to start by understanding its origins, and how it is essentially a combination of two other well-established real estate investing strategies: Wholesaling and House Flipping.
Wholesaling At A Glance
A real estate wholesaler’s objective is to find deeply discounted properties from motivated sellers, get them under contract, and re-sell the property immediately, either by assigning the contract to another cash buyer and collecting an assignment fee or executing a double closing.
In either case, the wholesaler is not altering the property in any way, but simply acting as a middleman who finds a great deal and passes it off to a cash buyer, collecting a fee or markup along the way.
House Flipping At A Glance
House Flipping is a real estate investment strategy that involves purchasing a property, holding it for a short time, then selling it for a profit. A house flipper will typically hold each property for a few months up to a year.
Rehabbing is the process of restoring and improving a property. In most cases, rehabbing does not involve significant alterations to the floor plan but may include major repairs to components such as roofing, electrical, and plumbing systems. Rehabbing generally goes beyond simple cosmetic repairs.
Wholetailing At A Glance
In wholetailing, an investor will purchase a distressed property in the same way a wholesaler or house flipper would. However, instead of rehabbing it completely, the wholetailer will perform minor cosmetic fixes to the property, such as painting the deck and exterior, updating the lights and hardware, or cleaning up the front yard. These upgrades are meant to make the property at least livable or presentable.
Since these minor cosmetic improvements are far expensive than a full renovation, the wholetailer can make a much better profit when they turn around and list the property on the MLS at (or slightly below) retail price.
Buyers of wholetail properties are typically paying the full retail price as the end consumer, such as families looking for a new home. Otherwise, some buyers are even willing to exert some “sweat equity” into a property with some issues, and even some investors buy wholetail properties.
Wholetailing vs. Wholesaling vs. House Flipping
When a house flipper buys a property, their objective is to do a total rehab to update it for the retail market. This takes time and is very costly, and requires the ongoing infusion of capital as the repairs and renovations are underway.
A wholesaler’s objective is to find properties and get them under contract at a significant discount, and assigning the contract or doing a double closing to pass the deal to another investor while collecting a smaller profit along the way as the middleman. Wholesaling can be faster and less complicated than house flipping, though the profit to be had is typically far less than that of a total rehab.
Wholetailing is the combination of wholesaling (finding properties at a deep discount), but instead of assigning the contract to another investor for a smaller profit, a wholetailer will often make minor cosmetic improvements (if any) with the objective of selling the property to the highest-paying retail buyer, which is usually the end consumer.
Because wholetailing involves purchasing the property and owning it outright, the investor has more flexibility to alter the property as needed and list it for sale where retail buyers are more likely to purchase. This allows wholetailers to earn a significantly higher profit by selling it to a retail buyer instead of to another investor.
The wholetailing process offers a win-win scenario for all parties involved:
- The investor makes a nice profit, significantly more than what they would gain from a wholesale deal.
- The investor can also enjoy a much larger pool of buyers. Instead of focusing on other investors who will pay lower prices (as in the case with wholesaling), they can sell to both buyers and other investors using the MLS.
- If the property is listed at a price slightly below retail, buyers will be happy to find a home at a bargain compared to similar properties.
- For sellers, they no longer have the burden of keeping their unwanted property and still get a discounted price for it.
There are a few considerations when buying a property this way. When inspecting the property, it is vital to understand the state of the property’s major components. Ignoring repairs may diminish profit. Major components of a home include the foundation, electrical, plumbing, and roofing. Other considerations include the kitchen, restrooms, bedrooms, and living areas of the home.
In the wholetailing process, a real estate investor will purchase a property and make it as presentable as possible while minimizing costs. They will then market it at full retail price, or slightly below it, to their buyer’s list and/or the MLS.
Wholetailing combines key components of wholesaling and flipping. While new real estate investors may prefer wholesaling to build up their network, it offers considerably less money than the standard rehab and flip. On the other hand, rehabbing is costly and time-consuming, and the investor may find themselves holding a depreciating asset when the market suddenly cools.
Wholetailing offers a happy medium that shares some advantages from both strategies.
- Heiner, D. (2020.) What Is Wholetailing and How to Make Money Doing It. Master Passive Income. Retrieved from https://www.masterpassiveincome.com/what-is-wholetailing
- Real Estate Skills. (2020.) Wholetailing: The (Ultimate) Guide. Retrieved from https://www.realestateskills.com/blog/wholetailing
- Guz, K. (2016.) Are You Stuck? Try ‘Wholetailing’ to Jumpstart Your Investing in 2016. Think Realty. Retrieved from https://thinkrealty.com/are-you-stuck-try-wholesailing-to-jumpstart-your-investing-in-2016