Wholesaling Real Estate vs. Rehabbing and Flipping Houses
Why do the most successful real estate investing pros stick to wholesaling versus reality TV style rehabbing and flipping houses?
Many may not even realize the distinct difference in wholesaling vs. fixing up and flipping houses, but it is big. So what’s the different and which is best for today’s real estate investors?
Wholesaling vs. Fixing and Flipping Homes
Flipping houses is a general category which actually encompasses several different real estate investing strategies, including rehabbing and reselling homes, like on those reality TV shows, as well as true wholesaling and flipping real estate contracts.
Real estate wholesalers find discounted properties and instantly turn them around for quick cash. Sometimes they will buy them and resell them or often they will simply take advantage of simultaneous closes or assign their contracts for an attractive fee. They rarely do any work to these properties and while some are sold to retail home buyers, many are passed on to other investors who will do the repair work and then keep them as rentals or retail them to the public.
The Perils of Rehabbing and Reselling Houses
Reality television has made fixing and flipping homes any incredibly popular pastime. While it certainly holds profits for the experienced real estate investor, helps rejuvenate communities and can be a lot of fun, it can also be a nightmare and has certainly bankrupted its fair share of newbie investors.
The biggest issue is that, at the heart, this is a speculative real estate investing strategy. Investors who are great at doing their homework and due diligence, understand construction and home values and have invested in their education, can get a good idea of what they can resell for and minimize risks but still they rely on finding a buyer who will pay them what they hoped after the home is fixed up.
Unfortunately, it doesn’t always work out that way and many new investors who rush into this strategy with a passion quickly discover themselves way in over their heads, tapped out on funds and with an unfinished property which cannot be sold, refinanced or rented.
Even at the best of times, this often isn’t the most profitable strategy for investing in real estate, and then there are the additional demands for hard cash up front, risks of holding times and all of those nasty extra repair costs to be found once repairs are begun.
The Advantages of Wholesaling vs. Fixing and Flipping Real Estate
In contrast, those who stick to straight wholesaling are able to leverage 100% of their investments, leaving virtually no exposure to personal losses and won’t have to roll up their sleeves on the weekends to try and patch up what the contractor left undone.
It’s about letting someone else take the big risks and do the hard labor, while often taking the same or greater net profits.
Wholesalers also generally turn around their homes and convert their deals to cash within just a few days, meaning a rapid succession of paydays and the potential to do far more deals a month or year than those who spend weeks or months fixing up a home and then marketing it.
The increased demand for investment properties today also means wholesalers are blessed with a growing market of end buyers who essentially pre-order these homes, locking in profits for the wholesaler before the property is even purchased.
New investors should also realize that, contrary to some misconceptions, wholesaling is no small time gig. It can be done part time in a couple of hours a week, though it is also easily scaled and has earned others in excess of $1 million a month.
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