If you’re a real estate investor, this will sound like music to your ears: sometimes, you don’t need to invest much effort into improving a home to make a lot of money selling it. And no, I’m not talking about the thin margins of wholesaling; I’m talking about wholetailing real estate.
When you wholetail a home, you’re profiting from people’s reasonable desire to buy properties that are in good condition at a good price. And, because you’ll be buying the property and selling it to public buyers yourself, you won’t need to take the hit of working with a middleman like a wholesaler. Nor will you need to spend much on maintenance or keep the home on your balance sheet for longer than a month or two.
If all that sounds good to you, you’re in the right place. Wholetailing is an essential tool in every real estate investor’s collection, and you must understand how and when to use it. Let’s dive in and learn the ins and outs of the wholetailing process so that you’ll be ready when opportunity knocks.
Welcome to Wholetailing
Despite how similar the term may be, wholetailing real estate is distinct from real estate wholesaling.
In a wholesaling transaction, you put a property under contract, then quickly secure a counterparty that’s willing to buy the contract from you to close the deal subsequently. You make money by taking the work out of the property hunting process for the final buyer. Typically, your buyer will be another real estate investor rather than a homebuying member of the public, and you won’t be the one handling repairs or upgrades to the property.
In a wholetailing deal, you close on the property and pay the total price after putting it under contract. Then, you’ll generally be investing the minimum amount of work possible in getting the home into marketable condition. The buyer will likely be a less experienced investor or a general public member who finds the property after you list it on an MLS.
In comparison to flipping, wholetailing entails a very light touch when it comes to improving the home, which means that the turnaround time to getting it back on the market is much faster when it’s done well. It’s also possible to wholetail a home without making many fixes or additions whatsoever, provided that you found it at a discount.
When to Wholetail
It’s essential to recognize that wholetailing real estate isn’t the right approach for every property or market.
Wholetailing real estate is profitable when you purchase the home at a bargain. Properties that might not be profitable enough to do a complete renovation and resale are often perfect for wholetailing, and you’ll turn the deal around much faster too. Likewise, some properties that aren’t suitable for wholesaling because of their cosmetic defects could be a good fit for wholetailing.
Finally, you can often make more money in hot markets by wholetailing than you could make with fixing and flipping, as you can have a faster pace of your deal flow.
You probably shouldn’t wholetail homes that need substantial tuneups to be habitable, though. The point is to move the property quickly to buyers eager to pay for a quality home, not to sell a defective product.
How to Find Leads
Finding wholetailing leads is more complicated than finding leads for wholesaling or traditional fix and flip plays. You’ll need to be more aggressive with identifying candidates and reaching out to homeowners than you would be otherwise.
At the same time, you’re unlikely to find much in the way of leads through an MLS in areas with newer housing stock. And, sources for traditional flipping leads, like foreclosure auctions, will typically have structures that need too much work to be suitable for wholetailing. Plus, you won’t be able to count on working with a wholesaler, as the margins of average deals may be too thin for them to make a profit.
So, you’ll need a few strategies for cultivating leads. Many investors resort to direct outreach to homeowners via mail, email, or cold calls. Areas with medium-quality housing stock and plenty of buyers are where you should be looking, as you don’t want to be holding properties for very long as a result of time-consuming repairs or a lack of people looking for what you’re planning on selling.
Generally, you’ll have an easier time getting financing for wholetailing real estate deals than fix and flips.
First off, you won’t need to budget much money for repairs. Second, selling homes to consumers rather than other investors means that you might face less price pressure on your margin.
Therefore, your main cost will be the purchase price of the property. While you won’t be able to get a traditional mortgage for a wholetailing home, you probably won’t have a hard time securing financing intended for investors like hard money loans.
Hard money loans are especially desirable for wholetailing because lenders get to hold a decent quality asset as collateral. As a result, there isn’t much doubt that lenders can recoup their investment costs by selling the home if you default on the loan. Because some wholetailing properties are already in acceptable condition when you purchase them, you can also get better rates from lenders than you might get for fix and flip financing.
You can also use an acquisition line of credit or an acquisition line of credit for wholetailing. But, it’s not the ideal instrument, as it’s intended for terms of up to 24 months rather than shorter timescales of wholetailing.
Putting the Pieces Together
The biggest difficulty with wholetailing real estate is that it’s a strategy of opportunity rather than one that you can lean on all of the time. Suppose you don’t have a good way to generate leads specifically for wholetailing. In that case, you may never even see any of the properties that it might be suitable for. Even when you do find homes that are worth wholetailing, there’s no guarantee of doing it profitably unless you have your ducks in a row.
That’s why it can be helpful to team up with a network of experienced investors who can help you grow your business and find more opportunities to wholetail. When you become an independently owned and operated HomeVestors® franchise, you can benefit from using a national lead generation platform, not to mention the mentorship of some of the industry’s most seasoned competitors called Development Agents.
Franchisees also get rapid access to hard money financing for qualifying purchases and repairs as well as sophisticated property valuation software that can help you find bargains and protect your margin.
Want to learn more about wholetailing real estate? If you’re interested in taking your wholesaling business to the next level, request information about becoming a franchisee today.
Each franchise office is independently owned and operated.