“Should I flip wholesale houses?” This is one of the first questions people ask when thinking about doing short term real estate deals. There are pros and cons to wholesaling that should be considered before starting this type of business.
Deciding between buying & flipping and wholesaling houses can be challenging because both can be very lucrative when done right. One option is to wholesale deals you find to another investor for quick cash. The other options is to rehab the property yourself and potentially yield bigger profits but take on bigger risks, as well.
Start With Wholesaling
Most experienced investors suggest you play it safe by starting off wholesaling houses, then gradually move from wholesaling to flipping. This keeps you from taking on too much risk when you lack experience and capital.
In most circumstances, real estate wholesaling is the best way to get started with flipping houses, especially if you are new to it. We say this because fixing and flipping requires more time, experience and operational expertise. And of course, it also requires you put up a significant amount of investment money (either yours or investors). You can buy a house and end up holding too long, or unintentionally invest too much in rehab costs and waste your profits.
When flipping, you’re taking a property that others don’t want then upgrading it to create something that is highly desirable for buyers. However, to make it an attractive house, you need buy it, upgrade it and sell it. This is complex and time-consuming. Many people who start flipping properties end up making big mistakes that cost them a fortune.
Experience says that if you want to earn solid profits without making big up-front investments, then wholesaling is the ideal place to begin.
Wholesaling Teaches You to Source Houses Well
Although the wholesaling profits are not as big as fixing & flipping, it’s a great way hone your deal acquisition skills and gain experience. Wholesaling houses will help build the skills you need to source houses at discounted prices — essential to making profits.
Wholesaling houses is similar to flipping except that the right to buy the property is transferred ‘as-is’ to the cash buyer. As a wholesaler, you will first contract with a home seller. The next step is to market that house to a qualified buyer and assign the contract to them (or do a “simultaneous close” — but that’s another topic). You pocket the difference and move on to the next deal.
It all starts with sourcing houses at a discounted price, which is a fundamental skill you need to have in both wholesaling and flipping.
Benefits of House Wholesaling over Flipping for First-Timers
Some of the many benefits of wholesaling houses over flipping include:
- It allows you to get started with little or no money
- It’s less risky and stressful
- You don’t take ownership of the property
- You can earn profits quickly
- Wholesaling helps you to build a valuable network of experienced investors and cash home buyers
- It helps you become a master at finding good real estate deals
- Unlike flipping, you don’t have to invest money in repairs before you find a potential buyer
- The process is faster, simpler and easier than flipping
Listen to an Expert Real Estate Wholesaler
Experienced wholesalers like Vidal Adame at EP Real Estate Solutions in El Paso, TX will tell you that wholesaling requires hard work and dedication. While the business is simpler than fixing & flipping houses, it still requires you to:
- Market your business
- Source distressed house deals
- Convince sellers to part with their homes at a discount
- Build a network of cash investors to buy your wholesale deals
- Research home values
- Estimate rehab costs (since these need to come out of the seller’s price)
- Calculate your Maximum Allowable Offer
- Work with contractors, lawyers, escrow agents, investors and sellers
- Rinse and repeat so you have multiple deals in flight
Once you become a pro at wholesaling houses, then you can make the next big move into buying and flipping houses. In the meantime, start by flipping wholesale houses to yield higher profits with less a capital and risk.