Are you a real estate investor or thinking about becoming one? You’ve probably heard wholesaling is a great way to get started. Wholesaling can work well for many, but there’s another, less well-known strategy to consider called wholetailing.
In wholetailing, the property is actually purchased and resold, instead of selling the contract for a fee, as one does in a wholesaling model.
The difference between wholesaling and wholetailing
In wholesaling, the wholesaler finds a home for sale at a price below market value. They get it under contract, and turn around and sell the contract to another investor or end buyer for a fee. With wholesaling, the goal is to re-assign the contract to the end buyer before closing.
Wholetailing is different. Instead of assigning the contract, as you do with wholesaling, the wholetailer keeps the contract and closes on the property. Then they turn around and resell the property for a profit on the retail market.
Wholetailing falls somewhere between wholesale and a rehab/flip in real estate investing.
What is real estate wholetailing?
As mentioned above, finding a wholetail property is like finding a wholesale property. These deals are often found off-market for below market value and usually have cosmetic or other issues.
Yet, unlike wholesaling, the wholetailer keeps the contract and buys the property, closing it in escrow. After closing, the wholetailer does the necessary work to turn around and resell it, often on the retail market, or the MLS.
The idea is to sell the property for a profit to an end buyer that plans to hold it long term. Typically the end buyer either uses it as a rental property or primary home.
The wholetailer does the necessary work to make it less of a hassle for the end buyer. They ensure there are no title issues, liens, or other legal issues before resale. If they expect the end buyer to use bank financing, the property should be made safe and inhabitable to ensure the final deal goes through. Depending on the property, the wholetailer might need to do a little more than the bare minimum to make it appealing to buyers.*
When should a property be wholetailed (rather than wholesaled or flipped)?
Some properties are much better candidates for wholetailing than wholesaling. Of course, it’s all subjective, and ultimately, each investor has to decide the best approach for their business.
An ideal wholetail property is one that isn’t hideous and wrecked, like some wholesale properties. But it might not be good enough to sell on the retail market either. For example, a great wholetail property has good bones but is a decade or two behind on updates and/or needs a little TLC.
The idea is to do the least amount of work necessary to make the property safe and marketable. If you do more than the necessary work, it might be considered a flip!
So why not flip a house that’s a candidate for wholetailing? A flip yields more profit in the end. The thing with flipping is it takes loads more time (and money). It might only take a few hours and some cash to wholetail. It’s all a matter of preference.
Many wholetailing properties need:
- Titles searches (liens, judgments, and other legal issues)
- Painting (inside or outside)
- Landscaping work
- New flooring
- Repair of safety hazards
The benefits of buying a wholetail property as an investment
In wholesaling, the wholesaler doesn’t close on the contract to buy a home. The wholesaler assigns the contract to an end buyer who closes on it (for a fee). Done this way, the legal issues of wholesaling could be up for debate – depending on many factors.
Not only that, but when you get a property under contract from a wholesaler, there’s no guarantee you will close on it. It’s the nature of wholesale properties to have title issues, including liens and judgments, among other concerns. If you’re willing and able to deal with those issues, then securing a wholesaling contract might work for you.
However, buying a wholetailed property as an investment (or primary home) allows for a much smoother transaction. With this strategy, the wholetailer closes on the deal before reselling it (to you). This means the legal and safety issues get resolved before a property gets resold. Buying from a wholetailer can remove many headaches associated with acquiring wholesale contracts.
Some wholetail properties get sold to buyers through the Multiple Listing Service (MLS), but others are sold to investors off-market. Since this type of property isn’t necessarily retail-ready, sellers often market a wholetail property “As-Is.”
Is buying a wholetail property for you?
If you don’t want to deal with the hassles of buying a wholesale property, a wholetail property might be for you. Coluzzi Real Estate offers a wholetail model with the investor in mind. We close on properties FIRST, so we know all the property’s ins and outs before we offer it for sale to the end buyer.
But before you dive in, make sure you are ready! Connect with local real estate investors, line up financing, and understand your local market.
If you’re a real estate investor or thinking about investing, Coluzzi Real Estate is here for you. We’ll answer all your questions and simplify the process every step of the way. Please don’t hesitate to contact us today!
*It’s worth mentioning that selling a property “as is” can restrict the seller’s buyer base. For instance, when a buyer has FHA financing, there are more stringent requirements the property must meet. But getting a property up to FHA standards can take more time and money.