Wholesaling vs. Flipping Homes
When looking to make money from buying and selling real estate, you’ve got options. Wholesale selling and flipping a house are both ways to net a profit from real estate investing. Learn from RealtyHive how both of these processes work, and see which one is best for you.
Selling wholesale means that you act as a bridge between a buyer and seller. In order to be successful, you have to find a home before it even hits the market, or before others know it’s available. You spend no time trying to fix up a home and instead look for another buyer.
The Wholesale Process
- Find a distressed home (in other words, a home that needs work or where the homeowners are looking to sell fast).
- Put it under contract, with an intent to assign that contract to a different buyer. This is not the same as simply buying a house.
- Don’t fix it up—this is another key difference between flipping houses and wholesaling.
- Market the property for a higher price.
- Find a buyer and close, ideally for a higher price than what you paid.
While flipping houses seems to be more common among those investing in real estate, here are some times when wholesaling is a good idea:
Less Work, Less Cash
Renovating a property is a lot of work. While you might cut costs by going the DIY route, you’ll extend the amount of time you’re holding onto this property. If you hire contractors to rehab the place, your flip time will shorten but your expenses will rack up quickly.
Wholesaling is a good route for someone looking for a faster turnaround, as well as spending less money on renovating. When it will cost a hefty sum to make a property livable and you don’t have the funds (or the time) to do so, wholesaling is your best bet.
New to the Market
Some people are all about jumping into the deep end. But when it comes to huge financial investments, it doesn’t hurt to test the waters first. First-time real estate investors often benefit from buying and selling wholesale before trying to flip. Learning the process, terms, and even establishing connections can help future real estate endeavors. You might lose money on a wholesale property, but that could still happen if you flip a house—and chances are, you’ll lose less when you’re not paying renovation costs.
Accustomed to real estate investing but now are buying in an unfamiliar area? Wholesaling can ease your acclimation process. What worked in one location might not in another; wholesaling can be great for getting a feel for this new-to-you market.
Credit Score Doesn’t Matter
Since you’re the bridge between the buyer and the seller, you don’t have to have a stellar credit score to acquire the property. As a wholesaler, you’re acting more like a liaison who can profit off of someone else’s sale.
Wholesaling Cons: Not selling for as much as you paid, confusion with contracts and wholesaling procedures, low availability of wholesale homes.
Flipping a House
Practically everyone is familiar with the concept of flipping a house, thanks to HGTV shows and countless other examples in the media. Like wholesaling, it involves turning around a property that needs a little (or a lot of) work.
Flipping Houses 101
- Find a house for sale that needs renovations.
- Estimate the costs of renovation (such as through a home inspection).
- Assuming it’s a worthy purchase, buy the house.
- Make the necessary renovations (i.e. taking out carpet, refinishing hardwood floors, remodeling bathrooms, etc.)
- Sell the house for a higher price—factoring in both the original price and your renovation costs.
Flipping a house isn’t a perfect, guaranteed way to make a profit, but it does have some benefits that wholesaling can’t offer. Check out some of the pros:
Potential for Greater Profit
Wholesaling can be complicated and not get you the profit you’re looking for. With fixing up a home, you have more control in the selling process. It’s easier to list and stick with a selling price when you did all the renovations and know what your property is worth.
You also have the potential to make a larger profit with flipping. This is especially true if you do many renovations (if not all) on your own—though it should be mentioned that DIY renovations are only cost effective if you know what you’re doing and it won’t take too long.
But even with hiring out contractors, preparing a house to flip adds a lot of value. While the chances for a greater loss are higher with flipping than wholesaling, there’s also the chance for a greater profit.
Learn Lots, Enjoy Even More
You’ll glean tons of insight from flipping a house that’s valuable as an investor, as well as a homeowner. Plus, you can’t beat the feeling that comes from watching a fixer-upper turn into a dream home. There’s a lot of blood, sweat, and tears—and consequently, a lot of passion—that comes from being a house flipper.
More Profit Avenues
With wholesaling, your only option is to immediately turn the property over to a buyer. Wholesaling is also tough because of the lack of availability of homes.
It’s easier to find opportunities for flipping, and your profit avenues are more versatile. You can still sell after renovating the house, but you can also rent it out. It’s best to know your plan before buying, but having the option to rent can be a good backup in case the selling market is tough.
Flipping Cons: Could lose more money, the process can be more time-consuming (which can affect your profit).
Start Real Estate Investing With RealtyHive
Regardless of whether you go the wholesale or flipping route, RealtyHive is your real estate investing solution. Quick turnaround is essential for you to generate the profit you’re looking for, and with our vast real estate database, you can buy and sell fast with us! Learn how our auction process works—find your flip or sell your project on RealtyHive!