What is wholetailing? How is it done? And how can real estate investors use wholetailing as a part of their overall strategy? Find out in this guide.
What is wholetailing?
How can you use it to diversify your real estate investing strategy, avoid high renovation costs, and make more money per deal?
That’s what we’re talking about in this guide.
Wholetailing is when a real estate investor flips a property on the MLS for a profit without making any repairs beforehand (or at least, very few) — most wholetail deals only require the investor to clean out the property.
This real estate investing strategy is a bit like a hybrid between wholesaling and flipping.
When you — the real estate investor — wholesale a property, you flip the contract to another investor for a finder’s fee.
When you flip a property, you purchase the home, do a full renovation, and sell for a big profit on the MLS.
One downside to wholesaling is that profit margins are sometimes lower than they should be for finding the deal — and a downside to flipping is that full renovations are sometimes risky because they take 3-6 months or more (and market fluctuations can be unpredictable).
(Notice we said sometimes)
But wholetailing remedies those two concerns.
It’s often more profitable than wholesaling and it’s faster than flipping (it usually only takes a couple months to wholetail a home).
Let’s look at an example.
Imagine I find a property and purchase it for $100,000. I calculate the ARV to be about $197,000. Closing costs will be about 7% of the sale — so about $14,000.
Further, I estimate that it needs about $20,000 worth of work in order to be sold on the MLS for it’s ARV.
So if I were going to flip this house, I’d spend six months repairing it and sell for a profit of about $55,000.
Here’s the breakdown…
197k-14k = 183k - 128k = 55k Net Profit
But maybe I don’t want to go through that entire process… so instead of flipping it and making 55k, if the property is worth 197k by adding 20k in work, I can simply buy the property, list it for 20k less than market value and only deal with cleaning it out.
In that case…
I make the same amount of money but with 90% less effort.
If I had wholesaled the home, I may have only made $5,000 to $10,000. And if I had flipped the home, I may have spent up to 6 months just on renovations.
See the benefit of wholetailing now?
If you want to see a real-life example of wholetailing, check out the video below from April Crossley…
And here’s her follow-up video showing you the inside of the home that she wholetailed…
We shared one example of a wholetail deal above, but it’s important to point out that there are a lot of different ways that wholetail deals can be accomplished.
And it all depends on the quality of the property and your motivations as an investor.
Maybe you purchase a home that is in great condition — the seller needs to sell fast and so you get a good deal — and you flip it to a traditional buyer on the MLS without making any repairs. That’s wholetailing.
Maybe you sell through the MLS to an investor who wants to flip the property, or to a buy-and-hold investor… both are wholetailing.
Maybe, instead of not doing any repairs, you put $5,000 worth of work into the home to make it more appealing to buy-and-hold investors on the MLS. That’s also wholetailing.
Maybe your deal looks more like the example we walked through above.
Your motivations might also vary — maybe you wholetail properties that could be flipped because you don’t want to go through the hassle of renovating. Or maybe you only wholetail when a certain profitability threshold is crossed.
There are a lot of different variations to the wholetailing method — and that’s important to understand once you start getting your feet wet.
Stay flexible and do profitable deals — whether that’s wholesaling, wholetailing, flipping, or holding.
That’s the best advice we can give.
Looking specifically for wholetail deals is a little bit like looking for people who want to sell their home because they hate the layout of their house.
Those people certainly exist…
But how the heck would you find them?
Wholetail deals exist — but there’s no great way to only find wholetail deals through real estate marketing tactics.
Any real estate investor who focuses on marketing and generating leads to find deals will naturally come across deals that are wholetail-able.
The key is to keep wholetailing in your back pocket for when the time is right.
(If you want to take action right now, then check out this video we did on our SENSEI FLOW)
That will set you on the path to success.
For your reference, here are the 8 lead-gen strategies we mention in the article above (these are the best tactics we know of for finding motivated sellers)…
If you’re thinking to yourself, “I want to become a professional wholetailer!”, then you might be thinking about wholetailing wrong.
While it’s a good idea to add wholetailing to your list of real estate investing tactics, it’s might not be a good business model all on its own — primarily because it has just strict criteria to be profitable.
If you only wholetail, then you’re going to leave a lot of money on the table when you ignore other types of deals (wholesale deals, flips, buy-and-hold properties…).
And you’ll probably find it difficult to run a profitable business.
(This ultimately depends on your market, however)
At the very least, we recommend wholesaling and wholetailing — many investors have built profitable businesses with just those two strategies.
But ideally, we recommend doing a little bit of everything, adjusting based on the deals that you find.
That’s how you built a really successful real estate investing business.
But when should you wholetail, wholesale, or flip? What criteria should you use for each of those different investing tactics?
Here’s another video from April Crossley (thanks, April!) on just that topic…
To recap, April wholesales, wholetails, and flips properties.
When she secures a new deal, she runs the numbers for each of those different strategies to see which makes the most sense.
But her preference is always to wholesale the property because it’s simple and profitable.
The following questions help her determine which strategy to use…
A lot of times, we don’t know if we’re going to wholesale, wholetail, or rehab until we analyze the property all three ways.
So analyze each deal, create some criteria, and do whatever makes the most sense for your business.
Here are the pros and cons of wholetailing…
Easier & Quicker Than Flipping — Wholetailing is faster than flipping a home (which means less risk) and it’s also a lot less involved.
More Profitable Than Wholesaling (Sometimes) — Wholetailing can sometimes be more profitable than wholesaling, depending on the deal.
Harder Than Wholesaling — Wholetailing is a little more involved than wholesaling because you have to clean out the property, list it on the MLS, and work with real estate agents.
Pay Agent Fees — Wholetailing also usually requires you to pay agent fees since you’re listing on the MLS.
Cleaning — Wholetailing requires you to clean out the home before listing it. This either takes time or money.
Holding Costs — Wholetailing usually takes a few months to accomplish (wholesaling, on the other hand, usually just takes a few weeks or a month), so you’ll pay a little more in holding costs.
Here are some basic steps to doing your first wholetail deal.
The first step, after you’ve found a deal — which we provided some resources for up above — is to determine if the deal fits your criteria for wholetailing.
Do you stand to make more money wholetailing the property than you would wholesaling?
Is the property in decent enough condition that it could be sold on the MLS to other investors?
When you’re wholetailing, you’re selling on the MLS.
This means that oftentimes, your buyer will use a loan to purchase the property. And financers require professional inspections to ensure that the property is a good investment.
It’d sure be a bummer if the retail inspection found something that you weren’t aware of, lowering the value of the property and/or making it more difficult to sell.
So it might be a good idea to start getting retail inspections on properties that you plan to wholetail, before you purchase them.
That way you don’t get any nasty surprises.
Once you’ve purchased the property for a good price, it’s time to clean it out and maybe make some minor repairs.
But remember: the goal of wholetailing is to do as little to the property as possible before selling it on the MLS.
Keep your costs low and your profitability high.
In fact, you’ll usually want to only clean out the house and forgo any necessary repairs — you’re selling to an investor who can make those repairs themselves.
So don’t overdo it.
And finally, you list and market the home.
If you have your real estate license, then you can list the home on the MLS yourself.
If not, then you can either use a listing service in your area or ask a real estate agent to do it for you.
Finishing your wholetail deal is just a matter of waiting for the right buyer, negotiating, and signing the sales contract for a profitable price.
That gives you an overview of what wholetailing is and how you can add it to your real estate investing bag of tricks.
It’s a powerful business model that’s worth being familiar with.
And if you’re looking to generate more leads for your investing business, take our 14 Day Auto Lead Gen Challenge by clicking below. It’s changing the game for investors.