Many first time real estate investors want to start rehabbing houses but are a little timid about risking their money before they know all the ins and outs of the fix and flip business. Some decide to wholesale first in order to get their feet wet without a large outlay of personal funds or the need to borrow money. This article is written to show new investors why wholesaling can be a viable alternative to rehabbing, as well as be just as profitable.
Yes, there is a lot of profit to be earned on a single fix and flip project compared to one wholesale deal, but one must remember that a typical fix and flip takes 4-6 months to complete, whereas a wholesale deal only takes 30 days. If you look at the difference financially, a five month rehab project on a $200,000 home may make a profit of $25,000, but if a wholesaler assigns one property a month and makes $5,000 per assignment, he or she will also make $25,000 in the same five months. The difference being that the fix and flip project will take an investment of $200,000 tied up for five months, and the wholesaling business only requires a $500 earnest money deposit that is returned at the end of each month.
Another difference is that with a fix and flip, an investor spends the same amount of time making offers on properties with motivated sellers. However, once he has a property under contract, he has to close on it with cash, organize and spearhead the entire rehab process, and then market and sell the property to a retail buyer. Depending on how well he or she designs the rehab, stays in budget and is able to sell the home while the demand is still relatively high will determine whether or not he makes a profit on the project. Whereas, the wholesaler will make a guaranteed profit on each assignment and even if he or she analyzes the rehab poorly or pulls unrealistic comps, the worst scenario is the investor terminates the contract and starts over with no loss of money.
In conclusion, when you are just starting out as a real estate investor, whether you have money to invest or not, wholesaling can be a lucrative way to begin and continue making money in the real estate business.