In the world of real estate investing, there are countless strategies for making a profit. From wholesaling and flipping to buy-and-hold strategies, investors have a wide array of methods to choose from. One of the latest trends to emerge in the industry is wholetailing.
Wholetailing is a hybrid strategy combination of both wholesaling and retailing.
In this article, we will cover the wholetail real estate strategy, examining how it works, the differences between wholetailing and other strategies, the benefits and risks involved, and practical examples of successful deals.
What is Wholetailing?
Wholetail is a combination of “wholesale” and “retail.” Wholetailing is a real estate investment strategy where an investor buys a property, makes minor repairs or improvements and then sells it on the multiple listing service (MLS) at a higher price for profit.
Unlike wholesaling, where investors do not take ownership of the property, in wholetailing, the investor takes possession, cleans up or lightly renovates the property, and then lists it for sale.
A wholetail deal typically requires less effort, time, and capital than House Flipping. Wholetailing focuses on purchasing properties that need minimal work, such as outdated or poorly maintained homes that simply need a quick clean-up or minor upgrades to appeal to buyers.
In short, wholetailing is a “middle ground” strategy that falls between wholesaling and flipping. Investors can quickly profit from these deals without investing heavily in labor-intensive rehabs.
Why Wholetail Real Estate?
Wholetailing offers an attractive opportunity for investors who want the benefits of flipping without the time and effort involved in major renovations. This works best for properties that are undervalued and need only minimal work to make them market-ready.
The goal is to make the property appealing enough for buyers while keeping the costs and labor involved as low as possible.
Here are some key reasons why wholetailing is gaining popularity:
- Quick Turnaround: Wholetailing allows investors to buy, clean up, and sell a property in a much shorter time than flipping.
- Minimal Repairs: Unlike a fix-and-flip that requires significant renovation work, wholetailing focuses on properties that need only cosmetic improvements.
- Higher Profits Than Wholesaling: Wholetail properties are sold on the open market, often leading to higher profit margins compared to assigning contracts in wholesaling.
Wholetail Step by Step Process
The wholetailing process is relatively straightforward but requires a keen eye for finding the right properties. Here’s a step-by-step breakdown:
1. Finding the Right Property
The first step in wholetailing is finding a property that has the potential for a quick turnaround with minimal repairs. This often includes homes that are outdated but structurally sound, have been neglected, or are dirty.
Wholetailers describe it as a strategy for properties like “Grandma’s house” houses with good bones but outdated décor, wallpaper, or landscaping.
Properties that make good wholetail candidates often have:
- Old paint or dirty carpets
- Messy yards or overgrown plants
- Cluttered rooms that need tidying
- Strong, sturdy structure
These types of properties can be purchased at a discount, fixed up quickly, and sold at or slightly above market value.
2. Negotiating the Purchase
Wholetailers need to ensure they buy properties at a low enough price to secure a profit after reselling. A typical after-repair value (ARV) calculation is used to estimate the resale price after the cleanup and minimal repairs. The formula might look like this:
Maximum Purchase Price = ARV – Repair Costs – Holding Costs – Desired Profit
For example, if the ARV is $250,000, the expected repair costs are $10,000, holding costs are $5,000, and the desired profit is $30,000, the maximum purchase price should be no more than $205,000.
3. Repairs
After purchasing the property, the investor performs a light renovation. This might involve:
- Painting walls with neutral colors
- Removing clutter or junk from the property
- Cleaning the carpets or floors
- Landscaping to improve curb appeal
- Fixing minor issues like leaky faucets or broken windows
The goal is to spend as little time and money as possible to make the property presentable to buyers.
4. Listing the Property for Sale
Once the cleanup is complete, the property is listed on the MLS, targeting either retail buyers (end users) or investor buyers. A well-cleaned, ready-to-move-in property can attract a wide range of buyers and potentially generate offers quickly.
The sales process in wholetailing is more like retail selling than wholesaling, which often involves investor buyers. By listing the property on the MLS, the wholetailer maximizes exposure to the market, increasing the chances of getting a higher offer.
5. Selling and Cashing Out
After receiving offers, the investor completes the sale and cashes out the difference between the purchase price, repair costs, and the selling price.
Example of a Wholetail Deal
Let’s walk through an example to illustrate how a wholetail deal works in practice.
The Deal:
- Property Type: 3-bedroom, 2-bathroom single-family home
- Purchase Price: $150,000
- Repair Costs: $8,000 (cleaning, paint, landscaping)
- After Repair Value (ARV): $220,000
The investor purchases the property for $150,000, invests $8,000 in cosmetic repairs (cleaning up the yard, repainting, and decluttering), and lists it for $220,000. After closing costs and other fees, the investor sells the property for $215,000, making a profit of $57,000 in just a few weeks. This strategy allows for a quicker return than a full fix-and-flip, which could have required months of work and more capital investment.
How to Find Wholetail Deals
Finding the right property is one of the most critical aspects of wholetailing. Not all properties are suitable for this strategy, as the key is to find properties that need minimal work and are priced below market value. Here are some proven methods to find great wholetail deals:
1. Look for Outdated but Structurally Sound Homes
One of the best places to find wholetail deals is by identifying properties that are outdated but well-maintained. Homes that have good bones but feature old-fashioned designs, outdated interiors, or excessive clutter are ideal. Examples include:
- Houses with older wallpaper, outdated kitchens, or bathrooms.
- Homes that haven’t been remodeled in decades but have been kept clean and structurally intact.
Such homes are often owned by elderly homeowners or long-term owners who haven’t kept up with modern trends but have maintained the structural integrity.
2. Foreclosures and Bank-Owned Properties (REO)
Foreclosure listings and Real Estate Owned (REO) properties are another excellent source of wholetail deals. Banks are motivated to sell foreclosed properties quickly and may list them below market value. These homes are often sold in “as-is” condition, which means they might need some light repairs or cleanup, making them ideal for a wholetail strategy.
To find foreclosure deals, you can:
- Browse foreclosure websites like RealtyTrac or Auction.com.
- Work with local real estate agents who specialize in distressed properties.
- Check county foreclosure auctions.
3. Direct Mail Campaigns
One of the most effective strategies to find off-market wholetail deals is by sending direct mail to homeowners who may be interested in selling. Target homeowners who:
- Have lived in their property for many years (typically 10+ years).
- Are experiencing financial difficulties, as indicated by pre-foreclosure lists or tax liens.
- Have properties with visible signs of neglect (e.g., overgrown lawns, faded paint, etc.).
Sending personalized letters or postcards offering to buy their home can lead to valuable off-market deals.
4. Driving for Dollars
Driving for dollars is a popular technique among real estate investors for finding wholetail deals. This involves physically driving through neighborhoods and looking for distressed properties that might need only minor repairs or cleanup. Signs to look for include:
- Overgrown lawns or unkempt landscaping.
- Houses with broken windows or peeling paint.
- Properties with “For Sale by Owner” (FSBO) signs, which may indicate a motivated seller.
After identifying potential properties, you can contact the homeowners directly to see if they’re willing to sell.
5. Networking with Real Estate Agents
Real estate agents can be an invaluable resource when it comes to finding wholetail deals. Agents often have access to off-market listings, probate properties, or homes that have been on the market for an extended period and may be willing to sell at a discount.
6. Working with Wholesalers
Partnering with local wholesalers who specialize in distressed properties can also be an effective way to find wholetail deals. Since wholesalers focus on finding properties at a discount, they may come across homes that don’t need extensive repairs and are perfect for wholetailing.
7. Online Real Estate Marketplaces
Online platforms like Zillow, Redfin, and Craigslist can also be a good source for finding wholetail deals. You can filter for homes that have been on the market for an extended period or have recently reduced prices. Homes that have been sitting on the market for too long may indicate a motivated seller who’s willing to negotiate.
Some online real estate marketplaces to consider include:
- Zillow: Use the filters to find properties with price reductions or those that have been on the market for a long time.
- Craigslist: Search for FSBO (For Sale by Owner) listings, which may indicate motivated sellers.
- Facebook Marketplace: Some homeowners prefer listing properties on social media platforms, and you can find local deals through real estate groups and listings.
Wholetailing vs Wholesaling vs Flipping
To understand wholetailing better, it’s helpful to compare it to other popular real estate strategies like wholesaling and flipping.
Wholesaling
In wholesaling, an investor finds a property, negotiates a purchase contract, and then assigns that contract to another buyer for a fee. The wholesaler never takes possession of the property and simply acts as a middleman between the seller and the buyer.
- Pros: Requires little capital, no need to own the property
- Cons: Lower profits than flipping or wholetailing, dependent on finding end buyers
Flipping
House Flipping involves buying a property, making significant renovations, and selling it at a higher price. Flipping usually requires more capital, time, and effort, but can yield higher profits.
- Pros: Potential for large profit margins, good for distressed properties
- Cons: High upfront costs, longer timelines, more risk
Wholetailing
Wholetailing falls between the two. Investors take possession of the property (like in flipping) but focus on minimal repairs and a quick turnaround (similar to wholesaling).
- Pros: Quicker profits than flipping, less work required
- Cons: Requires more capital than wholesaling, smaller profits than full flips
Key Benefits of Wholetailing
Wholetailing has several advantages that make it an appealing strategy for many investors:
1. Quick Turnaround
Wholetailing allows investors to sell properties faster than traditional flipping. Because the work involved is minimal, the property can often be resold within weeks.
2. Lower Risk
Since the renovation costs are minimal, the risk of unexpected expenses is reduced. Investors don’t need to worry about costly repairs like structural issues, plumbing, or roofing problems.
3. Higher Profit Margins Than Wholesaling
By selling the property on the open market, wholetailers can achieve higher profit margins than wholesalers who sell contracts to other investors.
4. Less Capital Intensive Than Flipping
Wholetailing requires less capital than fix-and-flip projects since it doesn’t involve major renovations. This makes it a more accessible strategy for investors who don’t want to commit large sums of money upfront.
Risks and Challenges of Wholetailing
Despite its benefits, wholetailing also comes with risks and challenges:
1. Finding the Right Property
Wholetailers must be skilled at identifying properties that need only minimal work. Purchasing a property that requires more repairs than expected can eat into profits or lead to losses.
2. Market Conditions
Wholetailing works best in a strong real estate market where homes sell quickly. In a slow market, holding costs can accumulate, reducing profitability.
3. Upfront Capital
Unlike wholesaling, wholetailing requires investors to have the capital to purchase and hold the property until it sells. This can limit the number of deals an investor can work on simultaneously.
Real Estate Investment Returns
To understand the profitability of wholetailing, it’s useful to look at broader real estate investment statistics. According to ATTOM Data Solutions, in Q2 2021, the average gross profit on a home flip was $67,000, representing a 33.5% return on investment (ROI). While wholetailing often yields lower profits than flipping, the quicker turnover and lower expenses make it an attractive option for investors seeking steady returns.
Moreover, a survey by BiggerPockets revealed that investors who specialize in strategies like wholetailing can expect to make 10-15% profit margins per deal, depending on the market and property condition.
Conclusion
Wholetailing offers a practical middle ground between wholesaling and flipping, combining minimal repairs with a quick sale for steady profits. By focusing on properties that need only cosmetic updates, investors can achieve faster turnarounds and lower risks compared to extensive renovations.
While wholetailing may not yield the highest profits seen in full flips, its efficiency and lower upfront costs make it an attractive strategy for steady returns. With effective methods for finding suitable properties, wholetailing can provide a reliable and profitable approach in the real estate market.
