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Real Estate Flipping vs Wholesaling: Being Investor savvy in 2021


 

TGFLIP MARKETING AGENCY


October 22, 2021

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Real Estate Flipping vs Wholesaling: Being Investor savvy in 2021

Content:

  1. What is real estate flipping?

  2. What is real estate wholesaling?

  3. Comparison

  4. The Bottom Line

 

1. What is real estate flipping?

Real estate flipping is a pretty familiar term that we all have heard of. The concept is primarily simple: find a distressed property, estimate the ARV, run the calculations and if it is profitable, buy it. After buying the property, carry on the renovations, and sell it at a higher price. That’s it!


“In the second quarter of 2021, the average gross profit made per home flip in the U.S. amounted to 67,000 U.S. dollars.”

[Source]


The numbers clearly show the extent of this niche. But there is still more to know before starting out.



One of the most important things in flipping is your research and estimated ARV. ARV is a prime factor on which your success is dependent while doing real estate flipping. The more precise your estimated ARV is, the greater chances you have to gain profit.


What is ARV calculation?


ARV is a common abbreviation for after-repair-value. As the term itself indicates, ARV is the approximate price of the property after renovations. ARV helps investors to decide whether to buy the property or not. ARV depends on many factors and that’s why we have divided the calculation into two steps:


  1. Research recently sold comparable properties. The comparable property should be of the same age (or maximum 5 years difference) and it should be of approximately the same size. Furthermore, it should be within 1 mile of your focused property. You can find all these properties over Multiple Listing Service (MLS).


  1. After finding several comparable properties, calculate the average of their sold prices. This average (now ARV) serves as a benchmark value of the property after repairs and renovation.


Depending upon this value, you can find out the approximate profit that you can acquire after the flipping process. Investors use a 70% rule to decide their maximum offer price for a property. The rule is:


70% of ARV - estimated renovation cost = maximum offer price


This rule proves to be really beneficial if you want to make a big profit from a flip. As it is visible, flipping requires ground-level information and research. If you want to start your real estate portfolio with flipping, the best advice is to do your homework first!


2. What is real estate wholesaling?

Wholesaling is another top real estate investment strategy. Real estate wholesaling works as a bridge between the seller and the end buyer. The best practice is to find the property off-market and get it under a contract. For this purpose, you can network yourself or join any off-market groups. (To join our off-market group click here!)



Here is the complete wholesaling process:

  1. Find a distressed property.

  2. Get it under contract.

  3. Market the property to your buyer list and others.

  4. Find the end buyer and close the deal at a higher price.

  5. Take your profit and that’s it!


It is a pretty simple process, right?


The truth is, there are two things that decide the future of your wholesaling portfolio, and they are your buyer list and marketing channels. Getting a property under the contract is easy as compared to finding an end buyer to close the deal.


An updated and precise buyer list ensures the exact direction you have to pitch your deal. Similarly having multiple marketing channels to put the words out and catch the attention is a plus point in wholesaling. You can find more assistance about these through our detailed guidebook.


3. Comparison

Pros and Cons of Flipping:

Let’s start with the pros of flipping:

1. Quick profit:

Flipping is a short-term investment strategy. It depends on you and the number of renovations the property requires to decide the time span of a flip!

2. Experience:

One of the biggest pros that flipping offers is the adverse experience it provides. Flipping puts you through different sides of the real estate industry that even if you are a beginner, you experience a lot.

3. Network building:

As mentioned above, flipping is a multi-dimensional strategy that assists you in gaining visibility and building networks.


Now, let’s see the cons of flipping.

1. Risk associated:

Let’s accept it, with greater profit comes greater risk. Flipping is all about numbers and calculation but still, there can be unexpected expenses!

2. Holding cost:

Finding the buyer as soon as the renovation is completed is essential for your success in flipping. Maintenance costs, taxes, insurance, etc can lower down your profit significantly.


Pros and Cons of Wholesaling:

Let’s start with the pros of flipping:

1. Good for beginners:

If you are a beginner and looking to start your journey in the real estate industry, wholesaling is exactly where you can start. Wholesaling equips you with insight into industry knowledge, buyer’s interest areas, and a lot more!

2. Your Credit score does not matter:

The best thing about real estate wholesaling is that your credit score does not matter at all in it. Your payments are entirely dependent upon finding the buyer and closing the deal!

3. Less time, more profit:

Wholesaling is a pretty quick strategy. You got a property under contract, market it, and ultimately find the buyer to close the deal. And that’s all. But the main step is finding a buyer, and that’s where you require homework.


Now, let’s check out the other side of wholesaling.

1. Unstable income:

Wholesaling is not a JOB! You have to understand this, there is no guaranteed income in it, neither are any insurance or benefits. Part-time wholesaling is the best to start with until you are sustainable enough.

2. Finding Buyer:

This is the hardest part. You need an end buyer to make the money in wholesaling. The problem with it is that if you do not have an established buyer list or marketing channel, it is going to be hard for you.



4. The Bottom Line

Flipping and wholesaling are both lucrative real estate strategies capable of making massive gains. But choosing one depends upon your future goals and plan to achieve them. Flipping requires more management while wholesaling need you to have a precise buyer list and marketing channel.


Whether you pick flipping or wholesaling the most important part is to do your homework. Get help from experienced people, learn from resources available, and be willing to implement.


You can also get a lot of help through our resources!


 

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