Why you should wholesale houses instead of rehabbing!
When you wholesale a property, you assign your right to purchase it (your “purchase contract”) to someone else. This has many, many advantages.
First, you don’t have to wait three months or six months for the rehab to be completed before you can realize a profit. This is hugely important to cash flow; it allows you to move on and find other deals. If it takes you six months to rehab a house in order to make $30,000, and the same six months to wholesale ten houses to make $5,000 each, which is better? Do the math.
Second, you need no money or credit to wholesale. Since you’re simply finding a distressed property and assigning your right to purchase that property, it costs you nothing. The buyer you find closes the deal, you get your assignment fee, the seller gets paid, and everyone’s happy!
Third, you have next to no liability. Many of you may discount this factor, because you haven’t yet been through this rehabber’s nightmare. But if you’ve ever rehabbed a house and subsequently been sued over mold or nondisclosure or some other issue, you’ll know what I mean. When you wholesale, neither you nor your company ever takes title, so you have much, much less liability.
Fourth, cost overruns for rehabbing can eat you alive. Over the years, I learned to add 20% to my rehab estimates. Now I believe in doubling them. Buyers are extremely picky today and require everything about the property to be brand new. If you think you can rehab a house without updating the HVAC or electrical system, think again. Don’t forget holding costs, either. Think you’re done after the rehab? Think some more! Your property could sit on the market for three months or more. You’d better allow for at least six months of mortgage payments, heat, electricity, water, property taxes, insurance, and lawn care.
I can tell you the cold, hard fact that wholesaling is a far easier way to make money investing in real estate. Even so, many of you will read this and choose to rehab anyway.
If you do, I may wholesale you a house one day. Then I will fly first class to Italy and do some sightseeing, while you deal with the rehab. Go ahead—rehab as many houses as you can. I promise I’ll always be ahead.
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Stephan is a freelance writer, who often writes about wholesaling houses and real estate tips.
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