Wholesaling or flipping—what’s the difference? And how do you know which real estate investment option is best for you?
Being a real estate investor is both exhilarating and profitable. Better yet, it’s also something that anyone can learn to do if they have the right tools and resources. But there’s a lot more to it than simply purchasing an investment property. If your goal is to be successful, first you must decide which strategy is right for your lifestyle.
Between wholesaling or flipping, both are two of the most popular ways real estate investors buy properties. Here we break them down to help you choose.
[While you’re here, remember to secure your spot for my FREE online training, ‘Teach Me The Real Estate Game‘ and learn how to make $100K in just 90 days!]
Wholesaling or Flipping: What’s The Difference?
Real estate wholesaling is when a buyer secures a contract—typically at a discounted price—for an outdated or neglected property, and then brokers it to another real estate investor for a commission.
On the other hand, real estate flipping refers to buying run-down or dated properties, renovating them, and then putting them back on the market for a profit—with or without professional help from a real estate agent.
Both methods involve the same kind of market research to determine if the property you’re looking at is worth the investment. The biggest difference between the two is that flippers incur the costs of a rehab, where real estate wholesalers simply find the real estate, obtain the contract, and pass it along to a party interested in doing all the renovations themselves.
Pros of Wholesaling Real Estate
Without a doubt, the biggest benefit of wholesaling properties is that investors can turn a nice profit without actually buying the property and putting in a ton of time and capital into rehabbing it. And, because you’re not really purchasing the property and don’t need to take out a loan, having stellar credit or a hefty savings account isn’t necessary for you to make money.
Finally, real estate wholesalers mitigate their risk and get paid quicker than they would if they were undergoing a flip themselves and marketing it to potential buyers.
Cons of Wholesaling Real Estate
While opting to invest in wholesale real estate properties is a great way to make cash, it definitely requires business know-how and patience.
Before you even start the process of finding potential listings, you need to have a line-up of potential investors to guarantee you have a buyer. Neglecting that step could leave you holding the contract and forking out money for the cost of the property.
Not to mention that in order to make a profit wholesaling you’ll have to locate a property that’s being sold at an ultra-low price so you can offer buyers a good deal that fits within their budget while still making money on it yourself. Doing that means learning how to navigate, analyze, and negotiate real estate deals, which also means facing your fair share of rejection before finding a property that is worth wholesaling.
Pros of Flipping Real Estate
The biggest advantage of flipping real estate is the lucrative return you can get in a fairly short period of time—depending on the scope of the project. According to a study conducted by The Motley Fool, the average gross profit of flippers in the first quarter of 2022 was $67,000, with an average of six months spent doing renovations. That means that if you were able to do just two flips a year, you could make the same, if not more, than your annual salary. Crazy, right?
Of course, the other major upside of flipping real estate is the passive income it brings with it. With the right insights, team, and delegated workloads, you could work just five to ten hours a week and still bring home the bacon—that is, if you’re committed to being successful and are willing to put in the effort.
Cons of Flipping Real Estate
House flipping can be wildly profitable. If you’re doing it right and in the right market, the sky’s the limit. But it can also be extremely risky.
We’ve all seen the shows on HGTV; house flipping gone wrong. There will almost always be some kind of issue during a renovation, whether it’s big or small. The larger the problem, the more you have to spend to fix it, which in turn, eats some of your profits. This reigns especially true if the property you’re buying has been foreclosed, a practice used commonly among flippers to find the best bargains.
Additionally, there are always holding costs associated with foreclosed properties—taxes, a mortgage, utilities, insurance, HOA, maintenance fees, can all cause costly delays and impact your bottom line. For this reason, flippers should be prepared with some money set aside for emergencies or an initial budget that leaves room for the unexpected.
Wholesaling Or Flipping: Which Option Is Right For You?
Wholesaling properties is the perfect choice for people interested in investing in real estate without the added responsibilities of orchestrating a flip and sale. It’s also great for people with less than average credit scores or no money in the bank. If done the right way, it can yield large returns in a short period of time.
Conversely, flipping real estate is great for people who have some money to invest, good credit, and are looking for a source of passive income. It also doesn’t require years of expertise or schooling to become successful. It does, however, demand a tenacity for learning and hard work—but with the right mindset and a strong business coach anyone can flip properties and emerge victorious.
Learn From An Expert Real Estate Investor
Both these methods of real estate investing can be exceptionally fruitful, but nothing in life is free. Succeeding in this realm requires a lot of grinding and setting goals that make sense, no matter which route you choose.
Knowledge is power. If you’re interested in exploring the world of real estate investing, but aren’t sure where to start, Annetta Powell can help. With more than a decade in the business, a number of affordable online wealth-building courses, and Wealth Connect Real Estate events at your disposal, you’ll be starting with your best foot forward.
Want an even bigger advantage? Don’t forget to secure your spot for my FREE online training, ‘Teach Me The Real Estate Game‘ and learn how to make $100K in just 90 days!