Wholesaling vs Flipping: The Pros & Cons

If you decide to invest in real estate but don’t know which direction to go, this text will help you determine whether wholesaling or flipping is the right choice for you. Both approaches are popular in real estate investing. Both of these focus on finding distressed or undervalued properties and transforming them into profitable ventures. What is different is the methods and the people included. Let’s look at the pros and cons of these investments to help you decide which strategy will be right for you. 

What Is Real Estate Wholesaling? 

Wholesaling is a real estate investment process that involves identifying a property that the investor can buy at a discount, securing it under a contract, and then selling that contract to another real estate investor for a markup. In this process, the whole seller doesn’t actually own the property. But they do profit from the difference between the contract price and the money the end buyer is willing to pay. 

Here is how the process of wholesaling real estate goes: 

• Scouting properties as a first step to finding distressed or undervalued properties. This can be done by driving around neighborhoods or checking public records for four closures or short sales. 
• Making an offer when a potential property is identified and ensuring there is room for profit. A rule of thumb when making the price is adhering to the 70% rule, which suggests paying no more than 70% of the after-repair value minus repair costs. 
• Getting the property under contract once the offer is accepted. This contract gives the wholesaler the right to buy the propert, and then the wholesaler assigns this right to another buyer. 
• Finding a buyer willing to buy the property at a higher price. To do so, the wholesaler needs a strong network of buyers. 
• Closing the sale – when the buyer is found, a wholesaler assigns the contract to them, collects their fee, and the buyer continues with the buying process and the renovation. 

Pros and Cons of Wholesaling 

Now, let’s look at this approach’s pros and cons. 

Pros of Wholesaling  

• There is low financial risk as the wholesalers don’t need to use their own money to buy the properties 
• There is a quick turnaround because deals can be completed in 30 days or less 
• No renovations are required as the wholesalers don’t deal with repairs or Renovations 

Cons of Wholesaling 

• Income is inconsistent because earnings can be unpredictable and depend on finding good deals
• There is a high rejection rate as many offers may be rejected before one is accepted 
• There are certain legal challenges that pose certain obstacles to wholesalers who must ensure contractor sound. 

What Is House Flipping?

The second approach to real estate investing is flipping houses, which involves buying a property, renovating it, and then selling it at a higher price. Compared to wholesaling house flippers, do buy the home and take ownership and are responsible for all the aspects of renovation and sales. 

Here is how the process of house flipping goes: 

• Find a property to flip and take action similar to the wholesaling as slippers look for distressed properties sold below market value. They may even work with the wholesalers to find better deals 
• Obtain financing and submit an offer as flippers use hard money loans to finance their purchases. The property itself secures these loans and allows quick access to funds. 
• Renovating the property where the flippers handle the entire renovation process and work with contractors to improve the property and update the visual appeal. This is a crucial step that takes a lot of planning and management to stay within budget and timeframe. 
• Marketing the property – once the renovations are done, the property is ready to be listed and sold to potential buyers. 
• Closing the sale after finding a buyer, the flippers finalize the sale and negotiate a price that covers the costs and provides a profit. 

Pros and Cons of Flipping Houses 

Here are the pros and cons of the flipping houses approach to real state investing. 

Pros of Flipping Houses

• There is a high-profit potential that successful flips can bring that are much higher than those of wholesaling 
• Flippers can have great creative control and improve the properties according to their Vision and market trends 
• When flipping houses, you gain better knowledge of the local real estate market and develop valuable market expertise.

Cons of Flipping Houses

• There is a much higher financial risk as flippers invest more money and time into each project than wholesalers. 
• There might be unpredictable expenses because renovation costs and market conditions change daily, which impacts profitability. 
• The process is time-consuming as flipping requires more hands-on management and extended time frames than wholesaling. 

Real Estate Wholesaling VS. Flipping Houses 

Let’s compare the two approaches generally. Wholesalers focus on finding and contracting properties and then selling those contracts to investors; they don’t deal with ownership or innovations. House flippers, on the other hand, manage the entire process from buying to renovation and resale, and they are much more than directly involved in and responsible for the process. 

Regarding risks, wholesaling has minimal financial risk, but the primary risk is time and effort without income. On the other hand, flipping houses involves high financial stakes, but the profits are much more significant. 

Finally, regarding profits, wholesaling can bring quick results and profits, often within 30 days, but the amount of the profit is generally smaller, ranging from $5,000 to $10,000 per deal. House flipping, on the other hand, can produce much larger profits, ranging from  $20,000 to $100,000. This project takes longer to complete, several months or even over a year. 

How Property Managers Can Help 

Bolt wholesalers and house flippers can benefit from working with property managers to find and sell properties. Property managers are experts whose valuable services and insights can streamline the process and improve profitability. Here is how they can help.

For Wholesalers 

Property managers can inform the wholesalers about local market conditions and help them identify areas with high investment potential. They can also help manage tenant-occupied properties and ensure smooth transitions for the new buyers while respecting tenants’ rights. 

They can guide flippers through renovation projects if they are not experienced in construction. Because they have a huge network of contracts, they can hire and manage them and ensure that the projects stay on schedule and within budget. Additionally, they can help market the property and help potential buyers find and screen talents. 

Conclusion 

To sum up, wholesaling and flipping houses are great real estate investment opportunities, each with pros and cons. Going through the list above, you can decide which of the options is a better fit for you. Finally, to make the choice between wholesaling and flipping you need to look at your personal goals and financial situation and how willing you are to take responsibility and risk.

Also Read: The Complete Guide to Flipping Houses in California