Why I Don’t Do Wholesaling or Rehabbing
When you get right down to it, the smartest guys in the real estate investor world aren’t doing wholesaling or flipping.
Why? Because it just doesn’t make the most sense to do so.
Let me explain…
There are a few problems with wholesaling and rehabbing houses, which my mentor, Ron LeGrand, calls the “ugly house” business. Here they are:
- You‘re not building anything.
You get one check on each deal. And after you get that one payday from your deal, then you have to go out and do it all over again to get another check. Sometimes it’s a big check, sometimes it’s a small check. Either way, it’s just one check.
The problem here is that you’re not building any assets. You’re building a job. Sure, you could look at your wholesaling or rehabbing operation as a “machine” which produces income for you… but eventually that machine will stop. At which point you’re going to look back on your business/career and you’re going to have a striking realization:
“I had all those hundreds of houses pass through my hands, and I didn’t keep ANY of them. What have I done?”
I’m not making this up. I’m not just imagining this. These are words that have been said to me by some very successful wholesalers and rehabbers.
2. You get taxed at the highest rate.
When you flip a house, wholesale or rehab-and-retail, it’s classified as either short-term capital gains or ordinary income for two primary reasons: you held the house for less than a year (hopefully!), and your intent was to re-sell it (technically classifying you as a “dealer” in IRS terms).
This means the income from your flip is taxed just like it was regular earned income from a job. Didn’t we get out of our day job and into real estate because it was supposed to have better tax advantages?
3. There are too many moving parts in a fix-and-flip business.
This means that a fix-and-flip business is more difficult to scale. It requires a larger team, i.e. more overhead, more risk, more stress, etc.
4. Everybody and their brother is doing it.
This creates higher competition, higher marketing costs, higher overhead, higher risk. Whenever you have more and more people chasing the same deals, it gets harder and harder to find those deals.
Ugly, distressed properties account for less than 5% of real estate transactions. And yet 98% of investors are all chasing after this 5% of transactions.
The 80/20 rule has increased to 95/5. In other words, 95% of the wholesale/rehab deals in any given market are going to the top 5% of investors in that market. Meanwhile, the other 95% of investors are fighting over the scraps. If you’re not at the top, you might as well be at the bottom. There’s no in-between.
So what’s the solution here?
Well, let me paint a picture of what my house “flipping” business looks like:
I do about 5 deals/mo, and I put in about 5 hrs/wk of my personal time into the business.
I‘ve done two rehabs, and I’ve probably wholesaled 5 deals in my entire career — I don’t fix up houses.
I don’t chase deals.
My monthly marketing budget is about $1,000.
I don’t put any money into any of the houses I own.
In fact, I receive a chunk of cash the day I buy and take title to each house. I hold nearly every house at least 12 months (long-term capital gains), and get cash flow every month. And I don’t guarantee any debt.
My ROI on every deal is triple digits.
I don’t maintain the houses while I own them (the occupants do).
What’s the secret ingredient to all of this? Well, I’ll tell you…
It took me a long time to fully understand this, but this is something my mentor, Ron, taught me as well:
The key to success in this business is being able to turn ANY seller lead into profit for yourself — whether they have enough equity to give you a big discount or not.
This is not about any one strategy or tactic. It’s not about fix-and-flip, it’s not about wholesaling, it’s not about lease-options, it’s not about any one strategy.
It’s about being a “transactional engineer”, and being able to do a deal with any lead that comes your way.
No matter if the seller has enough equity in the house to make it a cash deal, or if the house is over-leveraged.
No matter if the house needs work or it doesn’t need work.
No matter if the seller is extremely motivated and desperate for cash, or they just want to be done with the house and don’t care about the money.
You don’t need the most outrageously motivated sellers, you just need a seller who’s “flexible”.
When you can do a deal with any seller, now all of a sudden you don’t need to pay $300 for a motivated seller lead off Google Ads. You can just call FSBO listings right off of Zillow and do deals! How cheap is that!
And when you get this, and you operate your business like I do, it allows you to operate with almost zero risk.
If you have zero cash tied up in any of the houses you own, how much risk do you have in each deal? Zero!
This is what allows me to run my business basically on auto-pilot — everything is either automated or delegated. Because there are fewer mistakes that could “take me out”.
So I know that even if one of my team screws something up while I’m on vacation or something, it’s never going to be something big enough to take me out of business.
Now, for some of you reading this, this is like, earth-shattering news to you.
I mean, if you listen to all the big gurus out there right now, they’re all selling wholesaling and fix-and-flip. Well, there’s big money in that right now.
But when the housing market takes a dive, you’re going to see a LOT of people leaving the wholesaling/rehabbing business and going back to their old day-job.
Think about it from a rehabber’s perspective: who or what is a rehabber relying on to make his business work? He’s relying on owner-occupants to buy his product, and those owner occupants relying on BANKS to provide mortgages to buy those houses. But what happened back in 2008? Normal people all of a sudden couldn’t get loans to buy houses.
So then think about it from a wholesaler’s perspective: who or what is he relying on to make his business work? He’s relying on cash buyers (rehabbers) to buy his product.
But if owner occupants can’t buy, then rehabbers can’t sell. If rehabbers can’t sell, then they can’t buy. And if rehabbers don’t buy, then wholesalers can’t sell.
Not only that, but what value does a wholesaler bring to a transaction? They find the deal, right? Well in a downturn, deals are easy to find. So why does the rehabber need to buy from a wholesaler even if he is buying houses?
The point here again is this: do NOT get stuck in doing just ONE type of transaction.
“One” is the worst number in business. One marketing channel, one type of deal, one way of solving a problem.
And — don’t build your business on a shaky foundation by relying on others (banks, especially) to enable your business to operate.
If your business relies on banks (like all the wholesalers/rehabbers, as I just illustrated), your business sucks. No point in sugar coating it.
Anyway, my business partner, Jeff, and I just launched a webinar that explains all of this and how you can start building your house “flipping” business the smart way.
The webinar is titled:
“How To ‘Flip’ Houses Without Wholesaling, Rehabbing, Chasing Deals, or Working 80 Hours a Week”
You can catch the webinar here: https://blairhalver.com/tx
It’s one of those on-demand webinars so you can watch it at your convenience 24/7.
Plus, for a limited time, I’m going to give you my $3M Seller Script just for attending the webinar.
This is the exact script I used to accumulate nearly $3 Million worth of cash-flowing houses in the past 2 years alone, using creative deal structuring like I’ve described here.
The free script download will be taken down soon, so get on the webinar NOW before it’s gone.
I hope this becomes a pivotal moment in your real estate business and in your life. When you finally take the “red pill” and “I show you how deep the rabbit hole goes. Remember: all I’m offering is the truth.”
Until next time…
