Investors often discuss these buying / selling techniques without knowing the differences. Especially when analyzed together, investors can get quite confused. Let’s clear that up.
What is wholesale?
With wholesaling, you buy a property for a purchase price low enough that you can brand it and sell it to an investor who can rehabilitate and resell it on the retail market for their own benefit. The skill here is learning to negotiate your purchase price low enough that there is room for the next buyer to make money as well.
Typically, you do nothing to a wholesale property after you buy it other than sell it to the next buyer, unrepaired, unrepaired.
What is Wholetail?
Wholetail looks a lot like wholesaling, but a little work is done on the property to make it more attractive to rehab. This includes things like:
- clean up the trash
- replace a leaky roof
- making sure the property is structurally sound
With a full tail, you may want to upload it to meet FHA purchase requirements, which means it must be functional – all mechanical systems must work. The FHA requires that the HVAC, electrical, and plumbing systems work and that some life remain on the roof. But, it doesn’t do the interior details like carpet, paint, or plumbing fixtures, so it’s still not sold to the typical retail buyer.
What is the assignment?
With both a wholesale and a retail sale, the purchase transaction is much like any retail purchase in that you close the property with an attorney and obtain the title.
With an assignment, you don’t close the property; you don’t buy the property, you never own it. It only deals with the sales contract, which is the document you are assigning. You, as the transferor, simply transfer the signed contract to the transferee. You sign a contract to buy from the seller, then find someone who will buy the property for more and assign you the contract for the highest price.
Wholesale – buy at a really low price, mark it up a bit, resell it to someone who will refurbish it and sell it on the retail market
Wholetail – Same as wholesale, but does a small amount of work before selling to the rehabilitator
assignment – you don’t buy the house, you only deal with the contract, the purchase and sale agreement – get it under contract and assign the contract to someone for more than what you agreed to pay for the house
Questions? Comments Do you use these strategies?