Real estate wholetailing is an investment strategy that’s increasingly becoming popular in Texas. In this technique, an investor gets to combine two well-known real estate investment strategies – wholesaling and flipping. The result is that the investor gets to walk away, having earned large fees from merely acting as a middleman between the owner and the buyer.
When done correctly, it means you get to earn larger fees than you’d have if you had gone the wholesaling route. Remember, wholesaling real estate involves getting into a contract with the seller and then assigning this contract to the end buyer. Wholetailing stands out because of the amount you earn in fees and the fact that it involves less work than flipping.
With regards to its advantages, some of the notable ones include access to a larger buyer pool, less risk than undertaking full renovations, and faster profits. Read on to learn more about wholetailing and what it involves.
What Is Wholetailing Real Estate in Texas?
The term “wholetailing” comes from the combination of two terms: wholesale and retail. As the name suggests, wholetailing real estate deals in Texas involves purchasing a property from a motivated seller and then selling it to a retail buyer. This is as opposed to offloading it to another investor.
For wholetailing to work, you must know how to go about finding distressed properties that require minimal repairs to help maximize your returns. The best way to do this is to let as many people as you can that you’re looking to buy properties for cash. This means you may need to do one or more of the following:
· Running ads on social media
· Sending out direct mail ads (make sure to include your contact information)
· Posting bandit signs
· Using SEO to direct leads to your website
The following is a look at the steps involved in wholetailing a property:
1. Locating the right home/property
2. Conducting your due diligence
3. Funding the deal
4. Cleanup and undertaking minimal repairs on the property
5. Marketing the property
6. Closing/finalizing the deal
Why Consider Wholetailing in Texas?
The real estate market in Texas has, in the past year, displayed varied trends across the state. These market trends signify regional demographic shifts and diverse economic influences. In certain metropolitan areas, for example, there have been notable fluctuations in property prices. These trends reflect some of the challenges that potential buyers and sellers are facing in such markets.
However, you should note that the real estate market in Texas is not uniform and that while some areas are recording low sales, others are, in fact, recording an increased uptake. It is this dynamic nature of the local real estate market that makes wholetailing work so well for the state.
Wholetailing is all about speed and efficiency, which requires turning your attention to properties that are grossly undervalued but that can be sold fast. For example, the demand for single-family homes has seen their price point increase by 7.6% since January 2024. This upward trend has helped make the housing market more vibrant and dynamic.
Wholetailing vs. Wholesaling: Understanding the Differences
As an active or successful real estate investor in Texas, you’ll want to know the differences between these two strategies before committing to either. The following is a look at each.
Wholetailing involves buying a property at a steeply discounted price, rehabbing the property, and then selling it to a retail home buyer instead of another investor.
Benefits
· Less labor-intensive than flipping
· More profitable than wholesaling
· Fast closing
Risks
· Requires upfront capital
· Difficult to find leads
· Realtor commissions
Traditional real estate wholesaling involves buying a rental property and then acting as the middleman since the individual buying it will be another real estate investor.
Benefits
· It requires minimal initial capital
· Lower risk than normal real estate investing
· You can scale it once you have understood how it works
Risks
· Difficult to find buyers
· Highly competitive
· It can be challenging to manage multiple deals simultaneously
On matters to do with profit margins, wholetailing is more profitable as it involves undertaking minimal repairs. Additionally, it’s less labor-intensive, which means there’s not much risk on your end. When it comes to wholesaling, buyers will usually have many expectations, some of which may eat into your time, energy, and profit.
The Wholetailing Process: Step-by-Step Guide
Wholetailing real estate in Texas is a straightforward process, as shown below:
- Step 1: Lead Generation – Finding potential deals. For this, you can use direct mail, social media, bandit signs, or even text message marketing
- Step 2: Conducting Due Diligence – This involves evaluating distressed wholetail properties and determining after-repair value (ARV).
- Step 3: Funding the Deal – Wholetail funding options for real estate deals (more of this in a little bit).
- Step 4: Minor Repairs – Making small fixes to increase the market value of the property. These can include painting, cleaning, and landscaping.
- Step 5: Listing on the Retail Market – Using a listing service to find buyers who can pay the retail price. Make sure to create a compelling listing. If need be, retain the services of a realtor.
Key Considerations for a Successful Wholetail Deal
To maximize your success in wholetailing, you must always have a few considerations in mind. Examples include:
- Understanding Market Value and Pricing Strategy: You need to have a good understanding of the local market, including how much single-family homes in each neighborhood are selling for. Use this information to come up with a pricing strategy that will reflect the amount paid for the house, the renovations, and your expected returns.
- Calculating Profit Margins and Closing Costs: The goal of buying any investment properties is to make a profit. But for this to happen, you must know how to calculate profit margins. This means that besides accounting for the repairs, you must also account for the closing costs, as well as the time and effort that will go into marketing the property. Consider this before settling on the price.
- Tips for Minimizing Rehab Costs and Maximizing Net Profit: Unlike house flipping, wholetailing requires that you do as few repairs as possible. Your focus, therefore, should be on cost-effective improvements. These are improvements that can enhance its curb appeal. Shift your focus to things that may turn off buyers and have them fixed.
Investment Strategy: Wholetailing as a Part of Your Real Estate Company
For commercial real estate investors in Texas who have always preferred wholesale real estate, the concept of wholetailing is a real estate investing strategy that may prove more profitable than the former. And the best part is that it won’t veer too far from your normal investment strategy.
While rehabbing a distressed profit can bring in substantial profits, the risks involved are significant. This is because you’ll need to worry about labor costs, holding costs, appraisals, inspections, materials costs, etc. Moreover, there’s a possibility that things could go wrong.
Wholetailing will, therefore, work well as an investment strategy as it involves slightly rehabbing a distressed property. The goal here is to make the property “livable.” As a result, it won’t come with much risk as you only need to make minimal updates.
Case Study: A Wholetailing Success Story in Texas
Let’s take a home listed for $100,000 in Fort Worth as our example. After conducting market research, you have established that after rehabbing it, the resale value will increase to $200,000. But for this to happen, you first need to make some minimal updates, improvements, and repairs, such as painting and landscaping. When all the work is done, it’s estimated that the repairs will cost around $5,000.
Now, let’s take a closer look at these numbers:
· Initial Purchase Price: $100,000
· Estimated Rehab Costs: $5,000
· Total investment: $105,000
If you list this house for $195,000 after updating the fixtures, completing other repairs, and subtracting the agent assignment fees and closing costs, it means you’ll receive around $181,350.
The next thing you need to do is to deduct the total investment amount from the sale amount to get your profit:
Net Profit = Net Sale Proceeds – Total Investment
Therefore, the Net Profit = $181,350 – $105,000
Take Home Net Profit = $76,350
Using our example above, it means that you’ll walk away with a profit of $76,350 from the deal.
Common Challenges in Wholetailing Real Estate
While wholetailing is an interesting business model full of opportunity and riches, it also has its challenges, as shown below:
- Handling real estate purchase contracts
- Purchase price negotiation
- Title company coordination
- Realtor fees
- Managing buyer expectations
Besides the above five challenges, you’ll also need to find a great way to overcome obstacles such as rising interest rates. You must also find a way to stand out in a competitive environment.
Tips for Finding the Best Wholetail Deals in Texas
Investing in the whole tail market requires you to learn how to find off-market deals, which, after rehabbing, will bring in a good return. For this, you may need to network with real estate wholesalers who can help you secure traditional wholesale deals. However, this is only the starting point, as you’ll need to find motivated sellers if you’re to offload your properties. A good way to go about this will be to build a strong cash buyers list and leverage social media and YouTube for lead generation.
Financing Your Wholetail Investment
Common funding options for wholetail deals include:
Personal Funds
As the name suggests, this is where you use your own money to finance the whole deal. It’s also the fastest approach to financing.
Pros
· It doesn’t require borrowing
· Quick and convenient
· No interest payments to make
Cons
· You may need the money for something else
· Once the money is gone, it’s lost forever
Private Money Lenders and Loans
This is where a private investor loans you the money you need to buy a property. They’ll require a contract that specifies the terms of the loan and the interest payments.
Pros
· More flexible repayment terms
· Easier to qualify
Cons
· Limited regulation
· High interest rates
Hard Money Loans
These refer to loans that have been secured using real property and are often called short-term bridge loans.
Pros
· Fast to close
· Lenders don’t pay much attention to your debt-to-income ratio
Cons
· High interest rates
· They require a higher down payment
Once you have the money needed to finance your purchase, you’ll need to know how to calculate your profits. As we identified earlier in our example, you can do this using this formula:
Net Profit = Net Sale Proceeds – Total Investment
Maximizing Your Net Profit in Wholetailing
The main reason for choosing wholetailing over fix & flip or traditional wholesaling is its profitability. If you’re to maximize your net profits, you must learn how to price each property to ensure it moves fast but without “eating” into your profits. This means learning how to balance rehab costs with the potential selling price. Additionally, you should look into ways to lower your costs to maximize your profit margins.
Final Thought: Is Wholetailing the Right Investment Strategy for You?
Wholetailing is an excellent real estate investing strategy if you can find a good deal. Some of its benefits include fast closing, less labor intensive, and better returns than wholesaling. But while its advantages are substantial, it also has risks. Some of these include a large upfront investment and difficulty finding leads.
While this isn’t the most predictable strategy, it’s a smart investment technique for new investors who are looking to diversify their portfolios. Those who have tried it swear that it works. So, don’t be afraid to get your feet wet, as it may prove to be a lucrative way for you to invest in fast-moving properties. But make sure to have a good exit strategy in place.
** About the Authors: Our team of real estate professionals and local real estate agents are a trusted authority on real estate in the DFW metroplex. With over 40 years of combined experience and more than 2,800 successful real estate transactions, we bring valuable insights and expertise to the Texas community. Our team has extensive knowledge in all aspects of real estate, from wholesaling and wholetailing in Texas to helping property owners find the right property, whether a discounted property or a fixer-upper. Read our online reviews to see how we guide homeowners through each step of the home selling process, providing a personalized and supportive experience.
*** Disclaimer: The information provided on this website regarding real estate wholetailing, wholesaling laws, and other real estate transactions in the state of Texas is intended for informational purposes only. This website does not constitute legal or financial advice. Investors considering strategies like contract assignment, double closing, working with hard money or private money lenders, or exploring wholesale properties should consult with a licensed Texas real estate agent or real estate attorney. The Texas Real Estate Commission regulates many aspects of real estate wholesaling and wholetailing in Texas. Be aware that laws and regulations on wholesale real estate contracts and assignment contracts may vary, impacting profits, sales price, and market conditions. Further, consult public records, real estate platforms, and reliable sources such as Youtube videos and QR code links as part of a thorough business plan and due diligence process. Seek professional guidance before pursuing any deal to ensure compliance and effective marketing efforts, especially when building a strong network for wholetailing and wholesaling business.