When do I Rehab it, When do I Whole-Tail it?
From Tom Nardone, Millionaire Mailmain…
After reading that title, you might be thinking, ‘Huh? What the heck is whole-tail deal?’
I remember one person saying to me that "it wasn't worth his time to find deals when so many wholesalers were running around finding the deals for him." But I also remember seeing him years later, and he was broke because he got stuck at the top of his market with houses he could not sell at full retail.
It's a natural tendency to want to rehab, especially if you come from a mechanical/construction background.
All in the Family
My dad is a retired police officer, but he "moonlighted" building houses on the side…
He’d start with an empty lot, and it would take him, in many cases, more than a year to build the house, but eventually he would get it done, and cash in on his big profit. That works, so long as the market is moving upward.
As a result of my dad’s "house building business model," I grew up going on the job sites with him and got to see how houses get nailed together starting from a dirt lot.
When I got started in real estate investing, it was a natural tendency for me to want to start rehabbing, and I rehabbed more than 100 houses.
It looks as though the lure of $50,000 in profit beats the heck out of a $5,000 to $10,000 wholesale deal any day. But a harsh reality at the start of a successful rehab is getting the right price for the property in the first place.
In many parts of the country today, the markets are heating up, and the fund buyers are paying almost full retail and then going in and gutting the house anyway…
Huh? Full Retail for a Rehab
Now you’re probably questioning me again, ‘Paying almost full retail for a house and then doing a rehab? How does that make any sense?’
In many parts of the country today, we live in a unique time where cash buyers are competing to buy properties and BIG MONEY needs a place to go that provides safety and brings a decent Return On Investment (ROI).
In many cases, people running these BIG MONEY fund buyers just want their 3% management fee on placing hundreds of millions of dollars and they get sloppy on what they buy. They just need to keep the money moving, because that’s how they get paid.
When I look back at the best deals I bought, it was because the seller was dysfunctional and their lives were totally unorganized, and as a result, so were the houses they were selling.
If you have ever seen the TV show Hoarders - you know what I mean. I have bought dozens of "Hoarder" houses over my 29 years in this biz.
Add a Little Rouge
When you get a house like this, and the bones of the structure are good and livable, it’s best to do a "lipstick" rehab on it, and sell it at "whole-tail."
A lipstick rehab is one where you shovel out all the trash the seller left behind, and just paint it, cut the grass, put in some new mulch and bushes, and throw it on the market at a higher price than wholesale but still below retail.
This way you maximize the wholesale profit to be had in that house.
My latest strategy as markets heat up has been to close on the house, do the lipstick rehab, and then put the house on the market and let the MLS buyers fight over it.
I have done this with the last few houses I bought and made double the profits I would as opposed to wholesaling it.
My formula is to close it with hard money, put a few thousand into it, blast it out to my M5 buyers list, put it on the MLS, and Craigslist, Postlets, and social media, and let everyone fight for it. When the bidding war starts, I can sit back over a 30 day period and sell it to an ALL CASH buyer, at a whole-tail price.
Whole-tail = A price between wholesale and retail.
If your market where you live allows this strategy, this is way better than putting 30K to 50K into a rehab, which can take you many months, and leave you having to deal with full retail buyers who need to get a mortgage from a bank.
In selling at whole-tail, you keep your momentum going as a wholesaler and keep up your pace of analyzing deals as they come in… and continue on negotiating with sellers, and making deals, and you stay liquid in the market.
Focus your energy here – get really good at marketing to sellers and buying, and you will make a ton of money!
Enjoy The Journey!
Thoughts, Questions, Comments
Have you had success with whole-tail deals? We wanna here all about it in the comments section below.