I did a $10,000 profit per deal, for 15 deals, for a grand gross income total of 150,000.
In today's video, I'm going to be going over the pros and cons of wholesaling real estate,
versus rental property investing. And I've done quite a bit of wholesaling. I also
own about $3 million worth of rental properties, as it stands right now. So I have experience
with both. And I'm just going to be telling you stories directly, from my own personal experience,
about why you should do one or the other. And, in a lot of cases, it makes sense to
do both. So, let's jump into the video. Okay. So the first pro of wholesaling,
is that, you don't need to qualify for a loan. It is literally like no money down, just like
the infomercial says. And no matter what any real estate agent or other person tells you,
you can absolutely do these types of deals. I've done tons of them. You can do them
in every single market. There's little variations here and there between the markets,
but you can do no money down deals. So as a brand new real estate investor,
that's pretty attractive. The fact that you don't have to qualify for loans. Show income
statements. Check your credit report. So it is a great way to get started
as a new investor. The next pro to wholesaling is that, once you get the property under
contract and assign the deal to the right buyer, or double close, your work is done.
You just get paid. You don't have to manage contractors. You have nothing to do
with construction, delays, anything like that. So, anyone that's done a rehab project can tell
you that sometimes it can be a massive headache. It can take 6 to 12 months,
sometimes even longer than you're expecting. So with wholesaling it's just, you get paid
and you're just done. And it's nice and clean. And there's nothing else you have to worry about.
Nice. And when I was getting started as a new investor,
I came from more of a marketing background and not so much a construction background.
I could evaluate numbers, I could look at a project, and I could be like,
"This is going to be pretty expensive. I don't want anything to do with it."
Sometimes just looking at these construction projects just gave me a headache.
So I would wholesale the deal, make a significant profit. And everybody was happy.
And that leads to the next pro, which is, doing wholesaling will help you learn the
business. Because you'll start to see, what makes a good deal?
You'll start to see how other investors analyze deals, and the things that they look for.
You'll get better at estimating repair costs. And then, eventually, you should do your own
projects. Maybe start with smaller projects. But it's just a great way to get started.
And it's a great skillset. Wholesaling is probably the best skillset you could have. Because,
at this point, once you've wholesaled three, four or five deals, you can pretty much take
that skillset and go to any market in the United States, and probably internationally as well.
Or, at the very least just find discounted real estate. You'll know how to find
good deals. Good off market deals. And that's a skillset that nobody can ever take from you.
So that's another great reason to get into wholesaling.
The next pro with wholesaling is that, the dollars per hour is incredible.
Damn! Damn!
If you do a wholesale deal, and let's say you make $20,000. Your only time spent was really,
sending out your marketing, doing your cold calling, whatever it might have been.
A lot of people hire someone to do their cold calling. I prefer direct mail.
And then I might get, let's say, 20 or 30 leads. I go for the low hanging fruit. So I'm really
looking for the leads that say, "I want to sell ASAP." And, "I don't want to list my
property." "My house needs a ton of work." "I want to sell it yesterday," that type of thing.
And then I make an offer, and assign it to a buyer. And the total time spent in that course of
action is probably, let's say, 5, 10, 15, maybe 20 hours. But even that's on the high end.
And then, if you're making, let's say, 10, 20, $30,000 per every wholesale deal,
that's a very significant amount per hour. Now, it's not like there's just a million
wholesale deals out there. And you're just doing 20, 30, 40 wholesale deal per month. But, when you
really look at the numbers, it makes sense. Pro number five with wholesaling is that,
there's very little, if any, risk involved. And the reason being, like I mentioned,
you're not doing any construction projects. You're not dealing with contractors.
But the biggest risk would really be if you backed out of the contract, which sometimes happens.
However, every offer that you make should have an inspection period in there, that should allow
you to back out at any point before closing. So if you want a copy of the contract I use,
just look at the link below and you can download it for free.
And again, I'm not a lawyer, so you should check any contract with an attorney. However,
my contract basically states that I can back out for any reason before closing. And, knowing that,
it's not like I just go out and make a million offers, knowing that I back out.
But in the unusual event that something were to happen, you underestimated repairs,
you overestimated the after renovated value,
you're allowed to back out without penalty and get your earnest money deposit back.
So it's very risk free. All right. So let's talk about the cons now with wholesaling.
Because there are some cons. So number one is, that you're always chasing down deals.
It's not like you get a ton of referrals. Like, let's say you do a wholesale deal, and you
make a great profit. The seller's happy. They got rid of their headache property.
You're typically not getting referrals the same way with like a real estate agent might do a deal.
And then, that person, that seller or buyer, is going to tell like 10 different people.
And then, all of a sudden, you just get these easy types of deals. With wholesaling, you're really
chasing down deals. What?
So you're doing direct mail. You're doing cold calling. Door knocking. Online marketing.
Different things to dig up these off market deals. Then you got to get them under contract. Then you
got to get them to closing. So there is a lot of work involved from the marketing side of things.
The next con to wholesaling, is the actual legality wholesaler. So, I know Philadelphia,
I think Detroit, North Carolina, different areas are actually cracking down on wholesalers.
And in some cases you have to get licensed to be a wholesaler. In some cases it might
not even be legal. You're always going to have to check your city, your area, to find
out what the requirements are for wholesaling. Because, let's be honest, there's a lot of bad
wholesaler out there. And look, there's also a lot of great wholesalers out there that know
what they're doing. Are savvy investors. But there's a lot of wholesalers that were
just doing shady things. Maybe they'd be selling other people's deal without their acknowledgement.
There's a lot of wholesalers that would say, "Oh yeah, this property's worth a
million dollars fixed up." When in reality, it might only be worth 6 or 700,000. And they were
saying, "Oh, the repairs only cost 20K." There was wholesalers doing kind of shady
marketing practices. Putting warning labels on different things. We can get into a whole
bunch of stuff that wholesalers have done. But basically, they're cracking down on wholesaling.
And so, every area's going to be different. And you need to check
your area to see what the requirements are. The third con is that, sometimes wholesalers
can't find an end buyer for their deal. Because with wholesaling, you're basically
locking the property up. And, typically, you assign the rights to another buyer.
And if you can't find another buyer for your deal, because you overpay for the property,
then you have to back out of the deal. And it's just bad for everyone.
And that kind of goes back to the legality of things, where a lot of wholesalers were
backing out of deals. They might make these ridiculous offers, and then just back out.
And you should have a clause in there that allows you to back out, but you should very rarely,
if ever, actually use that. And you should also find buyers for your deals.
You shouldn't be a couple days before closing, and not be able to close. And a pretty easy
way to find buyers is just find out who the top wholesalers are in your market.
And that should be pretty easy to do. Facebook groups, go on Google, ask different
investors who the top wholesalers are. And, typically, they have joint venture programs.
So if you're a new wholesaler, and you're not sure if it's a good deal,
before you go under contract, just send it over to the top wholesaler in your market.
And look, they're not going to go behind your back. When I was getting started,
I used to think everyone was going to go behind your back and steal your deal.
But if you're working with a top company, I can guarantee you, they're not going to do that.
If you're putting the deal out on Craigslist, yeah, that might
happen. That happened to me once or twice. But, find out who the top investor is and then
just say, "Hey, what do you think of this deal? Would you be able to send it out on your list?"
A lot of times the top wholesalers in every market might have 10, 20, 30,000 people on their list.
And they can send your deal out on their list. And, usually, it's like a 50/50 split. It's
different in every market, but that's a great way to get your deal done. And that's a great way to
find buyers without a lot of work on your end. Con number four is that, wholesaling
it's not a saleable business. So even if you get a wholesaling business up to the
point where you're doing 2, 3, 4 deals per month, you very rarely, if ever, hear about
wholesaling companies actually being sold. It's such a transactional business, that it's
just not a saleable type of business. Don't get me wrong, it's a great skillset to have. Because,
if you know how to find off market deals, you can take that skillset anywhere.
But there's typically not companies that are going to purchase that the same way they would purchase
your rental properties, or if you have some other type of business.
It's not a saleable business. So you can do 10, 20 deals a month,
and you're still not typically going to be able to sell it.
And if you do, it's really not going to be able to be sold for that much.
It's difficult. Con number five with wholesaling is that,
as a wholesaler, you're typically not going to make as much as the end buyer of the property.
And you're typically not going to make as much as if you just held
onto the property. And there's always exceptions to this rule, don't get me wrong.
But I'll just give you a quick story. So, actually, the house where I'm filming this
video right now, I had this under contract for 300,000. This was about a year and a half ago.
And I could have wholesaled it for 3,20, 3,30, maybe. So I could have made 20 or 30K without
doing any work at all. However, I wanted to actually purchase this house us and move into it.
So instead of making that 20 or 30K, I purchased it. Refinanced. Got a longer term loan.
And that property's gone up in value almost 300,000 in about a year and a half.
Now, I did get it at a discount. So it's not like the market just went up that high. It
was a combination of just getting a great deal, but also the market appreciating.
But for me to make like 250 or 300K, through wholesaling, would be pretty
difficult. Whereas, since I closed on this property, the values just went up.
And so, now I just I'm worth 200 or 300K more than I would've been if I had wholesaled it.
So that's why I kind of do it in combination of wholesaling, as well as,
you want to keep some of the properties as rentals, or even primary residences.
If it's in an up and coming area, maybe it doesn't need a ton of work. There's some properties that,
trust me, you want to wholesale all the time. Because, let's say it's a property
in Baltimore, it's a complete gut job. Even if I can make a 100K fixing that up,
I don't even want to go anywhere near Baltimore. I don't know the market whatsoever.
I would much prefer to just wholesale that deal, make a much smaller amount, but just get it off
my hands. So, you kind of have to gauge where it is, how much work it needs, that type of thing.
All right. Let's talk about the pros and cons now of rental property investing.
So, the first pro is that, there's going to be multiple streams of income.
So I have a few apartment buildings and let's just take one, for example.
You have the cash flow. I get cash flow every single month from my apartment building.
If I do repairs, there's tax write-offs. There's a lot of tax incentives when it comes to rental
property investing. And then, of course, the most obvious one is that the values can go up.
So, if you purchase off market deals, and I have a video below on how I
purchase off market deals using [prop stream 00:10:51]. But if you buy off market deals,
and you buy them in a developing area, chances are, not only are you going to get a discount
on the purchase relative to that current market. But, in a developing area, prices tend to go up.
So you could get the value appreciation from that. So there's really three different incentives.
Tax write-offs. Cashflow. As well as value appreciation, when it comes to rental properties.
The next pro, and this just kind of ties into the first point I was making, but it's just
this steady residual income. So, my first rental property, I was making maybe $500
per month in cashflow. But it's gotten to a point now where it's basically a six figure income,
just from rental properties alone. And so, for a lot of people,
you could be able to quit your job. You could travel the world. That's what some people do.
It's a great retirement strategy. It's a great hedge against inflation.
So just having passive residual income and just building that up, getting your first property,
then getting more and more and more. It's pretty fun, honestly, to just keep
building the passive income and seeing how much you can make. And the next pro with
rental property investing, is the ability to 1031 exchange that into bigger and bigger,
and higher cashflow and types of deals. And you can actually do this with your
principal residents as well. A lot of people tend to do it more on rental properties. But
basically a 1031 exchange is where you take your rental property. You sell it.
And with those gains instead, of paying taxes on it, and then taking that money and trying to
buy a new house, a new car, to flex on people. You can actually take that money, tax free, and put it
into a bigger or similar type of rental property. So, instead of trying to keep up with the Joneses,
and just making yourself look like you're rich, what you should do is just keep trading up.
If you know who [Ben Mala 00:12:30] is, he's a pretty successful commercial real estate
investor in south Florida. Today, we Spent 9.5 million big ones, baby.
And this was his strategy. He started with duplexes and four units.
And he just kept increasing the value. Then selling these off. And he would trade his four
unit up to an eight unit. To a 16 unit. 20 unit. 50 unit. A 100 unit. On and on and on.
And now he's at the point where he pretty much just looks at big hotels, hundred unit
buildings. He wouldn't get out of bed for a flip, or some little duplex, or some smaller property.
So it's a great way to just increase the cash flow by just trading up tax free. And when you
trade up tax free, you don't even have to find a needle in a haystack type of deal.
You don't have to be as selective. You should always be selective with your deals, but when
you're getting that money tax free to spend on a similar type of property, there's going to be
a lot of good options out there. Because you're saving so much just from the get go.
Now, as far as the cons with rental properties, like any good thing,
there's going to be pros and cons. So, number one obviously is the tenants. They can cause issues.
If you don't screen your tenants properly, or if your property's in disrepair, there can be some
issues. I've had evictions. I've had lawsuits. I've had shootings. I've had walls collapsed.
I've had pretty much everything you could potentially think of. Just about. I remember it
was actually a Friday night, and it was one of the coldest days of the entire year. And in one of my
apartment buildings, the boiler system went out. So I had to find housing for everyone in
that apartment building. I basically had to purchase hotel rooms for that night. Actually,
for a few nights, because it was the weekend. So the [HVAC 00:14:05] company couldn't get
out there until Monday or Tuesday. And it was also, I'm in the Washington D.C. area,
and it was also inauguration weekend. So, it was freezing cold, and all the hotels were booked.
And it was just a complete headache, trying to get everyone arranged. But that's why you should
also keep your property in repair and make sure your HVAC gets tested before the winter months.
Make sure your property is basically unbreakable. Get a home inspection. Just go above and beyond.
Do whatever you have to, to make sure that thing is running smoothly. With rental properties,
there's always going to be unexpected expenses. So you always have to have a buffer. A reserve
fund for things that come up. Like boilers. I mean, that's a higher ticket issue. But there's
always going to be little things here and there. And every now and then there might be a
bigger thing. So, you have to deal with tenants. You have to deal with unexpected
repairs. And then, the next con is that, rental properties are not that liquid of an asset.
Especially with a tenant inside of there. Usually, people want to buy properties that
are completely vacant. Now, if it's a multifamily property, that's a little bit different. But
generally speaking, if it's just a single family rental property, most people want it vacant.
Because they want to do their own repairs. Put their own tenant in there, that type of thing.
So that's why you need to build a cushion, like I talked about. But it's also smart to get home
equity lines of credit, or different things like that, to try to leverage the equity.
So that you just have it as a reserve fund. You don't necessarily need to spend it. But,
with these types of properties, you always want to have reserves, or access to capital.
And that's another reason why, when I purchase rental properties, I like to be able to
view it from the flip standpoint as well. I want see from the standpoint as if I just had to sell
it the next day, I would still make a good profit. I don't want to be too over leveraged. So I
like to make sure cash flows really well. But also, if I were to just fix it up and flip it,
or just sell it directly without really doing much work, that I would at the very least break even.
But likely make 10, 20, 30, $50,000 on it. So, this brings us to the point of, "Okay,
so what should I do? Wholesaling or rental property investing?"
And I think the best strategy is, honestly, to do a combination of both. When you're getting
started, wholesaling is definitely a great option. But in terms of building longer term wealth,
I think rental property investing is just the tried and true method. And the way to go.
And I would try to buy larger, multi-family properties. Or at
least at a minimum duplexes. But more like the 4, 8, 12, 20 units, that type of thing.
And you build up to that. Because, my first five years or so in real, I only wholesaled. Because I
just thought it was the best thing. And I got great at finding deals. And I still use that
skillset today to find amazing off market deals. But if I had actually held onto a few of those
properties that I wholesaled, I'd probably have a million dollars more.
Or a very significant amount. Because when you're buying off market deals,
in an approving market, over the course of 5 to 10 years, that can be worth a significant amount.
So you should wholesale deals that maybe you're not comfortable on the comps,
or maybe it's too much work, or maybe it's not the best area. But try to keep the properties
that are close to you, that you can manage, that you think have a lot of potential.
Wholesale the deals you don't want. Keep the rest. I think I heard some investor, he has some fancy
quote, but mine was, I guess, close enough. So thanks for watching this video,
and be sure to watch this one right here. And I'll see you on the next video. Bye.