Investors often discuss these buying/selling techniques without knowing the differences. Especially when discussing them together, investors can become quite confused. Let’s clear that up.
What is Wholesale?
With wholesale, you buy a property for a low enough purchase price that you can mark it up and sell it to an investor who will be able to rehab and resell it on the retail market for their own profit. The skill here is learning to negotiate your buying price low enough that there is room for the next buyer to also make money.
Normally you do nothing to a wholesale property after you purchase it other than sell it to the next buyer – no fix up, no repairs.
What is Wholetail?
Wholetail is very much like wholesale but you do a little bit of work to the property to make it more attractive to rehabbers. This includes things like:
- cleaning out trash
- replacing a leaking roof
- making sure the property is structurally sound
With a wholetail, you might want to bring it up to meet FHA buying requirements which means it must be functional – all mechanical systems must work. FHA requires that HVAC, electrical and plumbing systems work and that there is some life left in the roof. But, you don’t do the interior details like carpet, paint or plumbing fixtures so it still doesn’t sell to the typical retail buyer.
What is Assignment?
With both a wholesale and a wholetail, the purchase transaction is very much the same as any retail purchase in that you close on the property with an attorney and go on title.
With an assignment, you do not close on the property; you do not purchase the property, you never own it. You deal only with the purchase and sale agreement which is the document you’re assigning. You, as the assignor, simply transfer the signed contract to the assignee. You sign a contract to buy from the seller, then find someone who will buy the property for more and assign the contract to them for the higher price.
Wholesale – buy at a really low price, mark it up a little bit, resell to someone who’s going to renovate and sell it on the retail market
Wholetail – same as wholesale but you do a small amount of work before you sell it to the rehabber
Assignment – you don’t buy the house, you just deal with the contract, the purchase and sale agreement – get it under contract and assign the contract to someone for more than you agreed to pay for the house
Questions? Comments? Do you use these strategies?