Why You Should Do Wholesale Deals Before...

Have you been wondering whether you should focus your real estate investing business on wholesaling or rehabbing?

Well Moguls, Jamel Gibbs here, to help answer that burning question.

So, wholesale deals involve contracting with the seller and then reassigning the contract to another investor at a slightly higher price. When you wholesale, you typically don’t own the property at any point.

Rehabbing involves purchasing the property and making improvements to increase the property’s value before reselling.

As an investor, mentor and coach, I’ve seen both types of deals, and I know the pros and cons of each. And beginning real estate investors often ask me if they should wholesale real estate first or rehab first.

The real answer is: It simply depends.

Let me explain…

I started off rehabbing. Later, I incorporated wholesaling into my business. But I was in a pretty unique situation. I had access to capital when I got started because of some of the relationships I had built.

I know from personal experience that you can be uber successful in both rehab and wholesale.

But I also know my experience is not typical. Most people are afraid to invest time and energy into the slow process of relationship building to help them make a profit.

So, knowing what I know, I recommend that beginning investors consider wholesaling first.

There are a few reasons why I say this...

The Pros of Wholesale

There are 3 major benefits to wholesaling:

You don’t need money
You don’t need credit
You don’t need experience

Basically, anyone starting out can wholesale. But let’s talk about each of those three benefits in more detail.

No Money Needed: You really don’t need money to wholesale houses. Yes, you will need to spend some money to market your business, but to wholesale a property you actually don’t need a lot of money.

Compare that to rehabbing...

You need money to close on the house. You need money to fix it. And you might need money to market and sell it, too. That money needs to come from somewhere, of course.

credit No Credit Needed: With wholesaling, no one has to run a credit check since you are not requesting a loan to purchase a property. All you are doing is “controlling” the property via a contract.

What about rehabbing?

Unless you have or can build relationships with private money lenders like I did in the beginning, you will need to run your credit with hard money lenders or other types of lenders in order to rehab houses.

No Experience Needed: Although you don’t need experience to wholesale or to rehab, this is especially true with wholesaling. There is little to no risk when you are wholesaling, so having experience is not as essential.

In contrast, when you are rehabbing, you need to know how to maximize your profits by making the right spending decisions. You’re also more likely to be using borrowed funds, so you need to make sure things are done correctly.

The Pros of Rehabbing

One word: money.

Rehabbing houses provides much larger profit spreads than wholesaling houses does. But those profit spreads come at a cost.

Along with bigger profits you will also incur greater risks. You’re more likely to encounter unexpected costs in the rehabbing process, and you don’t have the certainty of finding a buyer at the price you want when you initially purchase the property.

The Bottom Line

Your decision to wholesale or rehab properties is up to you, but if you are totally green in real estate investing, I recommend you get started wholesaling first.

Now go and close some deals!