July 23, 2020

Wholetail vs. Cosmetic Flip vs. Full Rehab


Once you get a property under contract there are several ways you can go with it, depending on that specific property and the market.

You can wholesale it, which means you never actually take ownership of it. You're basically assigning that contract to another investor who will do whatever she wants with it. Now, if you're doing a double closing, then you are sitting on title for split second between each closing. That's not for the conversation, though. (Check out that episode here https://www.buzzsprout.com/484195/1956532)

The three routes you have with a fix and flip are: wholetailing it, doing a cosmetic flip or a full rehab.

In this episode, I'm defining these 3 strategies, outlining the pros and cons, and when to use each one.

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Transcript

Intro 00:01
You're listening to the flip houses like a girl podcast where we educate, empower and celebrate everyday women who are facing their fears, juggling family and business, embracing their awesomeness and wholeheartedly chasing their dream of flipping houses. Each episode delivers honest to goodness tools, tips and strategies you can implement today to get closer to your first or next successful house flip. Here's your spiky haired breakfast taco loving host house flipping Coach Debbie DeBerry.

Debbie DeBerry 00:39
Hey there. Thanks for hanging out with me today. I hope that whatever you're up to, it's an easy one. And I hope that you are taking time out for yourself just to hang out or chill or treat yourself to something that makes you happy. All right, we all deserve treats. Daily treats should be a requirement for all humans, frankly. All right, I want to start off this episode with a listener shout out because those are so fun. And if you haven't already, would you please do me a huge favor and leave a rating and review because that tells Apple basically this podcast is a value. So okay, this is from homeschool. And she says this is not just one of those pump you up and leave you hanging podcasts. There is a lot of useful how to info provided in each episode applicable for all levels of experience and for average people. I'm a beginner but had been surrounded by construction slash building my whole life. So I'm not totally green and and finding this podcast a valuable resource. Thank you so much for leaving me that review and letting me know that what I'm up to is actually a value to you. I appreciate it. Alright, so today's episode, I want to talk about basically four different strategies I have when I get a property right. So as a renovator so as somebody who rehabs houses, when I get a deal, I have four potential strategies that I'm thinking about. Okay, so one, I'm either going to wholesale that deal to, I'm going to hold tail, that property three, I'm going to do a cosmetic flip on it. For I'm going to do a full blown rehab. Okay. So imagine a continuum. Okay, picture in your mind's eye, a horizontal line. Okay. And on the left side is wholesale. Next to that, the right is wholesale. And then on the right of that is cosmetic flip or cosmetic rehab. And then to the right of that is a full blown rehab. Okay, so that's the continuum, you've got least amount of work to most amount of work going from left to right. Okay. Also pretty much, least amount of profit to most amount of profit going from left to right. theoretically speaking, okay. All right.

All right, I'm not going to get too much into it. But for the purpose of this episode, a wholesale property is something I'm putting under contract, and I'm assigning that contract to another end buyer to the investor who's actually going to renovate the house, hold it as a rental, whatever they're going to do with it. Okay? I'm just putting the property under contract. And I'm assigning that contract basically to the actual end investor. All right, with a wholesale property. What I'm doing is I am buying the property. All right. I'm doing very minimal work at all, if any, like it's literally a cleanup. Okay, as long as the house is structurally sound, you're just making it livable. Alright, you're cleaning it up and making it livable. Basically, the end buyer on this is going to be somebody who wants to do a slow flip, right? Somebody who wants to live in the house and fix it up over time. Another potential end buyer actually could be an investor who wants to own it as a rental, they're getting it for a discount because it's not been updated. So you're just cleaning up the property. Typically on these I've spent less than five grand, okay. When I've spent more than that it's because like I've had to replace carpet because it was just totally trashed. And it was going to definitely impact the way buyers saw the property. So very minimal work is being done on a wholesale. Think of it as you're just buying the property, and you're cleaning it up. So as long as it's livable, it is structurally sound, you're cleaning it up, and you're putting it on the market. The beauty of this strategy is, Well, a couple of things. It's quicker, right? It's less expensive, you're not putting a bunch of money into the renovations. And my favorite part of it is that you're able to price it at the lower end of the market for the neighborhood, which means buyers who couldn't otherwise afford to live in the neighborhood, now have an option. And it's a clean, livable house that they can add sweat equity to. Now, those are the three benefits, like those are the three pros of doing a hotel in my mind, the con is that you're making less profit, comparatively speaking. Okay, now let's get into the cosmetic rehab. Alright, so in a cosmetic rehab, you're actually updating the property. So a wholesale, you're not updating the property, right, you're cleaning it up, you're not updating it. In a cosmetic rehab, I'm updating flooring, I'm painting the walls, I'm maybe updating the kitchen, I'm updating the bathrooms. Again, this is light cause medic updates. This is the perfect play for when you can't do a whole tale, you know, it's too far gone. For just cleaning it up, you've got to replace flooring, you've got to update kitchens, you've got to update things in order for it to show better. But you don't have to do a full blown gut rehab on it in order to salvage it. Alright, so compared to a wholesale, it's going to be a little bit slower, it's going to be a little bit more expensive. And obviously the market would bring a higher price for it, then just a clean, livable, wholesaled property. All right. And with those things comes a little bit more profit versus a wholesale property. Okay. Now, let's get into the full blown rehab. Okay, so these are the properties that since I started in 2008, these are the ones that I have taken on for the most part. All right, most of my projects are full blown rehabs. Why? Well, because at first people didn't want them. So not until the last few years when Austin became super saturated with investors. Did anybody else really want to take on the bigger flips? There were a handful of us. For the first few years I was in business. And now there are more people taking on the full blown flips, probably because that's where the biggest profits are, right biggest risk biggest profits, too. So let's talk about what a full blown rehab typically entails. So these are properties where I'm usually fixing foundation problems. Now that's going to freak out some people but here's the deal. It's all relative. So in Austin, Texas, we have a very high content of clay in our soil, meaning our soil expands and contracts with the slightest differentiation in moisture. Okay, so houses move right foundations move, that's what they're supposed to do. So they do it, and they do it really well here in this area. So if you're going to be flipping in Central Texas, that's just part of the gig. Other areas. It's not common, so know what's common in your area. And typically, if I'm messing with the foundation, what usually happens is the drain lines then separate but guess what they're cast iron anyway and likely need replacing whether I'm messing with the foundation or not. So I'm typically replacing drain lines and adding PVC drain lines and then usually doing everything from underneath the foundation all the way up through the roof. So this is not a an update this and I'll just keep this no I'm replacing windows flooring, interior doors, exterior doors, full blown kitchen, gut jobs, full blown bathroom, gut jobs, roof every single thing is being touched, alright, electrical, everything, it's all going to be brand new. All right, that's a full blown rehab. Okay, in relation to the whole tail, and the cosmetic flip, it's going to take a little bit longer. So my guys are typically in and out in four to five weeks on a full blown rehab. All right, and that's an 80 to $100,000 rehab budget. So obviously, it's also more expensive. And then it's going to be priced at the top end of the market. And typically, with a full blown rehab comes a bigger profit. All right, because you've got bigger numbers. So if you have a bigger ARV, and the same profit margin, right, let's say your profit margin is 10%. And you're comparing a sales price of whatever 200,000 versus 300,000, then that's a $10,000. difference. 10% of 200,000 is 20,010% of 300,000 is 30,000. Okay, so that's a $10,000 difference. These are just easy numbers for the sake of this illustration, all right. But even if the profit margin is the same, and you're just at a higher price point, then obviously you're making more profit. Okay. So how do I decide which strategy to use? On which property? Well, it depends like, does the property need a full blown rehab? And does the market demand a full blown rehab? So in a seller's market, you can get away with wholesaling, or cosmetic flips, more so than in a buyer's market. In a buyer's market, they're gonna want full blown rehabs, typically speaking. So the condition of that specific property, plus the market conditions in your local area will dictate what you need to do with that specific house. All right. So if you can do a whole tale, and then give somebody an affordable option to get into the neighborhood, that's fan freaking tastic, do it. If you can't get away with that strategy, because the house is just has been pretty much destroyed, and you have to fully renovate it in order to make it a nice, safe, livable space, then do a full blown rehab. Again, the specific property in the market conditions will dictate what you need to do with it. But there you go. That's four strategies if you're including the wholesale, four strategies that you can use when you get a property under contract. All right. Now your job is go out there, pinpoint the areas and the properties you need to be targeting. And then go get the properties, right, go get contracts on the properties, but you better be targeting the right areas. All right. All right. Before you go do that though. If you haven't already, you should absolutely sign up for my follow that flip series that takes you behind the scenes on an actual flip that I did with a couple of students. So check that out at follow that flip.com and guess what, until next time, go out there flip houses like a girl, leave people and places better than you find them and make it a great day. Bye y'all