Wholesaler VS Fixer Upper: How they work in Real Estate

Wholesalers VS Fixer Uppers

The world of real estate can be confusing from an outside perspective. The large amount of real estate specific terminology alone is enough to make anyone’s head spin. It’s important to be aware of and to understand this terminology, however, before delving into any aspect of real estate. If one intends to begin a career in real estate, he or she needs to be aware of the possible jobs and the differences between them. Having a strong grasp of these differences will help an individual when deciding which real estate career is the best option for him or her. 

For those who aren’t looking for a career in real estate, but are trying to either buy or sell a property, it is still helpful and important to know the different aspects of the field. Having this knowledge can save them time, effort, and money. It may also save buyers and sellers from getting a bad deal or making debilitating mistakes. It is to the benefit of the consumer to have at least some real estate knowledge.

What is a Wholesaler

A wholesaler is essentially a person who buys a property at a low rate, then immediately turns around and sells it for a higher rate. It’s important to note that a wholesaler doesn’t simply buy a property outright. Instead, he or she contracts with the seller by agreeing to pay a certain price. Once the contract is accepted, the wholesaler deposits some cash into escrow. He or she then finds a buyer and sells the property at a higher rate than he or she bought it for. The original seller is happy, and the wholesaler makes a decent profit. With a wholesaler, selling a property can become a much more simplified and streamlined process.  

A good wholesaler knows the market and usually already has a buyer in mind when deciding to contract a property. He or she will usually have a list of go-to clients that provides a fast turnaround time for each property he or she contracts. This makes wholesalers attractive to sellers who want, or need, to get rid of their property as quickly as possible. Wholesalers offer these sellers a simple way to reduce the headaches that often come with trying to sell a property. Wholesalers are also beneficial to buyers, because they are excellent at finding the inexpensive properties that certain buyers are looking for.

Wholesalers are usually very knowledgeable when it comes to the real estate business. They are familiar with the ins and outs, and they know how to get the job done. For these reason, they usually operate on their own rather than working through a real estate agency. Working of their own volition means wholesalers are free to choose what hours they want to work and which properties they want to work with. This freedom and flexibility can be very beneficial if a wholesaler really knows what he or she is doing. Without the chains of a real estate office to hold them down, wholesalers stand the chance to make higher profits while working fewer hours. Plus, wholesalers are able to leverage one hundred percent of their investment with little exposure to personal losses.

Wholesaling real estate isn’t all sunshine and daisies, however. Like any real estate career, being a wholesaler has its downsides. The positives often overshadow the negatives, but for any wholesaler or potential wholesaler, it’s best to always keep them in mind, so he or she doesn’t end up biting off more than one can chew.

Becoming a real estate wholesaler can be difficult and require quite a bit of work upfront. Sometimes a wholesaler will contract a property with a buyer in mind, but the buyer will end up not being interested. The wholesaler is still under contract with the seller, which means he or she is liable for whatever money was deposited. The wholesaler will be forced to scramble to find a new buyer or lose the deposit money. This is not only a financial loss, but can also be a loss in reputation. A wholesaler must treat every buyer and seller as potential repeat customers, and a bad deal will most likely end up driving clients away.

It is also possible for wholesalers to fall into the habit of wholesaling anything to anyone. Similar to having a deal fall through, this will earn a wholesaler a negative reputation. Before an individual can become truly skilled at wholesaling, he or she will have to put in a lot of hard work to learn about the market and potential clients. A wholesaler must be able to look at a property and know without a doubt what price he or she can get for it. On top of that, he or she must know the clients well enough to know what type of property they’re looking for and what they will want to do with said property. Buyers will begin to question the worth of a wholesaler who offers them properties they have no interest in.

While wholesalers stand to make large profits in short amounts of time, there is absolutely no guarantee this will actually happen. Wholesaling isn’t a nine to five job where an individual will always get a paycheck. The market can be volatile, and a wholesaler may hit a rough patch where he or she isn’t able to make any money for an extended period of time. Wholesaling also doesn’t come with any health or retirement benefits, which means these things will have to come out of a wholesaler’s own pockets. Wholesalers have to be good with money if they don’t want to end up working for the rest of their lives.

What is a Flipper / Fixer Upper

A flipper is a person who purchases a property that is considered to be a fixer upper for a discounted price. The flipper completes any necessary repairs or renovations and remodels the house to increase its real estate value. He or she then sells the property for an increased rate, which usually results in a decent profit. This sounds simple enough, but actually requires a good amount of solid real estate knowledge. 

The key to being a good flipper is knowing how to spot a fixer upper with a lot of potential. This includes knowing where to buy. A lot of flippers choose to buy in up-and-coming neighborhoods because the property values are already increasing even before any work has to be done. However, good deals can be found just about anywhere. Almost all neighborhoods have at least one house that could use some of the tender love and care that flippers bring to the table.  

Regardless of where a flipper decides to purchase a property, he or she needs to be aware of what type of consumer is likely to buy in that neighborhood. This knowledge will directly affect how a flipper goes about renovating the fixer upper. Each neighborhood has its own unique characteristics that draw in different types of people. Knowing who is most likely to check out the property and catering the renovations to that type of person will greatly benefit a flipper in the long run. He or she will be much more likely to have a successful property turnaround.

A good flipper also has extensive knowledge of the real estate market. He or she has to be aware of property values in order to get a good deal. Additionally, flippers need to be aware of how the housing market is doing. If the market is struggling, renovations might not be enough to sell a property at a profit. On the other hand, when the market is doing well, flippers have a huge advantage. In a good market and with the right renovations, flippers stand to make a large profit. They may even be able to name their own price in some of the more in demand areas. 

In the past few years, reality TV has glamorized flipping fixer uppers by only showing success stories and highlighting the massive profits that can be made. Not all flipping jobs are successes, however, and there are plenty of risks associated with property flipping. Not to mention, it can require massive amounts of hard work.

Fixer upper properties can present many challenges that flippers may not have been anticipating. Not all of a property’s issues are visible to the naked eye, and while most of these issues should be noticed when required inspections are done, they still sometimes get missed. This can make for a nasty surprise and add unexpected costs onto a flipping project. Good flippers know how to calculate repair costs before they even buy a property, so unexpected costs are a flipper’s biggest fear, because they usually end up cutting into the end profit.

 Most flippers are not able to do all of the necessary work to make a fixer upper profitable on their own. They have to hire contractors and teams of workers to help get the job done, especially if they want it done in a short amount of time. This also adds to the cost and takes away from the profits. It can also be challenging at times to find reliable and trustworthy contractors. Unfortunately, many flippers end up getting ripped off by contractors who claim they need more money for supplies than they actually do. Some contractors may also only do the bare minimum to make a house seem improved when it really isn’t. Not only does this hurt a flipper’s profits, but it can also hurt his or her reputation.

Differences Between Wholesalers and Fixer Uppers

While it may seem like wholesalers and flippers do similar jobs, there are actually some key differences. The main difference is a wholesaler does not do any work on the property, whereas a flipper does. Also, wholesaling takes a lot of work upfront, while flipping requires far more work after the initial sale is made.

Another key difference is in the risks that a flipper takes versus a wholesaler. Since wholesalers don’t actually buy properties, they face far less risk than flippers. If a wholesaler is unable to sell a property, he or she only stands to lose the money they deposited in escrow. If a flipper is unable to sell a property, they lose the entire investment. In addition, when a wholesaler fails to find a buyer, he or she doesn’t end up with a house that still needs to be sold. On the other hand, if a flipper can’t find a buyer, he or she is stuck with a house that he or she may not want.

Another difference between the two is that wholesaling is a short-term investment while flipping is usually a more long-term investment. Due to this fact, flipping generally offers a larger payout in the end than wholesaling does. Most of the time, wholesalers end up selling to another investor, which means the buyer has decent knowledge of how the business works. Flippers, however, usually end up selling to a regular consumer, which means there will be less bargaining involved in the final sale

Playing the Real Estate Game

Both wholesalers and flippers are highly skilled at playing the real estate game, and each of these investment methods has upsides and downsides. While the two of these can be successful whether they are mutual or exclusive, the most successful of these are the ones who choose to work together. Wholesalers help flippers find and acquire inexpensive properties, and flippers take these properties off their hands for them. Wholesalers and flippers stand to greatly benefit from one another if they are open and honest in all of their real estate dealings.