Wholesaling vs. Fix-and-Flip: Choosing the Right Strategy for Maximum Profit

Are you starting your journey as a real estate investor? You’re probably debating on what strategy you’d like to focus on. For many, that comes down to wholesaling and fix-and-flipping properties. These two investment strategies aim to buy and sell properties quickly at a profit, but they’re fundamentally different and may not suit the same investor in every circumstance. 

Wholesaling involves acting as an intermediary between a distressed property seller and a buyer, often an investor, without the need to purchase the property. 

By comparison, a fix-and-flip investor purchases a property and carries out renovations and repairs to resell it for a higher price. Considered a type of real estate speculation, fix-and-flip properties have a high up-front investment and require investors to spend additional capital on work to enhance the property’s value.

While wholesaling and fix-and-flip investing focus on leveraging under-valued properties, their strategies are different. Some investors may choose to work on fix-and-flip and real estate wholesaling to diversify their portfolios. At Privy, we give you investor-focused data insights, the ability to customize searches based on strategy, find quick matches to your criteria, and many other investor tools to maximize the profitability of fix-and-flip properties and real estate wholesaling. This article will help you determine which strategy is right for your investor profile and long-term goals. 

What is Real Estate Wholesaling?

Wholesaling is a short-term real estate investing strategy that focuses on generating income quickly by acting as a middleman for a buyer and seller. In this scenario, an investor will buy a property under conditions and sell it to a buyer, usually another investor, without making any improvements or repairs. This absence of additional work is one of the main differences between real estate wholesaling vs. fix-and-flip properties.

Real estate wholesaling aims is to identify motivated sellers who are selling distressed or below-value properties to sell at a profit to another buyer. Real estate wholesaling is attractive to would-be investors as it requires only a small capital investment. The investor will usually pay a small deposit to the seller when they sign their contract, but their main investment will be the time they spend marketing the property to find another investor.

Wholesaling has a lower risk profile for investors as you’re not really purchasing the property and don’t have to pay the associated fees or worry about market fluctuations. Instead, a real estate wholesaler is securing a contract on a property. What makes real estate wholesaling lucrative is its fast turnaround time. Most wholesalers can secure and sell a contract for a property within just a few weeks. 

What is a Real Estate Fix-and-Flip?

Fix-and-flip real estate, also known as house flipping, is a strategy where investors target below-market value properties and invest in renovations and repairs to enhance their value. Investors will need the capital to make the up-front investment of purchasing the property and paying for the necessary repairs.

The goal of fix-and-flip investing is to find properties with fast appreciation potential. Investors for fix-and-flip properties will use the 70% rule and calculate the likely after-repair value (ARV) of a property to determine its potential profitability. There are different types of fix-and-flip properties, including cosmetic fixes, structural fixers, and distressed properties. Some renovations may only take a few weeks, such as for cosmetic fixers, while others may focus on structural aspects of the property and require more investment. 

Fix-and-flip investing offers a higher potential profit than wholesaling, but this higher ROI calls for a larger up-front investment. These investors can also leverage rapid market changes by buying during market downturns or focusing on emerging areas. There’s more flexibility with house flipping as investors can pick and choose properties that meet their investor profile and the level of involvement they want to have. 

Wholesaling vs. Fix-and-Flip

You don’t have to limit yourself to wholesaling or fix-and-flip properties. Many investors have the experience and networking skills to do both. Real estate wholesaling is an ideal way to generate income to fund fix-and-flip properties and diversify your portfolio. 

The two strategies have a similar focus on (technically) buying and selling a property within a short period to earn a profit. Both investing strategies focus on below market value properties,Investors will do a similar type of due diligence and 70% rule calculations when determining the feasibility of wholesaling and fix-and-flip deals.

The main difference between wholesaling vs. fix-and-flip is that a flipper will carry out renovations to sell the property at a higher price. By comparison, a wholesaler will earn their profit by identifying a below-value deal and marketing it to another buyer at a higher price. The difference between the two prices essentially constitutes the investor’s income and is usually around 5% to 7% of the property’s sale price. 

Wholesaling has a shorter time frame than fix-and-flipping, which may take several months depending on the extent of renovations required. It’s also considered to have a lower risk profile than flipping as the investor never actually purchases the property and does not have to pay additional costs, such as property taxes. 

Choosing Between Fix-and-Flip vs. Wholesaling

While some investors can dabble in both fix-and-flip properties and wholesaling, many choose to specialize in one strategy and find other ways to diversify their portfolio. These types of investing strategies will suit some investors better than others. For example, an investor who is a natural salesperson and comfortable with negotiating is an ideal fit for wholesaling. By comparison, an investor with experience in construction and housing renovations is a great candidate for specializing in fix-and-flip properties.

Here are some of the differences between wholesaling vs. fix-and-flip to consider when starting your journey as a real estate investor:

• Risk profile: Fix-and-flip properties have a higher risk profile as they require a higher financial investment and may incur unexpected costs. By comparison, wholesaling has a lower risk, which can be mitigated by having clauses in the contract to remove the investor’s liability to buy the property if they’re not able to find a buyer within the determined time frame. 

• Capital investment: Wholesaling is more accessible to first-time investors as it requires less capital but comes with a higher time commitment as the investor needs to market the property to buyers. By comparison, a fix-and-flip property requires more up-front investment but delivers a higher return on investment. 

• Time commitment: Both strategies aim at making a faster profit, but wholesaling has a quicker turnaround of usually just a few weeks. By comparison, the turnaround for a fix-and-flip property will depend on its renovations and can take over a year.

• Profitability: Although wholesaling has a lower up-front investment, it also comes with a smaller profit. However, it can create a lucrative income stream for investors juggling multiple wholesaling contracts. However, fix-and-flip properties have a higher ROI with more profitability. Research shows that house flips in Q1 of 2024 had an average gross profit margin of over $70,000.

• Skills required: Wholesaling requires investors to have similar skills to a salesperson, while being able to network, negotiate, and market a property. Both types of investment strategies require investors to be able to identify below-value properties and have knowledge of the local market. By comparison, fix-and-flip properties also require investors to 

When to Wholesale a Real Estate Property

Most investors focus on wholesaling when they have limited upfront capital and want to prioritize quick cash flow over property ownership. These investors may have a tight timeline to generate a profit and seek to use wholesaling to raise funds for other property investments. 

Wholesaling requires almost no capital investment, making it one of the most accessible ways to start your journey as a real estate investment. Unlike fix-and-flip properties, it’s easier for an investor to have multiple wholesale contracts in play at one time. The low risk profile of wholesaling makes it attractive to investors at every stage of their journey. 

Real estate wholesalers can build an entire full-time real estate business around this type of investing if they have the time and skills to do so. Although not as hands-on as a fix-and-flip property, real estate wholesaling is time-consuming and requires patience, communication skills, and long-term commitments. Networking is crucial and you’ll want to have established a buyer’s list and established yourself in the local area before you start wholesaling. 

The key to wholesaling is to find below-value properties that can be sold to another investor/buyer at a price that is still considered competitive or below value. Wholesale real estate investors will need the skills and knowledge to identify  properties and work with motivated sellers.

If you want to focus on quick real estate deals and don’t have experience in renovations, wholesaling is a great alternative to fix-and-flip properties. You don’t need to worry about up-front investments and can generate a large profit within a short time frame with multiple wholesaling deals.

Do You Need a License for Real Estate Wholesaling?

Before you can start wholesaling, it’s important to look at the whole picture. If you want to earn a steady income from wholesaling, you’ll need an extensive network of buyers and knowledge of lead generation to identify potential sellers. Investors will need a pipeline of leads and a network of buyers to be successful long-term.

However, it’s worth noting that some states will require you to obtain a real estate license for wholesaling. It’s important to research the regulations in your local jurisdiction to determine if you need a license. 

When to Fix and Flip a Real Estate Property

Investors might start their career wholesaling real estate and then transition to fix-and-flip properties. By comparison, an investor may choose to only focus on fix-and-flip properties, diversifying their portfolio by investing in different property types and areas. 

So, when should an investor focus on fix-and-flip properties? They’re quickly becoming the most popular type of real estate investment in the United States for novice and established investors. If you have the time and capital to invest in renovations, you’re an ideal candidate for fix-and-flip properties.

This type of investing is attractive due to its higher profit margin as it focuses on improving property value through renovations and repairs. Investors should focus their attention on areas with strong demand if they’re intending to flip a property into a rental property. 

A fix-and-flip property is ideal for hands-on investors who aren’t afraid to get their hands dirty and take part in the renovating process themselves. Many investors choose to carry out repairs themselves, especially cosmetic repairs, to maximize their profitability and reduce costs. Investors who can take on the higher risk are suitable candidates for fix-and-flip properties.

Just like wholesaling, fix-and-flip investors need to understand the local market and neighborhood-level data to identify below-value properties.  

If you’re an investor with capital at the ready, house flipping is the strategy that will maximize your profit potential. Fix-and-flip properties are also ideal for investors who have a genuine passion for DIY projects and enjoy the process of renovating properties. 

How Privy Helps You Identify Wholesale and Fix-and-Flip Deals

Whether you’re investing in a fixer-upper or identifying properties for wholesaling, it’s important to understand after-repair value (ARV). It represents the value a property is estimated to have after it undergoes renovations and repairs. Most investors will limit their budget in line with the 70% rule based on the after-repair value.

Use Privy to immediately find below-market deals, and filter out properties that don’t meet your investor profile or project needs. Privy’s real-time data is a competitive advantage when searching for below-market properties, as investors can react to new listings immediately.

With a fix-and-flip project, an investor’s goal should always be to make the property profitable without spending an unnecessary amount to make improvements that don’t add to the value. At Privy, our investor activity tools and LiveCMA are designed to help you find and analyze fix-and-flip opportunities. These tools give you actionable insights and key metrics, such as after-repair value, to make competitive offers across different market types. 

Our LiveCMA simplifies the process of identifying a fix-and-flip deal to help you make more informed investment decisions by quickly assessing comparable homes to maximize your ROI. You can explore actionable data insights across multiple deal types, including fix-and-flip properties. 

Privy’s automated deal finder means you’ll never miss out on a below-value property for wholesaling and can expand your network with investor-focused real estate agents.