Whole-Tailing vs. Wholesaling: Understanding the Difference

Real estate isn’t a one-size-fits-all strategy. Every property – and every investor – has a strategy that works for them. Whole-tailing and wholesaling are two popular investment strategies for novice investors and those who want to make a quick sale. Commonly misunderstood, these two investor strategies have subtle differences.

Wholesaling is when an investor acts as a wholesaler, putting the property under contract while they find another buyer. The price is then split with the seller for an agreed fee. Most wholesale properties are distressed, but the investor does not complete any renovations or incur additional costs. 

By comparison, whole-tailing is a hybrid between wholesaling and fix-and-flipping. It involves the investor purchasing the property at below-market value and making selective improvements at minimal cost before selling it to another buyer. This strategy is different from fix-and-flipping as the property undergoes less work and usually in a faster timeframe with the property still being sold at below market value.

At Privy, our live investor-focused data makes it easy to identify potential wholesaling and whole-tailing opportunities with our Investor Activity giving you proven strategies to replicate. 

What is Wholesaling in Real Estate?

Wholesaling in real estate is a short-term investment strategy for individuals who want to make a quick income with minimal risk. The investor identifies a below-market property, acquiring the purchase contract, before selling it on to another investor. The wholesaling investor never exchanges capital with the buyer and only makes money if the property sells for at least the agreed amount. 

This investment strategy is ideal for investors with limited income or who want to take a hands-off approach to real estate. The investor doesn’t need to make a deposit or commit to purchasing the property themselves. Most wholesaling agreements require the investor to sell the property within a certain time frame. 

The difference between the agreement upon sale price and what the investor sells the property for is known as the wholesale fee. In most cases, this ranges from 5% to 10% and is the investor’s profit on the deal.

Wholesaling is a great way to get started in the real estate market and develop negotiating skills, while building your network. As a low-risk strategy, it doesn’t require investors to conduct renovation work or go through a credit score rating. Successful wholesale investors can generate significant income if they’re able to identify below-market properties with motivated sellers.

Challenges of Wholesaling

While wholesaling can generate quick profits, it has limitations:

• Highly Competitive – Finding undervalued properties before other investors can be challenging.
• Legal Restrictions – Some states require a real estate license to wholesale properties.
• Finding Buyers – Without a strong investor network, wholesaling deals can fall through.

Wholesaling isn’t a silver bullet for investors. It’s not without its challenges and although it has a faster turnaround, it has a lower profit margin compared to other investment strategies. Investors must manage the legalities of contract assignments and work independently – or with other contacts – to consistently find below-market properties.

One common challenge in wholesaling is finding motivated sellers who are willing to sell below market value. Successful wholesalers build a strong buyer’s list and have an extensive network to quickly offload deals before contract deadlines.

New investors may struggle as this real estate strategy relies on having a strong network with a strong lead generation process. Wholesaling takes time, especially for first-time investors who need to build their network. 

While it’s possible to find motivated sellers and below-market properties, these homeowners may not understand the potential of wholesaling and may prefer to outright sell their property or work with a real estate agent. It’s also important to note that some states in the U.S. require investors to have a real estate license to wholesale properties. 

What is Whole-Tailing in Real Estate?

Whole-tailing is an excellent strategy for investors with capital who want higher profits than wholesaling but without the long timelines and risks of a full fix-and-flip.

By comparison, whole-tailing is a strategy that is often confused with wholesaling. It’s better described as a hybrid between wholesaling and flipping. The investor will search for a below-market property, purchase it, make minimal repairs, and then resell it quickly. Unlike flipping, minimal renovations are carried out and not enough to realize the full value of the property.

Most whole-tailing requires minor work that the investor can do themselves, including cleaning out the property or minimal DIY work. Whole-tailing is more profitable than wholesaling, and while it’s not as profitable as flipping, it is faster.

How Whole-Tailing Works in Real Estate

Whole-tailing begins when an investor acquires a property at below-market value, making small repairs or minor improvements to increase its value. These improvements may be carried out by the investors themselves or third-party tradesmen. The property is then put back on the market, usually still below market value.

A crucial aspect of whole-tailing is understanding local buyer demand—investors should research the area’s rental market, investor activity, and homebuyer interest before choosing this strategy.

Investors must focus their search on motivated sellers, typically from off-market properties using lead generation software. Homeowners experiencing financial hardship or who are in pre-foreclosure may be keen to sell their property quickly without the attention or longer time frame of selling on the market. The circumstances of owners can vary, but they’ll want to remove the burden of the property, whether they’ve inherited it or can no longer afford it.

If you’re purchasing a property in pre-foreclosure, don’t skip on title companies to obtain title insurance and gain protection against potential title issues. 

The Benefits of Whole-Tailing

Why might an investor choose whole-tailing instead of another investment strategy? It all depends on the investor’s goals with whole-tailing being an ideal option for investors looking to quickly generate profit. Whole-tailing has a higher profit potential than wholesaling, while requiring less work than flipping or fully renovating a property.

Whole-tailing focuses primarily on making cosmetic improvements, such as updating the flooring, painting the interior, and replacing fixtures and lighting. Many of these improvements can be done by the investors themselves for minimum investment.

Challenges of Whole-Tailing

Just like wholesaling, whole-tailing isn’t without its challenges. It won’t be suitable for all investors as it requires them to have the up-front capital to purchase the property. There’s more risk involved as there’s no guarantee of a fast sale, so the investor may find themselves holding the property. Whole-tailing is best suited for investors with knowledge and experience in both the house flipping and wholesale markets.  

Key Differences Between Wholesaling vs. Whole-Tailing

Understanding the differences between wholesaling vs. whole-tailing can help you determine which investment strategy is best suited for your risk profit and financial capital:

• Capital: Wholesaling requires no upfront capital to buy the property as it involves assigning contracts, while whole-tailing requires the investor to purchase the property up-front. 
• Involvement: With wholesaling, the investor has no direct involvement with the property and does not own it. By comparison, whole-tailing involves the investors taking property ownership and making minor repairs before reselling.
• Potential Profit: Wholesaling has a lower profit margin with the investor making money from their wholesale fee, while whole-tailing has a higher profit margin. 
• Timeline: Wholesaling is typically faster with a specific deadline, while whole-tailing takes longer as the property is purchased, (minorly) repaired, and then resold. 
• Risk: Wholesaling has a lower risk profit as there are no holding costs and the investor does not obtain property ownership. Meanwhile, whole-tailing has a higher risk profile but is not as risky as undertaking major renovations. 

When to Use Wholesaling vs. Whole-Tailing

Use Wholesaling If:

• You have limited capital and want a low-risk way to make money in real estate.
•  You have strong negotiation skills and can quickly find buyers for deals.
• You want to build relationships with investors for long-term deal flow.

Use Whole-Tailing If:

• You have capital to purchase a property upfront.
• You want higher profits than wholesaling, but without full-scale renovations
•  You’re experienced in analyzing deals and estimating light repair costs.

When to Use Wholesaling as a Real Estate Investor

When should you choose wholesaling as an investor? While you should always do your due diligence, wholesaling is best suited for investors with limited funds who want to start generating a profit from real estate without up-front investment. It’s an ideal option for first-time investors with a strong network as it’s a low-risk investment strategy that requires minimum involvement. If you’re interested in prioritizing wholesaling as an investor, work on building your buyer’s list and locating motivated sellers.

When to Use Whole-Tailing as a Real Estate Investor

By comparison, whole-tailing is best suited for investors with access to capital and the means to purchase a profit up-front, but who do not want to commit the time or resources to fully renovate the property. It’s a suitable strategy for investors searching for moderate returns but who don’t want to undertake the higher risk of flipping. The attraction of whole-tailing is its focus on a fast sale after small, cost-effective improvements that add value.

How to Get Started with Wholesaling and Whole-Tailing

We’re breaking down the steps of how to get started with wholesaling. The benefit of this investment strategy is that it is low cost, but you should expect to spend a significant amount of time working on finding a motivated seller and locating the right buyer. Do your research in advance and ensure you understand the legal aspects of real estate wholesaling and contract assignments. 

1. Find a Property

Use Privy’s investor-data to search for distressed, pre-foreclosure, and off-market properties.

You can use Privy’s property search tools to identify a property that’s bellowed market value. These properties may be in foreclosure or in a declining state as the current owners are not able to afford to make improvements. 

2. Analyze the deal 

Calculate After Repair Value (ARV) and determine wholesale fee vs. potential resale value.

Before approaching the homeowner, do the math and determine what the fair market value would be for the property. You’ll also want to consider potential repair costs as the eventual purchaser will also be factoring these into their offer price. Calculate the after-repair value and use it to determine the maximum you can offer the homeowner, while still making a profit selling the contract on to another buyer.

3. Secure the Property

For wholesaling, lock in a contract with assignment rights. For whole-tailing, secure financing to purchase the property.

4. Find a Buyer

Once you’ve worked out a price, contact the seller and approach them with a wholesale offer. It’s important you fully explain how wholesaling works and follow all relevant regulations in your state.

5. Enter into a Property Contract

If they agree, present a property contract offer to the homeowner that allows you to assign the right to the contract to another buyer. It’s important to ensure the contract has a contingency to allow you to withdraw from the agreement if you’re unable to find a buyer within the allocated time frame.

Steps for Getting Started in Whole-Tailing

The process of whole-tailing doesn’t start off too differently from wholesaling. You’ll still need to locate a property, do the math, and contact the seller. Unlike wholesaling, you’ll need to secure the financing to make the purchase and understand what the resale process entails. 

Depending on your goals, a property appraisal may help you determine which repairs are worth doing to give you the best ROI without spending too much money on renovations. 

The goal of your repair work should be to make the property livable and marketable. Depending on the market, you’ll still be aiming to sell the property at below-market value, although this will vary because of the price you originally paid for the property. 

Your repairs should focus on cleaning, repairing, and modernizing the property to attract potential buyers, while spending too much capital or time. Whole-tailing focuses on cosmetic work, from a fresh coat of paint to small landscaping and cleaning the property. You don’t have to spend thousands of dollars or months working on repairing the property. 

If you’re planning to sell the property to another investor, you may be able to make fewer improvements than if you were putting the property back on the market for a private buyer. Remember, you’re not aiming to have the best house on the block – just a livable (and sellable!) one. Market fluctuations can happen at any time and making your repairs quickly and effectively can help you sell the property faster without risking potential market fluctuations.