Wholesaling vs. Lease Options (aka Ugly vs. Pretty) – Part 1

They say that the only thing that stays the same is change. I’d like to smack whoever said that, but I have to admit that he’s right. When it comes to the things that matter to us, my loyal reader, this is definitely the case. Things like real estate investing, marketing, and the market itself, etc. These are things that are constantly changing.

So if THOSE things change, WE need to change, too… if we want to keep up. For example, when I first went full-time as a real estate investor, short sales were still in their early days. So I did a TON of them & made some serious coin. Since then, laws have been passed, banks have caught on, and I’d rather get poked in the eye by a sharp stick than do a short sale now.

Not only that, but the main market where I live & operate (the Washington, D.C. area) has gone from cold to hot, then back to cold in the crash and is now hot again. Investors come & go like transient people around a campfire.

The older I get, the wiser I get (or so I like to believe). Therefore, it has become apparent that if we want to stay alive in this business, we need to be able to not only read the trends of where things are NOW, but also where they’re going. And be able to keep up by developing & using the right techniques & strategies that are appropriate for what’s going on.

Some strategies come & go in their time (short sales, cash for keys, etc.), but some seem to stand the test of time no matter what’s going on. Sure, some of the finer points may need to occasionally be adjusted, but when it comes to the overall big picture, I believe that there are two main techniques that you pretty much can’t go wrong with. These strategies are:

1. Wholesaling and 2. Lease Options.

Typically, wholesaling is associated with the Ugly House Business and Lease Options is used for the Pretty House Business. (But we’ll get into how we can play with that later)

Let’s start with the basics… The way wholesaling works is usually like this… An investor finds a house that needs a lot of work, then gets it under contract for a big discount. That investor then takes their contract & “flips” or “assigns” it to another investor (typically a “rehabber”) for several thousand dollars. That rehabber then hires a contractor to fix up the place and make it beautiful before eventually selling it to an owner-occupant for retail price.

This is a great strategy that has been working for many people for a long time. It’s particularly attractive to a newer investor, because it requires almost NO money or credit to do deals.
It also teaches you how to do some of the most important things in real estate:

• FIND the deals by marketing for them.
• Prescreen which deals fit the criteria.
• Negotiate successfully.
• Get a deal under contract.
• Market for a qualified buyer (the rehabber investor).
• Close on the deal to get paid!

Many a fine real estate investor began by wholesaling. I mean – look at the list of skills you’ll develop by getting good at this! And you don’t need money or credit to start doing deals by using this strategy? Where do you sign up, right?!

But let’s look at what needs to happen in order to wholesale deals with any consistency.

First, the market in which you’re operating needs to be able to support this, meaning that there needs to be rehabbers that are actively buying properties to fix up & sell (or landlords who want to buy & hold) for you to sell these properties to. There needs to be an available inventory of houses that need substantial repair work to justify your low-ball offer (not gonna find that in gated communities). You need to be dealing with a seller who’s sufficiently motivated to sell their property at a discount large enough for you to make your margin in the middle. And the market needs to support the sale of retail homes.

During the last real estate ‘crash,’ you couldn’t wholesale a house to save your life. No one was buying, because the values were going down as fast as they had gone up, and no one was sure when it was going to end. So no one wanted to get caught with a house that was potentially going to be worth LESS than what it was bought for before it’s ready to be sold.

However, you can usually count on having Wholesaling in your arsenal of tools at your disposal when it comes to investing in real estate. The natural progression from wholesaling is to move on to rehabbing houses – fixing them up for retail sale. That’s typically where the most stress – but bigger checks – come from!

Those are the two biggest parts of… The UGLY House Business!

If you want to base your whole business model on the Ugly House business, fine! Good luck with that. You’ll probably do pretty well for a long time. But guess what? You’ll be throwing a LOT of money in the trash if you ignore…

The Pretty House Business

…Which is EXACTLY what we’ll cover in the NEXT issue of this publication!

So stay tuned & come back to this space next month, when we’ll cover exactly WHAT the Pretty House Business is, and WHY you need to incorporate this strategy in your toolkit.
I’ll show you some strategies that will get you paid just as fast & easy as wholesaling AND give you a bigger pool of properties from which to pull your deals down…with less competition
Trust me, you’re not gonna want to miss this!

Until then,

Tony Pearl