The Science of Flipping - When To Wholetail or Rehab

Episode Date: November 24, 2020

If you've been in real estate long enough, I'm sure you've heard the term "Wholetail" before and you may be wondering what the difference is between a rehab and a wholetail. The truth is, wholetailing may be a good option for you! Let's talk about how to determine when to do what.

What's up, everybody? Welcome back to the Science of Flipping podcast. I am your host, Justin Colby. This podcast is all about real estate investors and what are the top tips, tricks, strategies, processes, tools to implement in your business to be a successful real estate investor. And as many of you guys have done, and for those that have not, and this is your first podcast, go over to the science of flipping.com. Check out all the free resources. They're completely free. And if you do want to jump on a quick 15 to 20 minute strategy session with me, yours truly go ahead and fill out the quick form there and we can chat and see where it goes. Anyways, this is the question that I am posing to you

as the real estate investor. When is the right time for you to wholetail versus rehab flip? Take a second, think about it. Now, I like to think I coined the term wholetail. I'd say we started wholetailing back in 2010. And it was something that I don't believe many people were doing. We were buying from auction and some of these auction houses were, you know, pretty clean, pretty nice, you know, back when

everyone was losing their house, you know, back in the foreclosure days, they were doing, you know, new home builds because they bought the home in 2007 and now they're underwater, et cetera, et cetera. And so we had a great opportunity to buy some new home builds. Well, a lot of those homes had very little wear or tear and they were only five, six, seven years old. So we decided, hey, why don't we just touch up some paint if need be, do whatever minimal, you know, if the carpet looked dirty, we replace the carpet and put it right back on the market. And that's what we did. And that's what wholetailing became. And there's levels, I have a student right now that I'm

working with who is likely going to put anywhere from 10 to 20 grand into his quote unquote whole tail. And you could question whether that's a whole tail or maybe a flip. But I would tell you anytime you're spending less than 15 grand, maybe up to 20, I would say that's more of a whole tail than it is a flip. A true whole tail is a deal you don't have to put any money at all in. That is a true definition of a whole tail. You buy it and you do not ever have to put any money in. So the question being is when is the right time to put no, the

very little money in the rehab at all, or do you do a full blown flip and update absolutely everything, move walls, take down walls, et cetera? So I pose this question to you guys. Now I have my answer and I'm working with the student, as I just mentioned, who is doing one that could go either way. And so I'm going to use his deal as the example of why the decision he made. So effectively he is going to be buying this for actually, let me, uh, let me pull up the thread that we're having these conversations on. I don't want to misquote his deal. Um, he is buying, he's buying it at two 20 and ARV could be 305 or higher. Okay. And so the question is, you just got to run your numbers. Now I would tell you my philosophy on a rehab to put that much energy work and money into a home. I want to effectively double what I could technically whole tail the deal for. Right. And so if I could

whole tail it and make 20 grand, I would effectively have to be able to make $40,000 if I was doing a rehab flip. And that means net that is not, you know, putting more money into it to make $40,000. I mean, netting 40,000 after the increased rehab budget. Okay. So if you follow me, a whole tail is small to no rehab budget. Rehab budget is a rehab budget, right? So we're walking through this and we're just simply talking numbers and he's trying to make a decision. And I said, Hey, if you can get away with 10 to $15,000 on this rehab, uh, then this is a better whole tail than it is a full blown rehab where he could top the market. He could get top dollar. He could make more money. And the reason being is he couldn't

make double his whole tail. And so we just simply did the numbers, right? And effectively he was going to make, I think 20 grand on a whole tail. And I think he was going to make 30 grand on a rehab flip and he's going to have to put in more money, et cetera. And I just said, while I like making more money when the project is bigger, it takes longer, it costs more money. There's more things that can go wrong. I'm always going to go with the speed of money and the speed of moving these deals. And especially right now where I'm always going to go with the speed of money and the speed of moving these deals. And especially right now where I'm probably more of a conservative than I am bullish in terms of what I'm buying and rehabbing. I myself am rehabbing roughly a $20,000 condo.

Well, the rehab budget is $20,000. I would consider it a rehab because honestly, there was flooding in the condo. We had to remove the top or the bottom three feet of the sheetrock, etc. So it's a full-blown rehab for sure. But it's $20,000. The condo itself, I was buying in the low 100s. I'm bullish on those small price point buys. I'm not bullish on big rehab flips.

I'm probably more conservative than most right now because my friends who are going strong in the pain and rehabbing a ton, they are making an absolute killing. I love it, but I just am cautious. I've been around for 13 years, ladies and gentlemen, I've made mistakes. I've been bullish when I shouldn't have been because I was projecting and I got caught with my hand in the cookie drawer. So, you know, I would tell you, I'm always a favor of wholetailing as a full-blown rehab something is I need to double my money relative to the wholetail. So if a wholetail was going to net me in my pocket 20 grand, then I want my rehab to net me in my pocket 40 grand. And you just have to line up the math to get there. And that's the rule. That is why you wholetail versus rehab. You want to double

your money. Now here's the last question I'll leave you wholetail versus rehab. You want to double your money. Now, here's the last question. I'll leave you with this. Well, then why don't you just wholesale that deal and make 10 grand? Well, that could be another question. So do you want to make 10 grand right now quickly? Or do you want to make 20 grand and let's just call it 60 to 75 days? That poses a question. Where's your money? I mean, there's a lot of factors that can play into that. I would tell you, if you don't have a lot of money, if you're just getting started, I would always be wholesaling, wholesaling, wholesaling. Collect your money, put some money in the bank, and then you can make these decisions on whether to wholetail something

or rehab something. That would be my answer right and so i always go wholesale first hotel then rehab but it's based around like i to go from wholesale to rehab i need a 3x my wholesale fee minimum 3x so if i'm going to wholesale something for 10 grand i need to make sure at minimum i can rehab it and make 30 grand. Now that also means if I could wholetail it and make 20, I need to minimum make 40 on the rehab, right? So you just got to slowly do some math here, analyze each deal independently. But my rule of thumb versus wholetail and rehab, two X of money, baby, and go for the rehab. Otherwise, keep it short, small, and simple. Wholetail it, get your cash in your pocket, go on the next deal. Hopefully

this finds you well. Go to thescienceofflipping.com if you have any questions about wholetailing and rehabbing. Happy to answer them for you on a quick 15, 20-minute strategy session at thescienceofflipping.com. I will see you guys later. Peace.