We have been discussing rehabbing houses a lot this week and you may be wondering should you wholesale houses that you never purchase or should you rehab houses and resell them? In fact, you may even be wondering why I – who you know as a wholesaler – is talking so much about rehabbing.
Let’s tackle both of those questions.
In response to the first question, you should add both strategies to your portfolio. Both offer huge benefits. What I love about wholesaling is that you never have to purchase the property, and you can flip it and make a great profit. They require so little time that you can easily do multiples each month.
On the flip side, rehabs offer large cash profits per deal; and because you own an asset you can leverage that asset to create 100% of the funding for the purchase plus rehab costs and use none of your own money.
Wholesales are the cash locomotives of your business that ensure consistent cash flow every month, whereas rehabs offer the large cash infusions that allow your business to grow larger and offer you huge bonuses.
As for me, what you may not realize is that Margie, my wife, and I started in this business as rehabbers. We thought we had a handicap, which turned out to be a huge asset: we had no money to invest and not enough credit to buy a house. Initially we thought this precluded us from ever getting into the business. What we discovered was how to fund projects creatively and not have to rely on our cash and credit.
We netted $38,000 on our first deal and this became seed money for our business. So consider this…if you have no money to invest in your business and your marketing, rehabbing may be perfect for you. I know that sounds counter-intuitive. You’re probably thinking that if you have no money, how can a strategy that requires significant capital be a good first choice?
The reason is leverage. You can leverage the asset to get the funding; and when you sell the property you have seed money to grow your business. After we completed our first rehab, Margie and I went on to do numerous more netting quite a profit all while working real estate part time.
We later added wholesales into the business to create a quicker cash flow, but have always continued on with rehabs as a part of the business because of the large deposits it offers to your bank account.
Whether you are just getting started or even if you are a seasoned wholesaler or landlord, I encourage you to consider adding rehabs to your profit mix. Just four simple paint and carpet rehabs in the course of the year can add as much as an extra $100,000 in profit.
Expect abundance,
Lou Castillo
