What is Whole-Tailing in Real Estate Investing?
I am not sure if we developed “whole-tailing” originally but one of our mentor students named it for us. This selling of retail properties is the combination of the names wholesaling and retailing and is specifically targeted at conventional end-buyers who pay retail prices for their homes..
Basically the only properties that are purchased to fit this selling technique are ones where the amounts of repairs are limited to one or two weeks of patching and painting – no major work what-so-ever. If major work does need to be done, the property is patched and painted and sold as a “Handyman Special”.
While I have been doing this type of limited rehabbing since 1975, I didn’t realize its significance until a mentor student approached me with the proposition, “Is it possible to buy properties at 80% – 85% of the price listed on the MLS and re-sell them at full market value?” I had done it for years by prospecting for expiring listings because the homeowners were almost always blaming the realtor for the lack of buyers.
In reality, it was often the realtor’s fault because he “sold the listing” by promising a market price that was too high and the homeowners wouldn’t back off the initial listing price as the listing agent expected him to do. And there are plenty of times a homeowner would be totally at fault for not reducing an unrealistic price they wanted. The other complaint from homeowners was that the listing agent never brought a buyer by the property and would never do an “Open House”.
The most successful realtors do not sell homes, they sell listings and let other realtors find the buyers – that’s the reality of the industry. They also do not generally do Open Houses because they don’t work very often. Of course there are the smart realtors who use Open Houses to build their buyers list, but this is tedious.
We recently had a mentor student’s first property up for sale in an exclusive neighborhood of $300,000 homes. He had bought it wholesale from the homeowner and remodeled it. The weekend we had his sale there was a realtor having an Open House about 10 houses away. The realtor had put out about twenty red and white Open House signs throughout the neighborhood. We put out fourteen signs and waited to see what happened. As expected the traffic started within ten minutes and at the end of the first day the realtor doing the Open House came by to see our property.
He explained he had two couples come through and neither made an offer. We showed him our sign-in ledger and had 104 people sign the ledger and four offers on the property. He said it was impossible but was quiet when he saw the offers but still said he couldn’t believe it. By Sunday at the close of the sale we had 173 people sign-in and about 20 who wouldn’t leave their contact info. The realtor came by again and said he had 8 individuals the entire weekend and no offers.
This realtor saw our signage, watched as the traffic jams came and went in front of our property, and he still didn’t believe it. He even complained that his listing was in better shape, larger and was being offered at a lower price than ours! I gave him the address of our selling system on the internet but I know he didn’t bother to look at it because I looked later to see if he purchased it.
This was an example of a “whole-tail” deal for the student and he netted over $80,000 for his effort. I have to tell you that the biggest problem was getting local lenders to believe there wasn’t fraud involved. One loan underwriter spoke to me and asked “How much did you have in repairs?” I explained that it didn’t matter because all the lender should be concerned about was the borrower and the value of the property today.
She finally said “I don’t believe a seller would give their house away so much below market value!” I graciously explained that motivated sellers are not concerned with price especially when they may need to put more money into the property before they can sell it. Despite the borrower/buyer having a commitment letter with no contingencies from the lender, she declined the loan.
This process of buying “slightly distressed” properties that are no longer listed on the MLS and patching and painting them works very well. The student I mentioned did five of these deals with me as a partner in a one year period and does tons of them in this frazzled market still. His key to doing so many entails his using the proprietary selling system I developed and even when the property is sold the first weekend, he re-sells it over and over again. The additional buyers become contingent buyers in the event his previous buyer can’t get financing or changes his mind. All of the people who leave their contact info are alerted to the next sale he has coming and become a part of his “Preferred Buyers List”. He then has buyers waiting for his special sales and he has the time to then work with credit challenged buyers.
