Wholesaling/Flipping Terms
Wholesaling vs Flipping
I think most people understand what a house flipper does. They buy properties under market value, fix them up, and then sell them. Wholesalers flip contracts rather than houses. In a nutshell, they get a property under contract and then they assign that contract to an end buyer for a fee. It’s great to have a solid network of both wholesalers and flippers as an investor-agent.
Wholetailing
This is an amalgamation of flipping and wholesaling. Wholesaling (combining wholesaling with a retail sale) is when a wholesaler actually closes on a property (rather than assigning the contract) and immediately posts that property for sale on the MLS with very little or no rehab work at all.
After Repair Value (ARV)
This is an incredibly common term for flippers. The ARV is the estimated amount that a flipper will sell the property after the rehab is completed. There are plenty of techniques to determine an ARV, but it’s essentially a future-forecasted CMA.
Buyers List
Most wholesalers and flippers have a list of buyers that they are looking to grow. For wholesalers, this is the list of people to whom they’re trying to assign these contracts that they have. I recommend getting on as many of those lists as possible. At most investment meetups if there are wholesalers around, they’ll typically advertise for people to sign up on their list. Sure, you’ll see plenty of deals that you aren’t interested in, but you may find some hidden gems.
Off Market Deal
An off market deal is simply any deal that is sold that’s not part of the MLS or publicly advertised on some mass medium. As an investor-agent, you’ll need to become the master of finding and providing off market deals for your investor clients. These deals could come from wholesalers, pocket listings from other agents, online forums of owners/investors, etc.
Distressed Property/Motivated Seller
This is the seller that most flippers and wholesalers are seeking and is effectively anyone who is in a position that they either must sell their property or just really want to sell. This could be people who are behind on taxes, going through divorce, someone who recently inherited a property that they don’t want, a disgruntled landlord, etc. The list could go on and on.
List Stacking
This is a technique to try to find the sellers with the highest motivation. Rather than just targeting a list of people who have back owed taxes, an investor will also pull the lists for something like people going through a divorce and another list of people who are behind on their water bill. After they have multiple lists of people with potential motivation to sell, they’ll ‘stack’ the list and try to find the people that are on every one of the lists. If someone is going through a divorce, behind on their taxes, and late on their water bill, there’s a good chance that they will want to sell their property. These are just examples, but you can imagine there are plenty of possibilities when it comes to list stacking.
Subject-To (Sub2)
This is when a buyer purchases a property from a seller (i.e. the deed is transferred officially) but the seller’s mortgage is not paid off at closing. The buyer takes over payments on the mortgage, or he buys it ‘subject-to’ the seller’s mortgage. The loan is not assumed, so the seller’s name remains on the mortgage. There are plenty of nuances to consider when executing a sub2 deal, so I suggest working with an investor or title attorney who has executed one if it’s your first time!
Holding Fees / Carrying Costs
During a fix & flip renovation or rehab project, any fees outside of the actual rehab itself are effectively the holding costs. This consists of things like utility bills, debt payments, insurance costs, property taxes, etc. Holding costs can become a large factor in the analysis during a slow market or an extensive rehab that will take a while to complete.
Driving for Dollars
Driving for dollars is a super popular technique for wholesalers and flippers to essentially drive around their target areas to identify properties with potential motivated sellers. They look for properties with overgrown hedges, notices on doors, etc., and then will track down the seller to see if they can make a deal happen.
Ringless Voicemail (RVM)
The laws regarding ringless voicemails or RVM, along with mass texting, continue to change, so I always recommend that you check the current state and federal guidelines; regardless, RVM is when a voicemail is dropped into someone’s phone without the phone ringing at all. It can be an effective tool in certain drip campaigns and is used by some investors to target their various motivated seller lists.
Bandit Signs
Everyone has seen the little signs by the side of the road or taped to telephone poles that say “I Buy Houses Cash” – Those are bandit signs. While they may seem rudimentary, you continue to see them everywhere because they continue to be a cheap and effective marketing tool for flippers and wholesalers.
Joint Venture (JV)
A joint venture is when two or more parties collaborate together to tackle some sort of an investment deal. It’s a simple way of partnering with another investor to make a deal happen that you could not make happen by yourself.
Double Close
A double close is when a wholesaler closes on the property that they are buying and immediately closes with the end buyer. This is common when wholesalers are making a very large assignment fee that they may not want the end buyer to see at closing. Because it is two closings, there are double the closing costs involved, and transactional funding will typically be used (i.e. very short term, high interest lending), so be sure to consider all variables in a double closing.
BRRRR Technique
This is an investment strategy coined by Brandon Turner (previous BiggerPockets podcast host), where an investor Buys, Rehabs, Rents, Refinances, and then Repeats the process - It’s a solid technique for being able to reuse the same funds for multiple investments. A quick and simple example to illustrate the technique:
You buy a house for $100K cash and then rehab the property for an additional $40K. After the rehab, you rent the property for $2,000/month.
Now that you have a cash flowing, updated rental property, you refinance the property at a 70% LTV, which results in a $140K refinance.
You now get a check for $140K (i.e. you get all of your money back), and you keep the cash flowing rental that was just fixed up. You can go use that same cash to repeat this process on another property.
The BRRRR technique is very popular amongst investors. My caution to anyone pursuing a full BRRRR strategy is to avoid over-leveraging and ensure that they have adequate financial reserves for each of their investments.
70% Rule of Thumb (ROT)
Sometimes called the 75% ROT, this is a technique for flippers and wholesalers to quickly assess whether a deal is worth pursuing or not.
The formula is (70% x ARV) - Rehab Cost = Max Allowable Offer
As an example, if there is a property that you think you could sell for $300K after an estimated $50K rehab:
(70% x $300K) - $50K = $160K
In this example if you could acquire the property for $160K or less, it may be a deal worth pursuing.
While it’s an effective and quick technique to assess the validity of a deal, all investors should back up their analysis by actually breaking down all of the costs of the investment from start to finish.
