Wholesale, wholesale, allocation: what’s the difference?

Investors often discuss these buying/selling techniques without knowing the differences. Especially when discussing them together, investors can get quite confused. Let’s clear that up.

What is Wholesale?

With wholesale, you buy a property for a low enough purchase price that you can mark it up and sell it to an investor who can rehab it and resell it on the retail market for their own profit. The skill here is learning to negotiate your purchase price low enough that there is room for the next buyer to make money as well.

Normally, you do nothing with a wholesale property after you buy it, other than sell it to the next buyer, no fixes or repairs.

What is Wholetail?

Wholesaling is a lot like wholesaling, but it does a bit of work on the property to make it more attractive to rehabbers. This includes things like:

• cleaning up the garbage
• replace a leaky roof
• make sure the property is structurally sound

With a whole, you may want to upgrade it to meet FHA purchase requirements, which means it must be functional – all mechanical systems must work. The FHA requires that the HVAC, electrical, and plumbing systems be working and that some life remains in the roof. But, you don’t do the interior details like the carpet, the paint, or the plumbing fixtures, so it still doesn’t sell to the typical retail buyer.

What is Assignment?

With both a wholesale and wholesale sale, the purchase transaction is very similar to any retail purchase in that you close on the property with an attorney and obtain title.

With an assignment, you don’t close on the property; you don’t buy the property, you never own it. You deal only with the sales contract which is the document you are assigning. You, as assignor, simply transfer the signed contract to the assignee. You sign a contract to buy from the seller, then find someone who will buy the property for more and assign them the contract for the higher price.

Wholesale – buy it at a really low price, mark it up a bit, resell it to someone who is going to renovate it, and sell it at retail

wholesale – same as wholesale but you do a small amount of work before you sell it to the rehabber

assignment – you don’t buy the house, you only deal with the contract, the purchase and sale agreement – you contract it and assign the contract to someone for more than what you agreed to pay for the house

Questions? How? Do you use these strategies?