Is Flipping Notes Better Than Wholesaling Real Estate?
Welcome to part 4 of our “Notes vs Alternative Investments” series: Flipping Notes vs Flipping Houses. Today, we’ll examine how notes stack up to wholesaling real estate properties, and the pros and cons of each strategy.
Wholesaling or flipping, as used here, is a general term to describe being the middleman in a real estate transaction. Wholesaling goes by several names, such as brokering, bird-dogging, and alternative selling, just to name a few. “Flipping,” though commonly used, has a bad reputation because some fraudulent traders had their activity legally branded as flipping. But being the middleman as described above is not that—even when most people call it flipping.
Flipping Notes or Real Estate is about Negotiating Contracts
Whatever you call it, the concept involves tying up a property under contract at a reduced price and then selling contract rights to an investor for a finder’s fee. The biggest appeal to wholesaling is that you can make an immediate income with little to no money out of your pocket and without using any of your own capital. This makes this type of investing attractive to newcomers in the industry. Our comparison is easy because both notes and real estate can be wholesaled.
The primary downside is that while you can build a sizable account just by wholesaling, you will have to continue to wholesale deals to replenish those funds every year. Smart wholesalers redeploy some of their returns by buying other cash flow assets in order to build long-term income and wealth.
On the upside, there is virtually no limit to how many deals you can broker over time and you don’t need a license to wholesale notes or real estate. California is the only exception to licensing, so check with the state, or a lawyer to be sure you’re compliant if you live there.
Flipping Notes Is Easier If You Have the Knowledge
Wholesaling notes has an advantage from lower competition. There are a lot fewer note wholesalers. However, it will take a little more sophistication to get the job done because of the boutique nature of notes. Once you have the process down and grow more confident within the industry, it’s easier to communicate the advantages of notes to any potential investor.
Familiarity gives real estate an advantage over notes. More people are familiar with the process of how traditional real estate investing works. So you can start in that business with less education or experience.
Flipping Notes Can Be Quicker
One thing you may not know is that the note space is more streamlined, allowing a wholesaler to get their funds within days of funding. The process of wholesaling a note can happen as quickly as 3 to 5 days before the funds are deposited into a wholesaler’s account. Whereas, it could take weeks or even months for a real estate wholesaler to see funds deposited in their account.
Note Wholesalers and House Wholesalers Need Capital Sources
The biggest take away should be that whether you’re wholesaling notes or wholesaling real estate, you don’t have to dip into your own capital in order to be successful in this business. But you will have to develop a very strong opportunity pipeline in order to keep the machine going. The biggest issue that investors have in this arena is finding people who have capital to invest.
It’s a Tie
In our opinion we essentially have a tie between the two, but the edge goes to notes for lower competition and speedier payouts. You just need a little more education to explain these opportunities to traditional investors.
We hope you like this educational series of “Notes versus Alternative Investments” to help you see why notes are part of building true generational wealth.
In our last installment, we’ll consider notes versus multifamily rentals.
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