Real Estate Flipping vs. Wholesaling

When it comes to real estate investing, two popular strategies are wholesaling and flipping. They are similar; however, there are significant differences.

Real estate flipping involves purchasing a property, making repairs or renovations, and then selling it for a profit, aiming for a quick turnaround. It can also refer to holding the property until the market shifts and selling it for more than you paid.

​Real estate wholesaling and flipping can be profitable investment strategies, but they require different amounts of time, effort, and financial resources.

​Successful flipping begins with getting a reasonable purchase price. House flippers need a lot of cash on hand for the upfront costs of purchasing, carrying, and renovating the home, and they have to budget very carefully to make sure they don’t spend more than they can earn back in resale. They also need a team of trusted contractors and service providers ready to complete any necessary work as quickly as possible. Flipping can take several months or even years to complete, depending on the extent of the renovations needed.

​While flipping can be more time-consuming and risky than wholesaling, it can also yield higher profits. A well-executed flip can result in significant return on investment.

​Advantages of wholesaling include minimal capital requirements and quick completion, usually in a matter of weeks. Wholesaling also carries little risk.

​There is often confusion around taxes and flipping houses for profit. Normally, if you purchase a piece of real estate to fix up and sell it at a later date, the profit is taxed under the capital gains rules. The IRS classifies individuals who actively purchase and remodel real estate for profit on a continuing basis as dealers rather than investors. For these people, real estate is treated as inventory rather than capital assets, and the profits from the sale of those properties are treated as ordinary income, subject to self-employment tax.

​When choosing between the two, consider your financial situation, experience, and current real estate market conditions. Ultimately, the right strategy depends on your individual goals and circumstances.