Starting Small in Commercial Real Estate

Starting Small in Commercial Real Estate

Discover how you can start small with commercial real estate and work your way up into bigger and bigger deals. If you have limited capital, are risk averse, have very little experience or are intimidated by the big numbers of commercial property, consider starting small. You'll also discover that small commercial deals can be extremely profitable and there are far more small commercial properties than large ones so you have more options and opportunities. You'll also learn the natural progression of a successful commercial investor, the ladder of succes and many more details that will help you along your journey. This is the perfect training for anyone who wants to get into commercial real estate investing but has been held back by fears and trepidation.

The Natural Progression of a Successful Commercial Real Estate Investor

1st. You buy a small deal

2nd. After the first deal stabilizes, you buy a small-to-medium deal.

3rd. After the small-to-medium deal stabilizes you buy a medium deal

4th. After the medium deal stabilizes, you progress to a large deal with some sort of syndication

This is a natural progression that we call the ladder of success, in commercial real estate.

What is a Small Commercial Real Estate Deal?

A small commercial deal is defined by three definitions. Number one, a small commercial estate deal is an apartment building that's between 5 and 20 units. An apartment building that consists of five units and greater, is considered commercial. Anything that's four units and lower is considered residential.

The second definition of a small commercial deal is a commercial building that goes up to about 3,000 square feet.? That could be an office condo, retail center, single-tenant commercial space, or any other commercial property as long as it is up to or around 3,000 square feet.

Lastly, I would define it as a commercial building that you can envision yourself owning. Something that you can afford to buy in your current financial situation.

Why You Should Choose Smaller Commercial Deals

Affordable Down Payment

Since small commercial deals have smaller numbers, they are easier to understand, and more affordable. In commercial real estate, you  have to put a down payment down of around 25%, so that will be 25% of a smaller number, as opposed to a large deal, where there's a large number.


You're more likely to do something creative with a smaller deal, because of the ownership.  On a larger property, the ownership is more sophisticated but most smaller properties have smaller owners that are willing to do something creative like a master lease or seller carry second mortgage. 

Less Risk

There is also less risk with a smaller property, because if you make a mistake you will not lose out on as much money as you would a larger property.

Most Availability

There are a lot more smaller properties available to buy than there are larger commercial properties. In the U.S. there are about 450,000 apartment buildings between the range of 5-20 units.  From 20-100 units that number goes down to 95,000, apartments in the US. That is a  5/1 difference in large and smaller properties, which means there's five times more smaller commercial real estate deals.

Make Sense to You

The final reason why you should consider doing something small,  is because it just makes sense to you. Wherever you are in life, it just makes sense for you to start with a smaller property.

4 Investment Strategies for Small Commercial Deals

1.     Conventional Bank Process

One of my students purchased a six-unit property with a current cashflow of $15,000 a year. After taking a look at some local rent surveys, we discovered that the rents could be bumped up if we painted and cleaned up the property. So my student fixed the property up, increased the rent, and cashflow increased to $24,000 a year. As the NOI goes up, cashflow and property value go up, so she sold the property after a year and made an $80,000 profit. Next she purchased another six unit next door to the property to repeat the entire process again.

Her strategy is to buy, fix, and sell, so she can build up her capital base for larger property purchases. She is currently pursuing a 40 unit apartment building. I have a video on, "How Conventional Banks Work" for further information on this investment strategy.

2.     Do Something Creative, like a Master Lease

A Master Lease deal is one of my favorite techniques in creative real estate. I purchased a seven unit apartment with 15% down and a three year master lease agreement seller financing. It only took me a little over a year to get out of the master lease and qualify for a permanent loan. I held onto the apartment for 12 years and just sold it a few years ago.

3.     Wholesale the Deal

A student of mine who was a nurse, had zero experience in real estate, and limited funds. So we taught her how to find an off-market deal and at the same time, find a buyer. So she networked and got the off market deal, found a buyer, and flipped the contract to the buyer to make a $26,000 profit at closing. $26,000 just by flipping the contract to a buyer.

4. Buy Something Distressed

Buying a distressed property is considered an oppurtunistic deal, and is not for everyone. It is an oppurtunity to make a decent amount of money on small properties. My student purchased a five-unit building that needed rehab, so he had to pay all-cash, which was $160,000. He did this because he saw potential in the property. At closing, he sold what the property could be to the bank , which resulted in them giving him $80,000 in the line of credit.

The goal is to go through each of the units, fix them all up, let the property stabilize and it'll be worth 320,000. Then, the goal is to do a cash-out refinance and pull out his entire capital that he spent. At the end of the day, because he'll do a 75% cash-out refinance, so 75% of 320 is 240. In that sense, he's gaining out everything that he put in. Now, some of you may be thinking, "Well, he's over-leveraging." He's not. The bank will only allow him to pull out 75% of what it's worth, to make sure it's still a cash loan.  I actually have a video called How to Buy Distressed Commercial Property, so check out the video.

The Ladder of Success

I'm going to share with you the natural progression of a typical commercial real estate investor, going from a small deal, all the way up to a holder of a large portfolio of commercial properties. This applies to you if you have a 9-5 job, if you have no experience, or if you're starting off with very little money. This is the natural progression of success that we call the ladder of success.

There are four phases, you're going to go from a small deal, to a small-to-medium deal, to medium deal, to a large deal. After that, the sky is the limit.

Phase 1: Small Deal

Purchase a small deal with a conventional bank to either wholesale or master lease.  When you wholesale, it's not ownership, it's completing your first deal, whether it be something creative, wholesaling, or something conventional, through a bank loan.? A small deal, right? Once you're done with this, you're going to graduate to the small-to-medium phase.

Phase 2: Small-to-Medium Deal

When you graduate to this deal, your credibility is going to be kicked up a notch, because you completed the small deal already. Commercial real estate is not the type of business where you're going to get wealthy in six months. It's what we call a L-O-N-G game. Once you complete phase 2 with a small-to-medium deal, you're going to graduate to the medium-sized deal.

Phase 3: Medium-Sized Deal

This deal is going to have a definite financial impact on your life.  You will see the light and the light will tell you, "Oh, I think I can do this and eventually leave my job." Once you get your medium deal, you're at a whole new level,  a different language, and your mindset is different as well. Now you can see the potential of what real estate can do for you and your family and the options you have of  working part-time, pursuing a passion of yours, or just leaving your job.

Phase 4: Large Deal

At this phase, your track record is now good enough for you to start using other people's money. This is called syndication. I have a video on the subject called, "The Basics of Real Estate Syndication" Basically, syndication is the pooling of other persons' money together, to buy a property. You're just raising capital for a down payment to buy the property,

Also, when you participate in large deals, you're going to have to start doing this full-time, because if you have a 9-5 at this phase, it will start to get in the way of your real estate success.  You're going to have to leave your job.

All right, so, small deal, small-to-medium deal, medium-sized deal and large deal. After this, there's no limit, the sky is the limit of what you can do in your commercial real estate career. This is a natural progression of success that we use with our students in taking them from small deals, all the way up to becoming a holder of large commercial properties.

The ONE Question You Should Ask Yourself

Would you prefer A.

A 12-unit apartment building that produces $20,000 a year in cashflow,

Or Would Your Prefer B?

A 12-unit apartment building, that you wholesale to earn  a $40,000, one-time commission.

So, A or B? That's the question.

If you prefer A, which is the $20,000-per-year in cashflow, you're going to experience passive income, that  you can use to build up your nest egg, retirement, or use it as is your 401K.

Would you prefer that? Or would you prefer B, which is making a one-time lump sum fee of $40,000 by wholesaling a commercial deal that you filed. In this case, you're going to receive a lump sum of cash, you can use it to pay off your student loans, or perhaps you're going to do multiple wholesale deals to build up your capital base or your down payments so you can purchase your own property.

Let Me Know Your Choice!

What I want you to do now is, in the comment box, I want you to choose either A or B. Just put an A, if you'd prefer the $20,000 a year in cashflow, or the letter B, if you prefer the one-time lump sum fee of $40,000. Go ahead and do that, I would like to see your answers, because they will tell me a lot about where you are and what your goals should be.



  1. rachel frampton says:

    I have been planning to purchase an apartment building that will be put up for rent. I think your idea of buying a seven-unit apartment with 15% down seems like a practical strategy. Also, your suggestion of purchasing a distressed property seems like a great option since I can have it for a lower price, renovate it, then sell/rent it out for a higher price.

  2. Excellent explanation. Anyone can easily comprehend since it’s simple & focused. Keep up the great work!

  3. I like that you said that choosing smaller commercial deals are easier to understand and with a smaller down payment. Thank you for helping me understand more about commercial deals.

  4. Eric J Kilbourne says:

    Definetly A for me since i am looking at geeting into commercial real estate and keeping it as a long term investment . Plus i think it would be wise to help build a big porfolio of bigger properties in the future.

  5. A. Make’s sense if your looking to finance more deals for the long term

  6. A. Passive income because it’s abut the end game.

  7. Jenny McAdams says:

    Investment in commercial property is considered as one of the best ways to earn a huge amount of money. However, a lot of factors should be taken into consideration while making any major investment. Knowledge is the key to get a competitive edge in the real estate business. Information given in different types of blogs and books related to real estate business could be very helpful to understand the basic aspects of the real estate business.

  8. Corey Smith says:

    B, I could definitely pay off some loans, and invest that money back into the business to make more money .

  9. Kevin M. Walls says:

    Just starting out and receiving that amount is an incentive to do another deal. Building up your cash reserve will help in having more money to fund bigger deals and with each deal you gain experience and confidence. Knowledge is power, and the more you learn you will be in a position to go for bigger properties.

  10. Matt Marino says:

    I prefer to start out using Process B which would be controlling the deal and making money on assigning the contract to a qualified CRE investor. After a few transactions, then move to using Process A for cash flow, passive income, and potentially using the 1031 exchange to something else in the commercial market. Thanks for the vine and this great and informative session.

  11. I choose (A) have a yearly money flow.

  12. I would select option “B”. I will use that money to reinvest in another 1 or 2 deals.
    The third deal, I will hold for passive income.

  13. B
    Currently broke! Trying to recover from several adverse life situations – home foreclosure, bankruptcy, loss of six figure income position, divorce

    Very healthy, so I am planning to continue the fight
    Protégé program for me

  14. B
    Pay off student loans

  15. Nathaniel Brunson Jr says:


  16. Khanh Nguyen says:

    B-would like to have a lump sum to make more deals.

  17. Warren Fisher says:

    A on a large scale

  18. Option A

    I am in for the long haul

  19. Rebecca Jackson says:

    At this point in my life, I would pick B because I am focused on building capital so I can increase my wealth now, and eventually grow my retirement income later on.

  20. A. Looking at passive income for the end game.

  21. I would prefer A.
    Why? 1. Monthly income for peace of mind.
    2. Makes it easier to work on the next deal.
    3. Better tax position.
    4.Looks good to money lenders and finance companies.

  22. Harvey Richardson says:

    I choose B, I would repeat the process as often as feasably possible in a year’s time and quit my $45k a year job to focus on growth and expertise.

  23. Darrick says:

    I choose “B” (why be limited.)

  24. This is great data thank you soooo much

  25. Kevin M. Walls says:

    B right now to pay off some debts and to build up capital for down payments on future properties.

  26. Rashid Mitchell says:

    I have wonderful grand children so the $20,000 per year is something that could potentially grow if they are interested in following my footsteps. If not, then they will still have the cash flow to help them find out what it is they would like to do with their lives

  27. Lois Roberts says:

    I would prefer the capital so I can have some financial security to move forward; that way I would feel more secure to take that next step.

  28. Lois Roberts says:


  29. B. I would like be to make the 40k a few times and transition those resources to A assets in time

  30. A. Nest egg, passive income, early retirement.

  31. Theodore White says:

    I would prefer B I need to build creditably. I have a deal now for a six-unit and the seller asking 350,000. After submitting an LOI for 313,247 cap market 7%. Seller countered with $340,000 cap market 10% I plan on making another offer after talking to property managers to see what the market rents are for the area. Once I have an acceptable purchase price I plan too wholesale.

  32. GEORGE LENTUOR says:


  33. $20,000 a year cashflow. I’m 76 years old.

  34. Brian D Miller says:


  35. Sherman Elliott says:


  36. B because all growing important

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