Beginners can make big money wholesaling commercial real estate with surprisingly little competition! Discover how to wholesale any type of commercial property, a 3 step process to wholesale your first commercial deal, and the 3 types of transactions that will make you the most money:
My Proteges have had great success wholesaling commercial property, transforming them from beginners to bona fide commercial real estate investors. Let me introduce you to Jeremy. As a former member of the military, he had no experience in commercial real estate. He used his first commercial deal, which was a wholesale deal, to completely pay off his student loans. Another participant in our Protégé Program named Anthony, also had no experience in real estate, but he had a burning desire to do commercial real estate. How did we help him? We started him with commercial wholesaling, and he made $10,000 on his first deal. So, can it be done? Of course!
Why Wholesale Commercial Real Estate?
Wholesaling solves a huge problem for a beginner commercial real estate investor. Often the biggest obstacle starting out is getting the money for a down payment. One of the things we do with our students in our Protégé Program is lead them through the wholesaling process so they can make money wholesaling deals. When they have saved up enough for a down payment then they can do their own deal. The primary reason to consider wholesaling as a beginner investor is if you lack the down payment.
How to Make Money Wholesaling as a Beginner
Simple Example Deal:
- 7-unit apartment building worth $500,000 that needs $25,000 in repairs.
- You get it under contract for $425,000 because the property needs repairs. So, you're sitting on it with $75,000 in equity.
- You find a buyer that purchases it for $450,000 and then you pocket the difference, which is $25,000.
This is a win-win scenario because you get $25,000 out of the deal and then your buyer makes money on the deal as well. They bought it for $450,000, put another $25,000 in repairs into it, and are now in it for $475,000 but it’s worth $500,000. The buyer has immediate equity in the deal. However, the questions remain: how do I generate leads and find a property? How do I get it under contract? And how do I find a buyer?
3 Step Process to Wholesaling Commercial Real Estate
Step #1: Generate Leads
Apartments are the best commercial properties to wholesale for several reasons:
- They're easy to analyze
- Are in high demand
- The supply is plentiful
- They're publicized as good investments
- Financing is more readily available for them compared to storage, office, retail, or industrial space
I recommend finding an apartment complex with between five and twenty units for two reasons. Number one, these owners are easier to deal with. And secondly, since the deals are smaller, they're easier to wholesale.
Direct to Owners
We spend a lot of money and resources finding ways to contact owners directly. When looking for deals to wholesale, we bypass the agent and go direct to the owners. This way we can learn owners’ motivations and create better deals. To generate these leads, we do a lot of networking. During a pandemic, you can't network, but social networking has really picked as a way to connect using Craigslist, REI clubs, anything to get deals coming to you.
Off Market Deals
These deals must be off market. Wholesaling a deal that's on the MLS makes no sense. Imagine bringing a deal to your buyer and they search it and find it's on the MLS. Why would they need you if they can find the deal themselves? The buyers want something off market.
Step #2: Get Good Deals Under Contract
If you’re not licensed, for a wholesale transaction to be legal it needs to be under contract. You must get the property under contract and then you can legally assign the contract to a buyer and receive money at closing. Some states prohibit wholesaling, so look up the legalities of wholesaling in your state. But for most states in the US, it is perfectly legal, however you must have it under contract to get paid. No bird dog fees; don’t do that or you're breaking the law.
Another important aspect of the contract is it must have a clause that says it is assignable. Be careful, because some contracts will say, "This contract is not assignable." Make sure it is.
Step #3: Finding Buyers and Closing the Deal
Qualify the Buyer
Before I cover how to find a buyer, I want to make sure you understand something crucial to your success as a wholesaler. You must qualify the buyer. Just because a buyer finds your deal and wants to buy it from you, doesn't mean that they can actually perform. They could ruin your deal and ruin your reputation if you don't vet him or her correctly. So, make sure you understand what their needs are. Ensure they can perform, meaning that they have spoken to a bank and have approval to buy the property. And make sure they have the money. If you don't do these things, you could have egg on your face. You must qualify the buyer.
Finding a Buyer
These days, many of our students are finding their buyers on Facebook groups all over the United States. They're joining Facebook groups, posting deals, creating relationships, and finding buyers there. You can also use the real estate investment club forums which have grown online because of the pandemic. In fact, activity online has exploded and a lot of deals are getting done now online because you can't meet in person. So, no excuse for not finding a buyer online, because they're everywhere. You just have to qualify them.
The Ideal Commercial Wholesale Deal
What is the ideal deal and what types of wholesale deals can create the most money? These are 3 key aspects to creating a deal your buyer will be eager to buy.
1. Priced Under Market
You want to get a deal under contract that's priced under market because it will create built-in equity for your buyer on day one. So, if the property is worth $500,000, and you get it under contract for $450,000 your buyers will be elated because when they buy the deal, they immediately have built-in equity. If you offer up deals priced under market, you'll become a very popular wholesaler.
2. Rent Upside Potential
It is important you find a deal where the rents can be increased. I know I sound like a broken record, but in nearly all my videos I preach how important is in commercial real estate to get the rents up, because once the rents go up, the NOI goes up, and the result is increased property value. So, the reason to find a deal where the rents could be increased is because their property value will increase. Buyers love these types of deals. A lot of them can't create it, but our students can, and so can you.
3. In a Good Neighborhood
Isn't this a no-brainer? Why would you bring a deal with good numbers, but in a horrible neighborhood? This is just common sense. You want to bring a deal that’s in a good neighborhood because you can't overcome the bad neighborhood by giving them a lower price. Don't do it. It's going to harm your reputation. You want the reputation of bringing deals that are in a good neighborhood, priced under market, and that have rent upside potential so they can increase their property value.
Getting Started as a Beginner Wholesaler
You need 5 things as a beginner to get started wholesaling commercial real estate:
- Cell phone
- Specialized knowledge: take advantage of all our teaching and sign up for our online course here: Commercial Real Estate Investing for Beginners. I encourage you to watch the testimonial videos of both Jeremy and Anthony. In How to Pay Off Student Loans in 3 Months, Jeremy tells the story of how he paid off his loans with one wholesale commercial deal. And secondly, in the video How to Make $10,000 in CRE Without Down Payments, Loans or License, Anthony, who was very young living with his parents and having little money, wholesaled his first commercial deal and made $10,000.
- Be Persistent: the one thing you need to be successful in commercial real estate is persistence. It's not an easy business. If it were, everyone would be doing it, but if you stick with it, it can be lucrative and lifechanging.
- Start by doing: do what's necessary, then do what's possible, then suddenly you will find that you are doing the impossible wholesaling your first commercial deal as a beginner.