through another analysis, which eliminates any properties that are too risky or have low returns that would make them unattractive to an investor or buyer. Because these don’t make sense for any buyer to move ahead, the contracts on these will be cancelled (which is allowed during the due diligence period).
Make sure that any properties you plan to wholesale have “some meat left on the bone.” If you discover that your purchase price is so high that after adding your fee an investor won’t have any room left to profit, then drop out of the deal so you’re not tying up a seller’s property, which isn’t going to work as a wholesale deal. The remaining deals are divided into two subfolders: One folder (the very best deals) is for your VIP buyers, while the other (still very good deals) is for the public.
The very best of these are initially emailed out to your VIP buyers list, people whom you know and have done business with previously. After three or four days, your buyers have scooped up most of these. Anything that’s left is added to the properties in the other subfolder, which you then market as wholesale opportunities to the public.
Since you probably don’t work for a big investment fund, here’s how to use this same concept: Get commercial properties under contact and then wholesale them to other investors. You may have heard of investors wholesaling single family homes to an end buyer to make money. Figure 4-1 illustrates this process.
FIGURE 4-1: The Commercial Wholesaling Process.
Wholesaling Apartment Buildings
You can do the same thing with any type of commercial property, but we’re going to suggest you start off wholesaling apartment buildings. You’ll have two distinct advantages over investors who wholesale single family houses.
First, commercial real estate has less competition compared to single family home investing.
Second, you can make substantially more money because commercial transactions and prices are so much larger than single family homes.
Getting started without very much money
What if you are starting out with very little money, but you have a burning desire to get started in commercial real estate? To keep it interesting, let’s also say that you have no experience. Can you still wholesale a commercial property? The answer, of course, is yes.
The key to wholesaling is understanding which types of properties will provide you with the biggest pool of buyers. Your best buyers are going to be newer investors who are hungry to get into property. Because of this, it’s important to focus on the following types of leads, property sizes and type.
Off market properties: dealing directly with the owner. (Note that this is a strong preference, not a hard and fast rule. While you can wholesale a deal with a broker involved, it’s much harder to do.)A $16,000 CASE STUDYLet me introduce you to our Commercial Mentoring client Bryon. He didn’t have any experience with commercial real estate whatsoever. He’s a former corporate guy who quit his six-figure job cold turkey to jump right into investing in houses. After making money with lease-option deals for about six months, he decided to try out commercial.Byron offset his lack of commercial experience with motivation. We got him started with commercial wholesaling where he made $16,000 on his very first deal.
Class C apartment buildings: where the highest returns are found which means you’ll have more potential buyers.
5 to 50 units: smaller deals where you’re not competing with the stronger, well capitalized investment firms.
So why would anyone want to wholesale commercial real estate? Well, the simple answer is it solves a huge problem. As a beginning commercial real estate investor, it’s not uncommon to face a big obstacle — you don't have the down payment.
A Wholesaling Example
Here’s an example of how to make money wholesaling a commercial property. You’ve found a twelve-unit apartment building, worth $1,000,000 that needs $50,000 in repairs. You’re able to get it under contract for $850,000. This is due to a number of reasons, one of which is that the seller is motivated to sell quickly but also because the property needs repairs.
Making sure you have equity
You’re in it for $850,00, and after accounting for the $50,000 in repairs that are needed, you have $100,000 in equity in the property. This is critical to wholesaling a deal.
| Your Price | $850,000 |
| Repairs | $50,000 |
| Your Equity | $100,000 |
| Value | $1,000,000 |
Understanding why buyers will pay your wholesaling fee
So, you find a buyer who purchases it from you for $900,000. And then you pocket the difference of $50,000. Notice that this is a win for everyone. The seller gets their property sold at a price they were comfortable with. Your buyer gets a commercial property that’s worth $1,000,000 for $900,000, and they put another $50,000 into fixing it up so they are thrilled with the deal and have $50,000 in equity from day one.
Getting Started: The Five Steps
If you’re trying to accomplish something new, it’s easy to fall into the trap of thinking it’s too complicated or too hard to do. The secret is to break each new challenge down into smaller step by step chunks. A great example of this was when co-author Peter Conti decided to heal his injured leg by hiking the Appalachian Trail. It seemed impossible, yet by breaking it down into steps he surprised everyone. Pick up a copy of his book, Only When I Step On It to read his inspiring story.
Generate leads of potential properties. This is going to be the raw data that feeds your commercial real
