out of this, of course, and no, the broker can’t pay you a fee unless you’re also a licensed real estate broker.
Put your reputation ahead of making money
Another option might be to accept a lower wholesaling fee or even no fee just to get the deal done and help out the property owner. We know that this isn’t very exciting or fun to hear. Why would you put all that effort into a deal and not make anything on it? The reason is that the most valuable thing you’ll have as a commercial real estate investor is your reputation. By keeping your promise to a seller without making a fee, you’ll have people talking about you for years. We don’t want the deal to turn out this way of course.
Ideally, your plan B would be to develop the ability to come up with the funding yourself as a backup to wholesaling the property to a buyer. “But, Peter(s),” We can hear you saying now, “I’m new at this and don’t have a lot of money. How can I have a plan B to get the funding and close on a deal if I’m just getting started?” The big picture answer to this is that great deals attract money. We’ve taken brand-new mentees who didn’t even have money on hand to make the down payment and helped them line up investors who provided the capital they needed to buy and fix up multi-unit properties.
FINDING BUYERS
Most of the investors that are successfully finding buyers for their deals are getting great traction with multi-unit investing groups on social media, like Facebook. They're posting information about their deals and using social media to create relationships and find buyers. Another online resource is the REIA or Real Estate Investment Club forums. As a result of the changes caused by the COVID-19 pandemic, many of these groups now have online components. You can now socially network and find buyers online. Because of this, a lot of deals are now getting done online. This is not only easier and faster than going to meetings in person, but it also opens up your ability to invest virtually anywhere across the country.
Identifying what a good deal looks like
What makes a wholesale deal “good”? A good deal is one that makes your buyer eager to buy and earns you a lot of money. Ideally, you’d get it under contract below the market or actual value for the property. (We’ve mentioned this before, but it’s worth repeating!) You need to get the property under contract at a price that’s low enough so that there’s built-in equity for your buyer from day one.
So, if the property is worth $1,200,000, and you get it under contract for $1,000,000, you can assign your contract for $80,000 or $100,000, and your buyers will love you because when they buy the deal, they walk in day one with built-in equity of at least $100,000. You'll become their favorite wholesaler.
On top of this, you’ll walk away with an $80,000 profit without having to actually own, fixup or manage anything! That’s why wholesaling can be a great way to get started investing in commercial real estate.
Snagging a Good Deal from Lazy Landlords
Good deals are deals that make you money with less to no hassle, right? So, if you can find a property where the landlord hasn’t been paying attention to the market or just hasn’t bothered to raise the rent, you can get the property under contract, raise the rents, and reap the benefits.
These types of properties are known as lazy landlord properties. This is one big advantage of working the Branch One side of commercial properties. Once a property is listed with a broker, (we call these Branch Two properties) it’s likely the broker will let the owner know the rents are below market. Once this happens, you’ve lost most of your ability to base your purchase price on the (lower) current rental amounts. Every time we do a rent survey, I’m pleasantly surprised to find that there’s still owners out there who don’t bother to keep their rents up at market rates.
Some of them just don’t know they could be getting more. We’re sure some of them simply don’t care. It’s easier for them to keep the rents low so they don’t ever have to deal with any turnover. As we just mentioned, after a broker gets a listing, they will either encourage a lazy landlord to increase the rents, or they’ll price the property based on proforma rents. “Just raise the rents and this will be worth what we’re asking for it,” Is what we’ve heard hundreds of times.
Choosing the right neighborhoods
The ideal property to wholesale will be in a decent neighborhood. You don’t want to bring your buyers properties with wonderful looking numbers that are located in an undesirable area. These days it’s very easy to check the crime statistics online to see if the property is located in a dangerous neighborhood. A property in a place with high crime rate is going to be difficult for almost anyone to operate effectively, so don't do it.
You want to be known as the person who provides contracts on decent properties in good areas, not the one who gets horrible properties under contract to pass along to your buyers. You don't want that reputation, so remember to look for good neighborhoods, and make sure you have it under contract either below the current or the proforma value. This way, you have value that you’re providing to your buyers, and they will become easier and easier for you to work with as they get to know and trust that you’re leaving enough money on the table for them.
Acquiring the Tools of the Trade
Here’s what you need to get started wholesaling commercial real estate. It's a simple way for anyone, regardless of their background or experience to get their foot in the door with commercial real estate.
A versatile laptop. You’ll use it to access Facebook groups, online forums, and send emails. Some investors prefer to use a tablet or even just their cell phone for these tasks.
A reliable cell phone (with a decent headset). You can get by without the headset, but headphones make it easier to talk on the phone while you’re out walking, exercising, or taking your kids to school.
Specialized knowledge. You’re getting a great start by reading this book.
Let’s answer a question that we hear a lot: What can I do to make sure I'm successful in commercial real estate? The answer is to get as much specialized knowledge as you can. Take some time to write out your goals along with an actual description of what you’re going to experience can be very powerful. Make sure to list out what it’s going to be like when you have a big commercial property. Include everything you’ll see, hear, and feel as you walk up to your building, your big apartment building. Take a moment each night right before you go to sleep to read through
