Commercial Real Estate Investing For Dummies. Peter Harris

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Chapter 4

      Getting Started by Wholesaling

      IN THIS CHAPTER

      If you like the idea of owning commercial properties and are looking for an easy way to get started with commercial real estate, then you may want to consider wholesaling.

      Wholesaling is the process of finding a commercial property, getting it under contract at a great price, and then selling your position in the deal for a “wholesaling fee” where your buyer’s total price adds up to be a very good deal. This is a great way to get started because you’ll be sharpening the essential skills of finding and analyzing properties without having to actually purchase or manage anything.

      In this chapter you’ll discover how to get your foot in the door with commercial real estate by wholesaling properties. To wholesale commercial properties, you’re going to need to know how and where to find the right types of leads. We’ve got you covered. You’ll get to see how to analyze properties to see if the numbers make sense for a potential wholesale deal. One of the essential keys to wholesaling commercial real estate is getting the property under contract. We’ll explain why this is so important along with share some tips about contracts and agreements from the trenches. What comes next is getting clear on how to find the right buyer, followed by the essential steps to closing and getting paid for wholesaling a commercial property. Let’s get started with a story about you, in, let’s say, five or ten years from now.

Navigating Too Many Deals

      To get a handle on wholesaling, imagine that you’re the vice president in charge of acquisitions for a large commercial real estate investment fund. Your job is to sort through the hundreds of deals that your team of deal finders feed you each week from across the country. Your deal finders are experienced pros who know how to find motivated sellers, connect with them directly, and get signed purchase contracts at below market prices or with creative financing terms.

      What you’re going to do is to sort through the signed contracts you’ve been sent to separate out any deals that don’t fit your ideal requirements. Your fund has grown to where it only makes sense to do larger properties, so you put any signed contracts with less than 50 units into a folder on your computer labeled “Wholesale Deals.”

      Another quick sort through the remaining properties based on your current acquisition guidelines allows you to eliminate a few more properties that have greater than 20-percent vacancy, are located in a metropolitan area with less than 200,000 in population, or properties built before 1978 when lead-based paint was still in use.

      These properties are added to the others in the Wholesale Deals folder. Similar to a worker at the fruit packing plant, you’re sorting through the deals coming in to pull the ripest, juiciest, fruit off the conveyor belt because your fund “cherry picks” the best deals to ensure strong returns to its investors.

      Using your experience along with some software and automation, you’re then able to perform initial underwriting for each deal using industry averages and market rents from each area to provide you with the projected cash on cash return. The strongest deals, those with the least risk and the highest returns, stay on your desk. Everything else goes into the Wholesale Deals folder.

      This goes on throughout the week until Friday, when you open up the Wholesale Deals folder to take a look at everything in there. These are the deals that didn’t make the cut for your big investment fund, but you know there’s still some value here. Your job is to take these deals, which may be highly desirable to smaller investment companies or individual investors, and wholesale them off.

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