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  • Writer's pictureMichael Reyes

How to Wholesale Commercial Real Estate?

Wholesale commercial real estate has changed the investment scenario in the real estate world. Investors can make large amounts of profits using this strategy. What happens here is that retailers purchase real estate products from wholesalers. Then, they resell those properties to the buyers to make more money. It is an attractive option, especially for people who eagerly want to go into the field of real estate but have less money. Now the question arises: How to wholesale commercial real estate? Is it profitable? Here, we will find out the answers to such questions and know all about this real estate option. Let’s get started. 

 

What Is Wholesaling Commercial Real Estate?

Wholesale commercial real estate is a short-term business strategy where real estate wholesalers sign an agreement with the property seller. The contract includes information on the wholesaler’s selling price and the specified period within which they have to sell the property. 


Wholesale commercial real estate

 

Why Wholesale Commercial Real Estate?

Several reasons make wholesaling commercial real estate a fascinating option. Some of them are – 

 

Commercial real estate offers huge returns for wholesale real estate deals as compared to residential wholesale deals. 

 

America has a huge market of commercial real estate properties valued at millions of dollars. And this figure increases by 10-12% every year. Profits in one commercial deal can massively be equivalent to 5-10 residential deals. However, the opportunities in commercial markets are comparatively less than in residential markets due to fewer number of commercial properties. 

 

You can treat wholesale commercial real estate as your ultimate ticket to financial freedom. 

 

Wholesaling provides an easy way out for a quick exit to commercial real estate investors. 

How to Wholesale Commercial Real Estate?

Steps to follow to complete a wholesale commercial real estate deal are – 

 

Find leads

The first step towards success in the world of wholesale commercial real estate is to build a wide and strong network that includes brokers, sellers, buyers, and commercial real estate agents. The more connections you establish, the brighter the chances of getting the right deals. Market research is the pathway to fuel the process of finding more leads. Always look for motivated or distressed sellers who eagerly want to sell off the assets as they are more interested in striking a good wholesale commercial real estate deal. 

 

Property inspection 

Before finalizing the deal, conduct a property inspection to assess its condition and understand its potential. There are two ways of conducting the inspection. The first one is by yourself, and the second one is that you can also hire a professional. Property inspection adds credibility to your presentation while presenting the property to potential buyers. This further helps not only in the negotiation part but also in determining the worth of the property in the current market.  

 

Identify the property owner

Wholesaling commercial properties requires identifying the property owner, which you can do by sending a letter or making a phone call. Research online about the owner. If you are unable to gather any information, you can ask the neighbors or call the county clerk to find out if they know about the owner. The local building department can also help you in this case. 

 

Analyze the requirements of the property innovation 

Evaluate the renovation requirements of the property by looking at its physical condition and estimate how much it will cost. Investors must know the value and potential benefits of a particular property before investing their money in it. 

 

Negotiate a contract

The cornerstone of wholesaling comes in this step – negotiation. The contract should include the right to assign the deal to another buyer. The financing part includes the contract deposit and any due diligence expenses. Also, ensure that the contract has answered all your questions regarding the property before signing it. Now, you are ready to finalize the deal. 

 

Steps to Find Wholesale Commercial Real Estate For Sale

The wholesaling aspect of real estate is pretty simple once you come across the right property. But the real hustle is finding the right one. Get the ball rolling with some suggestions to find wholesale commercial real estate for sale

 

Keep networking

Keep networking 24/7 to never miss an opportunity to connect buyers and sellers. Have a large pool of contacts, including lenders, brokers, and property managers, to crack the best deal. 

 

Cold calling

You cannot deny the power of cold calling or cold emailing. It demands effort. But if you reach out to the right people or the right prospective sellers and initiate a smooth talk, you are going to get a large number of deals.

 

Web browsing

Millions of websites run on the internet. You can find some reliable sites and treat them as good sources of on-market properties. Make your habit of spending a couple of hours every day browsing these websites. Who knows when you will strike an attractive offer?

 

How to Calculate the MAO of Wholesale Real Estate?

MAO is the Maximum Allowable Offer, which means the highest price an investor is willing to pay for a property before losing money in a deal. Typically, the 70% rule is used for the MAO calculation method. It states that a buyer should pay less than 70% of a home’s after-repair value (ARV) minus the cost of repairs. In cases where ARV is high, like more than 250,000 US Dollars, investors may choose to lower the percentage to 75%. Generally, land investors deal with properties that have much lower market values. So, the rule can be altered and lowered to as little as 10-30%. 

 

The MAO formula is: (ARV x 0.7) – RE – CC, where RE implies the Repair estimate and CC is the closing cost. 


MAO of Wholesale Real Estate

Advantages and Disadvantages of Commercial Real Estate Wholesaling

 

Pros

Higher profits

Wholesalers are told to set their prices for the properties rather than participate in commission-based sales. For instance – suppose the asking price of a property is 1,50,000 and its market value is 200000 US Dollars. A wholesaler may offer this site to investors for 1,75,000 USD. It will help the wholesaler make a gross profit of 25,000 US Dollars. Similarly, the project is saved from going to the market, and hence, the buyer will save money. Thus, both parties are experiencing profit with the deal, and the profit margins are much higher. 

 

Less money to pay out of your pocket

A wholesaler isn’t required to invest a lot of money out of his pocket as he would have in the case of purchasing the property. You will have to pay some amount for getting the leads, making an earnest money deposit, or any expense you believe can make the selling process faster or easier. Except that, you will have less responsibilities. 

 

Disadvantages

 

More competition 

As there are lots of opportunities in this field, hence comes more competition. Staying sharp is the key to getting your hands on those handful of opportunities, as there will be millions of investors fighting for the same. 

 

More red tape

As the world of commercial wholesale real estate includes bigger players, large property sizes, and loan sizes, red tape is bound to be in the show. You need to know the state laws, wholesaling laws, and regulations before thinking of entering this market. 


 

Common Mistakes To Avoid When Wholesaling Commercial Property

What are the typical mistakes that wholesaling beginners and professionals are more likely to make throughout the process? Let’s find out.

 

Overvaluing the property 

You have to find the property in a good location. If this is the only reason you are investing your time and effort in it, reconsider your decision. Determine the property’s value using comparable sales analysis. But don’t forget that it can also sometimes go wrong. So, pay attention to every aspect and ensure everything goes seamlessly. 

 

Spending too much of your precious time on dead lead

If you are an active wholesaler, you will be evaluating hundreds of potential deals every month. In this case, you sometimes end up spending too much time on a broken lead that might not materialize in the future. Remember that time is money. So, spend it wisely on the deals that are more likely to materialize into a profitable sale in the future. Wasting your time on dead leads won’t give you anything.  

 

Conclusion

As discussed, commercial real estate is a phenomenal way to earn large amounts of money if you want to enter the world of real estate. The above guide can become your light to become a successful commercial real estate wholesaler. And if you still face challenges in managing the properties or any aspect of real estate, I am here to keep all your worries at bay. Contact me for information, and let’s strike the best deal for you.


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