Wholesale commercial real estate is a lucrative business model in the United States. Investors who engage in this business make huge gains from it. In this line of business, an array of products are bought from wholesalers and resold. Wholesale real estate is an excellent option for people who have limited resources.
Wholesale commercial real estate requires hard work, diligence, and lots of patience. Also, you need to be able to promote real estate products online and offline. If you are interested in this line of business, be smart and don’t be greedy.
This guide will provide a detailed explanation of wholesale commercial real estate, its advantages and disadvantages, and how to make quick money from this line of business.
How to Wholesale Commercial Real Estate
To whole commercial real estate, you need to generate leads, check the property, and analyse it to know the best price to set for it before marketing the property. If you want to make good profits from commercial real estate wholesale, here are some tips:
The game of wholesale real estate only thrives when you generate enough leads. To do this, you must have a strong funnel. This funnel should be coming up with opportunities so that you can compare which one is best for you. To generate leads, here are some solutions:
- Networking closely with investors
- Attend real estate meetings.
- Research tax records to identify those with distressed properties.
- Send mail campaigns to people.
Visit the Property
You need to physically inspect the properties you wish to market. If you are new to the real estate business, you should find an inspector to help you out. This inspector is necessary so that you will not miss any obvious problems with the property.
Always do a Comparative Analysis
When in a wholesale commercial real estate business, comparable property analysis is recommended. This will help you know the best deals and how much markup you should add to the seller’s price. It will be a bad idea if you invest your time and money in unattractive deals.
Negotiate with the Seller
Sit down with the seller to draft a contract. This will help you get a favorable deal to make some money. Apart from the asking price, try renegotiating a longer due diligence and closing period. This will give you enough time to do your due diligence on the property.
Moreover, try to get extensions in the contract to prevent rush hour. It’s certainly advised to bring a qualified real estate attorney to look over the deal before signing.
Market the Property
After having put together a good contract with the seller and made a physical inspection of the property, send it to your potential buyers. Ensure you have an extensive email list of new investors with various investment properties. Try to follow up with these potential buyers with calls and regular emails.
Also, join local real estate meetings and post in several forums to seek buyers. Social media is a huge marketplace; take advantage of it.
Assign the Buyer’s Contract
Immediately after you find a buyer, present them with a contract. Try to collect a fee before they are given a contract. However, most buyers insist on paying fees only after the deal is closed. Unless you have some legal experience, when it comes to presenting contracts to customers, let a lawyer be present.
The Advantages of Wholesaling Commercial Real Estate
Individuals who are into wholesale commercial real estate enjoy some benefits. These benefits include:
You can start with a Limited Budget
As a commercial wholesaler, you don’t need much money to start this business. While you will need some cash to generate leads, there aren’t many. If there is also a need, you will make an earnest money deposit through marketing materials, surveys, and title searches. Outside of that, you don’t need much money to start this business.
Great Profit Potential
Unlike real estate agents, wholesalers don’t receive commissions. They make high profits from markups on properties. A good example is when a seller wants his property sold at $200,000, but it’s worth $300,000. A wholesale commercial real estate agent might pinch it for $250,000. When the property is eventually sold, a wholesaler makes $50,000 from one deal. However, for realtors, they might only make $3,500 from the commission.
This line of business, wholesale commercial real estate, isn’t common. With fewer competitors, you can make as much money as possible. Numerous investment companies are seeking the services of the wholesaler in their firm.
The Limitations of Wholesale Commercial Real Estate
While wholesaling commercial real estate comes with many benefits, it also comes with some cons. They are:
Finding Sellers is Difficult
Commercial real estate owners aren’t as visible as residential owners. You will mostly find the P.O. box address or meet only their lawyers. They aren’t individuals you can just see on white pages and call them.
An effective strategy to source funding for these people is direct mail; however, it comes with certain limitations. Commercial real estate owners don’t reply to all emails. You will need to do your research properly and find a way to convince them.
Finding Buyers is Complicated
When you are into wholesale real estate work, you need to get an extensive timeline under contract. However, many sellers are uncomfortable with this because it doesn’t favor them. However, as a wholesaler, without this timeline, you can’t find a favorable buyer.
In most cases, commercial deals take between 40 and 60 days and an extra 30 days to close. This is to avoid any problems and because a huge sum is involved. Due diligence is needed in this business, and you will need to find a way to convince the seller to give you more time.
It can be a Questionable Business
Several wholesalers are overboard and have questionable traits. Since a license isn’t required, there are no regulations or governing bodies. This allows for many unethical antics by players. As a wholesaler of commercial real estate, you will need to be as honest as possible and transparent in your dealings. Avoid taking advantage of people, because it will affect your reputation.
Mistakes to Avoid When Wholesaling Commercial Properties
For individuals interested in this kind of business, here are some things to avoid:
Neglecting Due Diligence
You should try to always figure out everything on the property you want to sell. Don’t allow the buyer to be the one who notices cracks or leaking roofs; it affects your credibility. Take your time to analyze the property, and always have an answer when the buyer asks.
Avoid Too Much Property Tax
Avoid being greedy when it comes to fixing markup costs on property. While making a profit is important, be fair in your dealings. You aren’t the only one selling commercial properties; if your price seems too high, buyers won’t patronize you. It’s better to make small profits regularly than to make no sales for a long time.
Lazy During Contract Negotiation
Try to be serious during negotiations to avoid the buyer pulling out of the deal. The only time you can relax is after getting paid for the deal. Ensure you always contact your buyer and listen to them until the deal is finalized.
The guide dealt extensively with how to wholesale commercial real estate deals. We have talked about how lucrative this business is and strategies to make you succeed. Like all businesses, it comes with its own benefits and drawbacks.
Understanding these will help you prepare better during deal negotiations. Also, ensure you avoid certain pitfalls mentioned above when in this business.