Can someone please tell me some of the differences between wholesaling residential VS. commercial? Thanks in advance!
I haven't done any wholesaling myself but one difference that I can think of is just number of available buyers. There are more people in the residential game than commercial so there are more potential buyers on the residential side.
The Valuation method is different in commercial you are looking at cash-flow analysis to create your value number. Instead of looking at comps, and arv to make the deal favorable. In commercial many people will try to fudge the Cashflow numbers so get really comfortable looking at spreadsheets. I personally think that commercial takes a significant more amount of research to gather all the factors for a deal to become possible.
The difference is you will be dealing with people like me and other owners and brokers that are very astute and smart.
They will not let you lock up a property for peanuts like in residential dealing with home sellers and small time investors with little experience.
We see through that in a matter of seconds. We have sheets for screening the potential worth of a buyer and if they are directly qualified to purchase the property.
Now having said that I am in the larger commercial space. If you went after junker commercial properties with more mom and pop type stuff for under 500,000 etc. you might run into more unsophisticated investor owners who you can get the contract locked up.
There are a lot of buyers in commercial. The residential investors do not typically have the network to find the commercial buyers as they do not work in that space daily like I do and my colleagues.
I hear this on the forums all day long about buyers are harder to find in commercial and it's simply not true If you have a deal. Just like anything building up a quality network of buyers takes years and years and people are not going to share those lists as they are worth a lot of money to transacting deals and guarded relationships.
I agree with Joel here. Their are REITs and networks of investors looking to buy cash-flow positive commercial properties at all times. Just depends on the network and your appetite for risk.
I think the primary difference is that in Commercial properties, lenders are more interested in the Cash flow and potential upside when deciding to finance and not little emphasis on buyers individual credit worthiness or cash in bank. ( Don't get me wrong, he/she still needs to show 30% down payment but that is not necessarily his/her personal income).
Flip that to the residential side - Owner credit worthiness is the most important criteria and the residential asset is secondary. If you are able to get a million $ property for 600K, bank is not going to lend if you do not have the 120K ( 20%) in bank.
On the sell side again, you could have a really great commercial asset in a not so great location and you can expect top $if you want to sell. Residential on the other hand is tied to the location and if the location is depressed, your home price will be depressed as well.
This is the basic difference. If you get this, then you can talk about advanced concepts like Tax advantages, Depreciation, etc.
Hope this helps.
thank you everyone for your input!!
Its the same concept! Find undervalue properties and buy it at a wholesale price. Assign or sell the option to a capable buyer, and make a profit.
On the commercial side, you will have to do more homework, and your upfront cost are more.
Residential cost, excluding marketing $0-$1000 for earnest money deposits
Commerical would be $30k to several million depending on the building size, for appraisal, studies, lawyers, and opening escrow.
On a straight wholesaling business model:
1. Houses = lots of deals + lots of buyers = quick closings = quicker money
2. Commercial = less leads + more "sophisticated" buyers and sellers + numbers are bigger + longer to analyze so people move slower + inspections cost more = slower decisions and less closings per year.
3. Just by this very basic assessment, picking from the two, focusing on flipping contracts on houses + long-term buy and holds on commercial, makes the most sense. My .02.
Originally posted by @Sinine T. :
thank you everyone for your input!!
The dollars to play in the commercial arena are usually much higher than in res. I am working with an investor who just put a 7 figure property under contract. He is considering flipping it and had to put down a high 5 figure EM deposit.
@Sinine T. The differences: in commercial deals you make bigger assignment fees and have more sophisticated clients who are more logical and easier to deal with. You also have less competition since most other wholesalers are going after the residential stuff.
Don't let the bigger numbers and higher sophistication of the players scare you. All you need is one solid buyer to get started. You find the deal and let them worry about the money side. Yes, it's true the closing time frame may be longer, but the checks are bigger too. Go for it, you'll learn more in doing one deal than you could any other way, so just try it :D
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@Sinine T. Okay awesome :D Keep us posted. Happy to help if you have specific questions.
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