Wholesaling Commercial Property

10 Replies

I have a plan that I want analyzed for finding Commercial Investors good deals and me getting the assignment or wholesale fee.

1. Get list of recent cash buyers of commercial property

2. Market to them about how I can benefit them. Get them to contact me.

3. When they contact me I find out exactly what they are looking to buy.

4. I use every marketing tool possible on a daily to find exactly what they want.

5. Talk to sellers and brokers. Analyze the deals.

6. Make offers that create a CURRENT AS IS property value profit of at least 20%. In other words offers made on value of property as it stands today not on pro forma numbers.

6a. Make offers based on what my buyers say they want to pay

7. Get offers accepted

8. Present offers to clients

 9. Close

Based on the real world what are the flaws in my plan? What are the major hurdles I need to cross or have not considered? Is there a better way to accomplish the same things?

Thank you for allowing me to participate.

Jeff

Commercial sellers are more sophisticated so will be very hard for you to tie up their property for any length of time. If you do tie it up they will want big earnest money. 

First I want to thank you for responding to my post. Yes that is the biggest obstacle I see also. For instance say I 

1. Find an active and hungry cash buyers that gives me very specific instructions as to what they want.

2. I find a property that fits their needs and then negotiate to make that deal even better for them

3. The seller agrees verbally but wants $50,000 earnest giving me 60 days due diligence and 30 days to close

Do I 

a. Give that information to the cash buyer and let him put up the $50,000 earnest do the due diligence close in the property and trust he gives me the assignment fee in lieu of getting more deals

b. Get a partner or private lender to put up $50000 locking up deal then presenting to cash buyers . This would really be a no risk loan because if the buyer likes the deal I would require he also put up a deposit higher than mine and for a shorter time period. If he buys I pay back loan. If I can't find buyer I don't go thru with deal and pay loan back.

You absolutely raise the biggest concern. Is there a way to fix the problem?

What kind of commercial property? The thing is, there are too too many variable in commercial that would make wholesaling pretty complicated.

I see a couple of concerns here but I am operating under the assumption that you are comparing commercial wholesaling to residential. These are not the same thing for a couple of reasons: As stated above commercial owners are typically far more sophisticated than most residential owners. They don't typically put themselves in a tough spot and need to be bailed out. One thing that may happen is they find a great deal they want to get in to and need to access cash from a property they own. In that case they can and will call any commercial broker and have a deal that day meaning that there is not meat on the bone for a wholesaler to insert themselves. The second is that the sales cycle for commercial deals is much longer than residential. If you could find a deal and get the seller to let you tie up the property for 60 days (doubtful) you wouldn't have enough time to get the deal done on the other side. All that said, if you are finding deals then a more appropriate approach might be to go find the money and put together a private placement group, then find the deal but stay in. There aren't really "flips" on the commercial side, but let's say you found a piece of commercial land at a discount you could buy the land with the investors money, put the land in as a JV with a developer (the land would be your equity) then you'd pay the investors their money and take yours when the JV exited the deal.

Thank you so much for your great replies. The reason I put the question out there is because I saw a bootcamp by a Cherif Medawar and another by Sue Nelson and they spoke of assigning contracts. Maybe that is a Better word than wholesaling assignment.Here is the scenerio:

1. I find. Property not being used to its highest and best use.

2. I know of national tenants or at least very credible tenants who would like a space like this one.

3. I show the potential tenants the property and they love it 

4. They give me a letter of intent with terms that drastically increase the value of the property 

Note: As I am sure you guys are aware there is a list of every national retailers wants and requirements for a lease space as well as direct contact information 

5. I get property under contract for current value 

6. I assign that contract to a buyer able to fund the transaction at a profit to myself

7. The end buyer puts the new tenant in the property at a higher and best use thereby realizing a very good long term profit 

That is the idea as I understand it. 

Of course I don't know if that could be reality because I have never done that or even tried it. That is why I am putting it out there to be discussed.

Sounds like a good plan which can potentially be very profitable. One thing to take into account is that most cash investors are looking for very good deals of at least 30% off of market value.  For you to add yourself to the equation, you will need to acquire properties at probably more than 50% less than conservative market value.  Not impossible, but very difficult.  To achieve that type of a discount you'll likely need to be dealing with some extremely motivated owners or you'll need to see some hidden potential that the current owner is completely unaware of.  

Almost seems like it might just be worth it to be a real estate broker and earn 5% commission selling properties at full market value....?

thank you for your response... I also thought the idea had potential... Commerce brokers actually make a much lower commission the higher the price of the sale

My thought was also, just get a real estate license and get into commercial brokerage if you're interested in commercial.

Very few buyers have the ability nor desire even if they have the ability to purchase in cash.   You would be essentially have a clientele of ultra high net worth, family offices, and institutional buyers.  So on the buyer side, you are dealing with sophisticated people.

As mentioned by others, on the seller side, you're dealing with sophisticated people.  They aren't going let you tie up property so that you can show it to national tenants, nor are they going to let you have it for a discount of 20-50%

The properties that attract credit worth national tenants are not the type that will require a wholesaler.  The dilapidated and distressed properties may hear offers from a wholesaler, but those are the class C and D properties that do not attract cash buyers and investors.  

I could go on.  It's great to think about this and think about possibilities.  But essentially everything you just listed you can do as a commercial real estate broker, and do so more "legitimately".  

@Jeffrey Walker a couple of points to consider...

1) lease negotiations on commercial take considerably longer than residential so be prepared for contracts needing to be extended, etc. whoever you wholesale to likely isn't going to go hard on their money until contingencies (firm leases) are in place.

2) I think you strategy can work well on lower end and smaller commercial. Anything that is owned by folks who aren't exclusively in the business of commercial real estate. Small automotive shops, vacant former owner occupied offices or warehouses.

Also, If you come across good deals then don't rely on cash buyers. Just look at anyone who owns similar real estate. Commercial investors have ready access to lenders or mortgage brokers like myself who can get them multi million dollar bridge loans that close in days or weeks. Once your buyer stabilizes the property then they can get traditional financing but you won't have to worry about that part of it.

@Jeffrey Walker I know this post is now a year old.

 Have you had any luck with finding a national tenant to sign a lease from you? 

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