I have been involved in wholesaling for several years now. Have had some good and bad experiences. The competition for residential wholesale deals at true wholesale prices at times has frustrated me.
Is anyone doing commercial wholesale investing with apartment complexes?
What are the pros/cons? what are some of the techniques your are using?
@Gerald Harris I haven't done apt wholesaling but I have worked with a couple. From my experience it's pretty darn difficult to pull it off with apts because of the due diligence time frame required and the leads, at least from the wholesalers who sent me stuff, don't seem as credible compared to my experience with the single-family wholesalers.
I was looking into it as i know the return could be greater than your average single family home. The issue is you are dealing with seasoned real estate investors from a commercial perspective. But if they have poor management skills I do see an opportunity.
I'm buying commercial and multifamily, but not always at wholesale prices. I pursue these properties through direct mail campaign. I have access, through my title company relationship, to obtain the information for my letter campaign. I target 5+ multifamily units and commercial buildings in the greater west Los Angeles and Ventura County areas. If you live in a larger metro area, you may want to filter the list more. I personally sign the letter in blue ink and handwrite their name and address on the envelope to make it look more personalized.
I'm going to generalize the pros and cons of this sector because there's so much more that can go into each pro or con I cover. I'm sure you'll get the idea of the impact this type of investment can catapult your business.
Pros 1. Scales of economy: Fore example, if you have a 20 unit apartment building, you have 20 units paying you rent and only have to worry about one roof, one plumbing system, and one electrical system. This decreases your expenses per unit, and when managed efficiently, gives you higher return per unit. If one or two tenants vacate, you still have the other tenants paying you rent and helping you pay down that mortgage while you get the vacant unit(s) ready for occupancy at increased market rate. When it comes to retail, office, and warehouse, you're dealing with square footage, and increasing rents 10 cents per square foot can dramatically increase the value of a commercial property.
Pros 2. Forced appreciation: You can also off-set your expenses onto the tenants to decrease your expenses more, which in-turn, increase your Net Operating Income, and ultimately increase the value of the property. With retail, office, industrial, you can have tenants pay their portion of the taxes, insurance, utilities, and maintenance based on each tenants percentage of square footage they occupy.
Pros 3. Value-add opportunities like vacancies, deferred maintenance, and mismanagement: These are opportunities to acquire these properties at wholesale prices. For example, if you're looking at a property that is 50% occupied, then you should be offering 50% of the stabilized value, giving you a 50% upside.
Cons 1. Tenants and vacancies: You're going to see more vacancies than if you had a SFR. You may have problem tenants, but if you screen your tenants thoroughly or can afford a property management company to do it efficiently, you should have less tenant and vacancy problems.
Cons 2. Escrow is more expensive: Your fees for closing on these properties can easily be more than $10,000, but if you can get a property Subject-to the existing financing (take over mortgage payments) or Wrap-around seller financing, then that will decrease your out of pocket expenses drastically.
Cons 3. In some cases, these types of properties require higher down payment, & you definitely have to have reserves, just in case sh*t happens.
I'm sure there are other pros and cons that I didn't cover. I hope what I generally covered was helpful. Good luck!
Tim Soto, RealCap | [email protected] | 805‑794‑9433
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