Commercial real estate and residential real estate are vastly different from one another. But, there are certain similar investment strategies that they carry from one another. One such strategy is wholesaling! You read that right; you can wholesale commercial properties.
The process and details are a bit different. That is why; commercial real estate Austin brings you this guide to know more about wholesaling commercial real estate properties.
What is Wholesaling Commercial Real Estate?
It is a real estate investment strategy wherein the wholesaler finds commercial properties in distress. They then place that property under contract and flip it for profit to another investor. So, the wholesaler doesn’t buy the property or invest any capital into the project, outside of the earnest money required in the contract. That can be negotiated out sometimes. In simpler terms, wholesalers act as middlemen for real estate investments. They connect the buyers with the sellers by charging a fee.
Advantages of wholesaling commercial real estate
Wholesaling has some compelling advantages for anyone who wishes to step into the game.
Here are some of the biggest ones –
Little to no money out of your pocket:
As a wholesaler, you will not have to come out of your pocket that much as compared to if you were buying the property. Of course, you will have to pay to generate the leads, which we’ll discuss ahead.
You need to pay for the earnest money deposit if there is one. Any due diligence that you feel will help you sell the property easily. Example – Surveys, Marketing materials, title searches, and so on.
Other than that, you have very little responsibility.
Wholesalers don’t get involved in commissions – they create their markups on the properties.
If a seller is willing to take $100,000 for his property, but the net worth is $140,000 on the market, the wholesaler may pitch this to their investor for $125,000. The end buyer will save money by the project not going to the market and so they will be motivated to move quickly and the wholesaler will get a gross profit of $25,000.
Wholesaling commercial properties is not a very common practice. There surely are certain reasons for that. With fewer competitors in the market, there is a whole wide-open blue ocean for you if you wish to dive in.
There are plenty of investment groups out there looking for the next deal. But, you as a wholesaler need not worry about competing at all – you’re working with them.
Disadvantages of Wholesaling commercial real estate
While wholesaling has its advantages, it also has certain disadvantages.
Here are some of the potential disadvantages of wholesaling –
Sourcing sellers is a difficult task
Commercial real estate owners are often hidden behind the entities with PO Box addresses or fated by an attorney. This makes it difficult to find out the true owner. You cannot just pick up the white pages and start-up calling them. Direct emailing is one such effective way, but even that does not get the response.
Many investors in commercial real estate are sophisticated. So, you will have to figure out how to find them and craft out your pitch as to why they should work with you on the deal.
Sourcing buyers can be difficult too
When you are wholesaling a commercial real estate contract, you’ve got to get a longer timeline contract. Most sellers don’t want to do that. Without this longer timeline contract, you will be facing difficulty in finding a buyer who is willing to take on the project.
Generally, most commercial deals need around 45 to 60 days of due research and around a month to close. Development however has even longer timelines.
Austin commercial real estate is very dynamic. There are a lot of things that need to be done to determine if the project is viable or not. The deal needs to be teed up already or you will have to go through a due diligence process on behalf of your future buyer.
Wholesaling is questionable
The majority of wholesalers are above board. A few however have garnered the practice quite a negative reputation. Because the wholesalers are not required to have a license, they are not governed by the real estate commission or any other governing body. So, unethical wholesalers sadly do not face consequences.
This means that a lot of unethical practices do take place. It is important to be very transparent when wholesaling commercial real estate. This way, all the parties will know what is going on and they don’t feel like they have been taken advantage of or left in the dark.
You do not want to have that reputation!
How do you wholesale commercial real estate?
Generate Leads – This is the name of the game in commercial wholesaling. You can generate leads by direct email campaigns, networking with investors at real estate meetings, digging through the tax records to source distressed properties.
Property Inspection – For a successful deal closure, it is advisable to perform the front-end inspection of the property. You can hire a professional home inspector and make the necessary repair work done. This way it will be easier to flip the contract to the buyer since they will know what they are walking into.
Perform property analysis – Run the comps to see how the property you are dealing with is doing as compared to similar properties in the area.
Negotiate the contract with the seller – Now is the time to negotiate the contract with the seller and get favorable terms. Ask for a longer timespan to do your due diligence and find a potential buyer. Always bring your attorney to handle this portion to make sure that you are legally covered. For more commercial property lease tips for property owners, click here.
Market the property – Now that you are done with your due diligence, it is now time to market the property to potential buyers. Send an email blast about the investment properties. Then call the investors up to know their thoughts on it.
Assign the contract – Once you have found the buyer, it is now time to assign them the contract. The best-case scenario is to let the buyer pay your fee in exchange for you assigning them the contact. If you are not well versed in drafting legal agreements, bring your attorney for this one too because even a word will change the meaning of the sentence.
So, should you wholesale commercial deals?
Now that you know the advantages and disadvantages of wholesaling, should you become one?
Austin commercial real estate thinks that there surely are benefits to wholesaling. You can learn how to invest in properties while making money. You have lower risk at your end and you can make decent margins.
But, many professionals in the Commercial Real estate industry don’t take wholesalers seriously a few rotten apples have damaged the reputation of this profession by taking advantage of a lot of people.
Wholesaling commercial property can be a lucrative venture. Managing a commercial property well is very important. If you can, you surely should carve yourself out quite a niche. But being honest and upfront with the parties involved is very important to maintain a positive reputation.
We hope that this guide by commercial real estate Austin experts was insightful enough to give you a fair idea of the wholesaling commercial properties.