The Advantages of Wholesaling Commercial Real Estate
Is wholesaling commercial real estate a smart move for residential investors to get into or a dangerous distraction?
Commercial real estate has often lured many residential investors to make the jump. For some, it has resulted in less volume of deals and has presented a big learning curve while others are finding it an incredibly profitable addition to their strategy, yielding some of the biggest profits they have ever seen.
So how is wholesaling commercial real estate different from flipping most single family homes and what are the advantages?
Finding Big Pay Days in Commercial Real Estate
Perhaps the biggest appeal of commercial real estate for most is the promise of bigger profits.
Commercial properties are generally more expensive than residential ones and that means more money per deal. Some may find they do less deals when switching from residential but that simply means working less for more money. For example, flipping one $20 million office building with a 20% ($2 million) profit margin clearly goes a long way and brings in more cash than many single family homes or condos.
Of course there are now rules that you can only do one or the other, so the smart thing to do is just to begin adding commercial property to your mix and, if you enjoy it, increase the focus you put on it.
One of the biggest complaints of residential investors today is the mass of competition which is flooding into the market.
In contrast, there is much less competition over commercial properties in most areas. This means less hassle and less time wasted evaluating and bidding on properties which will never be bought or flipped.
Less competition obviously also means more negotiating power and in turn, the potential for achieving bigger discounts and larger profit margins, especially when compared to bidding over foreclosure homes in hot cities like Sacramento or Atlanta.
What many don’t realize is that there is actually a far larger pool of distressed and commercial REOs out there than residential and when construction REOs are counted, the number makes the single family home market look tiny. That means banks are more motivated to move them and there are plenty of deals to cherry pick from instead of just taking what you are able to get your hands on for lack of choice.
Financing Commercial Properties is Far Easier
Out of a lack of knowledge, many are under the misconception that commercial mortgages must be much more difficult to deal with, but in many cases quite the opposite is true.
When it comes to wholesaling, commercial real estate investors will find that even if they need to take out new financing, the underwriting process is much more common sense based. It is often easier to get approved and the bigger the deal the better, in most lender’s opinion. Here investors will find non-recourse loans for eliminating risk, plenty of options for creative financing and far more flexibility as lenders are not under the constraints of laws which govern homes.
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