Wholesale trade consists of purchasing and selling goods to retailers, professional (industrial or commercial) users or authorities, or other wholesalers or intermediaries, regardless of the quantities sold.
First, commercial property has less competition than investment in a single-family home.
Secondly, you can make a lot more money because business transactions and prices are much higher than in single-family homes.
The key to wholesale is knowing what types of properties will supply you with the largest pool of buyers. Your top buyers will be new investors who are hungry to enter the property. For that reason, it is important to concentrate on the following types of tracks, property sizes, and types:
· Out-of-market properties: deal directly with the landlord.
· Class C apartment buildings: where returns are highest, meaning you'll have more prospective buyers.
· 5 to 50 units: small transactions in which you are not in competition with stronger, well-capitalized investment firms.
Then why would anybody want to sell commercial real estate wholesale? Well, the simple answer is that this solves a massive problem. As a first-time commercial real estate investor, it's not unusual to face a big hurdle: you don't have the down payment.
A Wholesaling Example
Here is a sample of how to make money by wholesale selling commercial property. You found a 12-unit building, valued at $1,000,000, that requires $50,000 in repairs. You’re able to get it under contract for $850,000. This is due to several reasons, one of which is that the vendor is motivated to sell quickly, but also because the property requires repairs. You are in for $850.00, and after recording the $50,000 in necessary repairs, you have $100,000 in equity in the property. This is essential to wholesale.
Note that you have a contract, therefore you lawfully control the property. And because your price is lower than the retail price, there's value in your position, that's what makes wholesaling work.
Why are shoppers going to pay your wholesale costs?
· So, you find a buyer who buys that for $900,000. And you're holding the $50,000 difference. Note that this is a win for everybody. The seller receives the sale of his property at a price that was convenient to him. Your buyer gets $1,000,000 worth of commercial property for $900,000, and he puts $50,000 more into his reclamation.
· So, they're happy with the agreement and have $50,000 of net worth on day one. The reason it works for you is this. You have taken the time to learn to find, analyze and return commercial properties with a beautiful reward of $50,000 for your efforts.
Wholesale is buying in bulk a significant discount can be sought from the manufacturer making it possible for a wholesaler to make a profit through retail markup. Retail markup is the pricing on wholesale products a retailer is charged for a product minus the wholesale price of the product.
In previous post: "How do I start a wholesale business?"