Real estate wholesaling has captured the attention of aspiring real estate investors everywhere thanks to its relatively low barrier of entry and enticing opportunities. In fact, wholesaling is arguably the best way to break into the real estate industry. While most people envision wholesaling single-family homes, a new and potentially more rewarding exit strategy is gaining momentum: multifamily wholesaling.
The market hasn’t been kind to renters, and the data is starting to reveal some opportunities for patient investors. In particular, the demand for rental properties has taken a step back in the wake of historical inflation, diminished household savings, and the looming threat of a recession.
According to Fannie Mae, today’s volatile economy could increase vacancy rates to 6.25% by the end of next year.
As a result, more multifamily property owners may be looking to part ways with their assets. Consequently, there may be no better time to learn how to wholesale multifamily properties than now. Whether you are a seasoned real estate professional or a novice investor breaking into the market for the first time, this guide will teach you everything you need to know about wholesaling multifamily properties, including:
Wholesaling multifamily properties may be accomplished by following these seven steps:
Wholesale exit strategies have practically democratized real estate investing by making it possible for anyone to do, and multifamily assets are no exception. Whether new or seasoned veterans, investors of every experience level can wholesale multifamily properties independently if they follow a sound strategy and mind due diligence. Still, with that said, beginner investors have every reason to work with a mentor.
Again, it’s entirely possible to wholesale multifamily real estate without any help, but enlisting the services of a mentor is highly recommended. Working with an accomplished wholesaler will simultaneously give new investors an advantage over the competition and allow them to hit the ground running. Perhaps even more importantly, a mentor who has already wholesaled multifamily properties with a high level of success can provide invaluable insight and guidance into the best industry practices.
By definition, a mentor is an experienced and trusted advisor. Therefore, it’s safe to assume a mentor already has the knowledge and expertise new inventors need. Taping into that wealth of knowledge and expertise for real-time feedback is invaluable and can often turn a promising career into a great one.
Now that you have an understanding of the benefits of leveraging the expertise of a mentor in your journey to wholesale multifamily real estate, why not take the first step toward that promising career?
Real Estate Skills' FREE Training is the perfect opportunity to learn from seasoned professionals in the industry, gain insights into best practices, and truly hit the ground running! Let us help you turn that promising career into a great one!
Wholesaling multifamily properties coincides with an inherent degree of optionality. Whether it’s duplexes, condos, apartment buildings, or something else, new investors should attempt to narrow their focus and identify a target market; that way, they won’t stretch themselves too thin.
To better identify a target market as a multifamily wholesaler, consider the following:
Market Conditions: Learning to find multifamily real estate deals starts with analyzing local market conditions. Pay special consideration to data on population growth, job market trends, demand, vacancy rates, and other related indicators. With a firm grasp of how the market is performing, wholesalers should be able to identify the assets they prefer to invest in.
Personal Preferences: Investors’ preferences must support the decision to wholesale multifamily properties. Consequently, multifamily properties must meet the prerequisites set by each individual’s financial goals, risk tolerance, and expertise. Remember, there’s no reason to invest in multifamily deals if they don’t meet investors’ criteria.
Location: While determining which types of multifamily properties are best, take a minute to listen to what the local market is trying to say. Evaluate everything from local amenities to schools and the demand for rental properties, which may benefit from future revitalization. When the market favors one type of asset over another, it may tell you which market to target.
Competition & Supply: Spend some time doing a competitive market analysis of the local multifamily industry. Above all else, asses the competition between wholesalers, investors, and property owners. Looking at local competition will give investors a better idea of supply and demand and which properties have the most potential.
Existing Relationships: One of the best ways to identify a target market is to talk to investors with boots on the ground. Network with local agents, property managers, investors, and anyone else with their hands in the industry. There’s a good chance they will tell fellow real estate professionals which types of assets are performing the best.
With a better understanding of which types of assets to pursue, investors can begin their search for motivated sellers and distressed properties. Savvy investors have been known to deploy various strategies, but some of the most effective methods for locating sellers and assets include, but are not limited to:
The MLS: The overwhelming majority of real estate sales occur on the market. Looking for multifamily wholesale deals on the multiple listing service (MLS) makes perfect sense. Prioritize listings that have sat stagnant for extended periods. Some owners may grow impatient and welcome the idea of a wholesaler’s assistance.
Direct Mail Campaigns: Investors can reach off the market for wholesale deals by mailing to a targeted audience. That said, it’s possible to obtain lists of motivated sellers, like those at risk of foreclosure, going through probate, facing tax liens, or simply being designated absentee. Investors must acquire the appropriate list and craft a compelling marketing campaign highlighting the benefits of working with a wholesaler.
Online Marketing: Investors should leverage an online presence to reach a broader audience. Wholesalers can use a website to market their services and increase traffic through search engine optimization (SEO). The goal is to attract anyone interested in selling a property and gather their information. The strategy may take time but it sets up a recurring marketing funnel for years.
Networking & Referrals: Real estate will always be a people business. As a result, one of the best ways to find deals is by networking with industry professionals. Building proper relationships with agents, investors, attorneys, and property managers can lead to valuable information on subject properties, some of which may be perfect for wholesaling.
Probate & Divorce Listings: Monitoring probate and divorce filings, which are public record, may identify homeowners who are more than willing to part ways with their properties. Of course, be mindful of the owners’ circumstances and navigate the process with empathy and care.
Foreclosures & Pre-Foreclosures: Foreclosures, much like probate and divorce listings, are public record, which means investors who know where to look have access to motivated sellers.
Driving For Dollars: Many investors will drive through neighborhoods and take notes of properties that appear to be neglected. The idea is that unkempt homes and yards may be a sign of the owner’s lack of interest. Subsequently, anyone who isn’t interested in maintaining their home may be more likely (or motivated) to sell.
The MLS and the other strategies above are a treasure trove of potential deals. As a starting real estate investor, gaining access without a license can seem challenging. However, there are ways to navigate this hurdle and tap into the wealth of information on the MLS, even without a real estate license.
To learn the ins and outs of achieving this, watch our video on how to get MLS access without a license and uncover those promising listings that can fuel your wholesaling business!
Multifamily wholesalers need to analyze subject properties, not for themselves, but for their end buyers. If for nothing else, the more a multifamily wholesaler knows about a property, the easier it will be for them to line up another investor.
Analyzing the property requires a comprehensive evaluation of several key factors, not the least of which include:
Financials: Investors should be able to give end buyers a detailed analysis of the property’s financial potential. In doing so, investors must be prepared to identify the property’s income potential, operating expenses, cash flow, capitalization rate (cap rate), and anything else that may impact the end buyer’s decision to invest in the property.
Market Conditions: Investors must be prepared to evaluate local market conditions and whether or not they are conducive to an excellent multifamily investment. Analyze everything from comparable sales to rental market activity, as the market will help stir up interest.
Property Condition: Investors must record the property’s condition and identify the costs of any repairs that may need to take place.
Wholesale Price: Wholesalers need to highlight how much their end buyer will make; that way, they can leave room to add their fee. Once wholesalers know the potential of a deal, they can adjust their prices accordingly.
When the investor has identified a suitable candidate, the next step is negotiating with the seller. Ultimately, the wholesaler will attempt to convince the seller they can find them a buyer at a higher price that leaves enough room for an attractive wholesale profit. If the seller and wholesaler can agree on terms, they’ll put them in writing. More specifically, they enter into a contract that gives the wholesaler the right to buy the subject property.
The contract will specify the terms of the agreement, including the purchase price, closing date, contingencies, and any other relevant provisions. At the same time, the wholesaler may be expected to pay an earnest money deposit (or a good faith deposit) to demonstrate their commitment to the deal.
The terms and conditions of a wholesale contract can get confusing for new inventors, so it’s always a good idea to work with a qualified attorney. A legal professional specializing in real estate wholesaling can ensure everything goes according to plan and the law.
Per the contract, investors must find an end buyer for the subject property. Those who are new to the industry will need to tap into at least one of several strategies used to find buyers:
Network with industry professionals to identify potential buyers
Collect the information of potential buyers who have expressed interest in receiving property leads by creating a website with a landing page.
Attend local Real Estate Investor Association (REIA) meetings to network with even more like-minded professionals.
Use online platforms with a broad reach to identify a wider audience of potential buyers.
Collaborate with real estate agents; chances are they know someone looking to buy a deal in the same neighborhood.
There are countless ways to find end buyers; the real trick is maintaining relationships with them. Otherwise known as a buyers list, investors should keep the contact info of all the potential buyers they meet. That way, they’ll have a list of potential buyers for every property they come across in the future. If these lists are curated and maintained correctly, it’s possible to have a buyer lined up for a deal that hasn’t even been identified yet.
While nurturing relationships with potential buyers is a significant part of successful real estate wholesaling, another vital component is your initial approach. Cold calling, in particular, can open doors to countless opportunities, if done correctly.
To give you a head start, we offer a free wholesale real estate script specifically designed for cold calling. This script has been refined over the years and can be a game-changer for your communication with prospective clients. In essence, with our script, you could have potential buyers for deals you're yet to identify. Download the ULTIMATE Wholesaling Cold-Calling Script, below:
With the property under contract and an end buyer lined up, wholesalers must work with each party to complete the deal. Depending on what the wholesaler’s contract with the homeowner says, facilitating a deal may either mean assigning the contract to the end buyer or conducting a double close.
Read Also: How Long Does It Take To Close On A House?
The benefits associated with wholesaling multifamily properties include, but are not limited to:
Investors don’t need to use their own money to complete a real estate wholesaling deal.
Wholesaling is one of the quickest ways to make money in the real estate industry.
Wholesale exit strategies introduce investors to other aspects of the real estate industry.
Wholesaling multifamily properties to end buyers doesn’t expose investors to many risks.
The drawbacks of wholesaling multifamily real estate include, but are not limited to:
Wholesalers only have as much control over a deal as the homeowner and end buyer allow them to have.
Wholesale fees are relatively low, especially when compared to rehabbing.
The multifamily real estate market can be highly competitive.
On the surface, residential and multifamily wholesaling share more similarities than differences. However, multifamily properties can be considered commercial real estate, which are properties typically leased to tenants to generate income. There are several key differences that need to be accounted for, including:
Scale & Complexity: Multifamily assets typically require a more in-depth understanding of the wholesale process due to their size. To pitch their deals to end buyers, investors must familiarize themselves with metrics like rental income, property management, tenant dynamics, etc.
Investment Potential: Multifamily homes are more expensive than their single-family counterparts and have cash-flow potential, so investors may justify charging higher fees.
Target End Buyers: While residential wholesalers market their homes to single-family asset investors, those wholesaling multifamily properties target a smaller but more professional audience of multifamily investors.
Financing: Multifamily properties are often much more expensive than single-family homes, which means the funding used to acquire them is different. While residential end buyers typically use private lenders or hard money lenders, multifamily deals may involve negotiating with existing financing or working with investors familiar with commercial real estate lending.
To be clear, completing a wholesale deal does require hard work, but that doesn’t mean wholesaling is hard. If for nothing else, wholesaling is only as complex as investors make it for themselves. Those who enlist the services of a mentor or sign up for our Pro Wholesaler VIP Program will learn all the skills they need to make wholesaling multifamily properties as easy as possible.
If you're curious about how to simplify and effectively navigate through your first wholesaling deal, don't hesitate to explore our tutorial video below for a detailed walkthrough that will equip you with wholesaling insights and action plans to get you started, today!
Taking the first step towards learning how to wholesale multifamily properties can be intimidating. However, the steps outlined in this article should make the process much more approachable for investors of every level. Furthermore, by understanding the unique dynamics and applying the strategies discussed in this article, aspiring wholesalers can confidently navigate this niche market's intricacies with confidence.
At Real Estate Skills, our team of experts is ready to provide the tools you need to wholesale multifamily real estate. We're committed to providing the knowledge, resources, and support you require to navigate each step successfully. So avoid common mistakes and maximize your wholesale fees by leveraging our expertise.
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