How to Wholesale Commercial Real Estate Step by Step

[00:00:00]Today we're going to be talking everything about commercial real estate wholesaling. My name is Henry Eisenstein and I've been a part of over a billion dollars worth of real estate transactions. I've literally wholesaliled over a 100 properties, both residential and commercial properties.

[00:00:12]I've made tens of millions of dollars in the real estate industry. And I'm here today to show you how you can start wholesaling commercial properties. So the very first thing to understand is what is wholesaling and how can you spot an opportunity in which you should wholesale. Wholesaling is specifically the art form of getting a deal locked up under contract and then flipping the paper. So essentially getting it into a contract that says the seller is going to sell you the property, B, you, and then you selling the property to see the next buyer. Right? So there's technically three people involved. The initial seller, you and the next buyer.

[00:00:47]Now wholesaling, there's a couple ways to do so. Essentially, there's assignments where you never actually own the asset. You own the paper, which is the right to buy the property, but you never close on the property. Now, assignments are kind of what's been becoming outlawed in the residential world, right? So, many different states have come together saying, "Hey, we want to protect the consumer." NAR is involved. you know, it's many of the lawsuits that have happened over the years, uh, specifically talking about how residential agents and investors, um, they're just people in general, let's just say, are finding these these properties where, you know, they're trying to protect the consumer from people saying, "Hey, you should lock up this deal." And then flip the paper, essentially knowing that it's worth more. and uh instead of being the broker or you know doing right by the client, you're essentially locking it up into a into a contract and then flipping the rights to purchase the contract and then quote unquote assigning it. On paper, they would actually see it. So, um whenever you're doing an assignment, your assignment fee, a consultant fee is actually on the final closing documents.

[00:01:49]Okay? So, if you were to lock up a property for $500,000 from a seller, and then you're going to flip the paper and assign it to the next buyer for, let's just say, $550 grand, so a flat $50,000, they would see that actually on the closing documents. They would see it for $550 grand on one side, $50,000 assignment fee, and then $500,000 net to the to the seller, less any closing cost or debt that they might have on the property. So, you would see it on the closing documents. Other way that you can wholesale properties is uh something called double closing. Now double closing doesn't necessarily mean simultaneous closings day one. And now that's you know best case scenario but it doesn't always mean that you're double closing the same day. Double closing could even mean within a week, a month or whatever period of time. It obviously becomes flipping where you're going to buy it, renovate it, sell it later. You know it's most well known as double closing essentially the same day within 24-hour period of time.

[00:02:45]essentially, you know, it's pseudo wholesaling in in a sense of buying a property, uh, acquiring it, right?

[00:02:51]Taking it down, slightly, cleaning it up, and then selling it. It's pseudo wholesaling. Obviously, you're quote unquote flipping the property.

[00:02:58]Obviously, the less work you do, the less it's really flipping it. U, but it's really the same exact thing. That's why in my in my world, because a lot of what I do when it comes to commercial real estate wholesaling, I prefer to double close for a couple reasons, and uh, we'll talk about that here today.

[00:03:12]But it's most important to understand that when it comes to wholesaling, you know, you can basically do both. Okay?

[00:03:17]There's pros and cons of both. If you're doing assignments, people are going to see your assignment fee. Essentially, you know, you're not as in control as you are, in my opinion, when it comes to double closing. Uh, and I'll explain why in just a second. But, you know, you have um essentially when it comes to assignments, you have just like a piece of paper. You have no intention of closing on the property. If anything goes wrong, you just kill the deal.

[00:03:39]That's the way I see assignments. Now, in the world of double closing, you have this world where, in my opinion, I'm going to buy the deal no matter what.

[00:03:47]And I have the the possibility of an exit earlier than what I might expect if I were to buy it, close on it, renovate it, clean it up, stabilize it, then sell it. I also then have the option of hypothetically putting it out to the marketplace, trying to find a buyer, and if they want to pay me more than what I have it locked up for and plan to close for, then the, you know, I can choose to double close on the property. You know, the con of it is that I have to close, right? I have to come to the table with cash or with a mortgage obviously if I plan on keeping it for much longer. But most people do it with transactional funding. So if you're going to buy a deal for any amount of money, you have to come to the table with cash essentially. Most people use just hard money is, you know, transactional funding is just hard money. It's hard money for a very, very short period of time. It's just for that transaction close of 24 hours. Um, and then uh, you know, let's say they, you know, you're wholesaling a deal for 5 million, flipping it for 55. You're going to close for 5 million in cash plus closing cost. So, it might cost you 51 52 um and then you're going to sell it for 55, right? And try to clear the f, you know, $300,000, but you also have closing costs on the other side. So, you might pay another $100,000 or $200,000 on the other side, which is what nobody realizes about double closing. So, there's technically more spread, per se, because you're not paying double closing costs when you're doing assignments, but there's more risk in my opinion when you're doing assignments instead of double closing.

[00:05:05]Um, and in my opinion, you just have less control. It's very similar, but uh in my opinion, it's just less control because you know it essentially if the deal doesn't work out, you can just kill the deal. You know, I'm looking at opportunities where in my personal opinion in commercial real estate, I see it as because I'm a broker, I can essentially take a broker fee um as well, right? Which is in my opinion almost the same exact thing. If a seller's, you know, a buyer's going to pay, let's say 53 and a seller's going to take 5 million, right? which is essentially, you know, most situations where a buyer's willing to pay X, which includes your compensation, what a seller wants to take away, which is just really the same exact thing. Most people list these properties. If a seller says to you, "Hey, I want to sell my property and I'd like to walk away with 5 million." You see this all the time where you see a property listed for two 5.295 or 53, right? And then that includes their 6% commission. You literally on most properties, it's so funny. I love I love seeing properties that are listed for like a million60,000 or similar. you see properties that are listed for 530,000, you're like or 535 grand, it's like I know you're just want to net 500,000 and you're putting a 6% fee on it. It's very very common and the more you you know you you'll recognize it more frequently like you know they want to net 2 million and then it's listed for 2.15. It's like they want to net 2 million bucks, right? So u it's very very common. However, in the reality of wholesaling essentially, right? Having a broker license allows you to collect that full spread with zero risk because the broker doesn't have to put up any money. There's no deposit. There's no having to, you know, um, you know, make sure that your buyer closes after due diligence because the money's hard and all of a sudden you're stuck between a rock and a hard place, you know, like there's just a lot less risk. Clearly, you know, as a broker, you have zero risk. You know, obviously the deal just might not close and you might not make your fee. Um, you know, which is, you know, very very little risk anyways. Uh, there's no there's out of pocket. There's no risk essentially other than time and effort uh as a broker. But, you know, again, whether you're assigning it or double closing it, you're putting up a deposit of some sort. And keep in mind that in the commercial real estate world, you're going to be putting up a sizable deposit. You know, in the residential world, you might get away with 500 bucks. You might get away with $1,000, you know, maybe a couple thousand bucks, right? In some instances, not always.

[00:07:09]But in the commercial real estate business, you know, 1% is laughable most of the time. You're doing a $5 million deal with a $50,000 deposit even, and they're going to look at you like it's nothing. You might end up putting up a h 100 grand as a deposit, $250,000 as a deposit, right? When you're doing deals that size. Now this is why a lot of people who are doing wholesaling or you know choosing to wholesale deals are doing much smaller deals. Now what the one thing I'd like to stress that's very very crucial is that companies like Blackstone as an example I don't know how many people know this story but Sam Zel sold one of the largest you know I think maybe the largest office portfolio maybe even still to this day the largest transaction ever completed was Sam Zel's uh I believe it was like a $40 billion portfolio uh in this multi-billion dollar portfolio um that was selling which I believe actually what happened was because I don't remember the exact numbers. I'll have to look that up. Is where Samzel was selling his just think about it like this. Sam Zel was selling his portfolio to Blackstone. Blackstone was doing the deal. And what they found is that they were able to flip the paper. They flipped properties. They wholesaliled these properties. They controlled it. They they wrote a contract saying, "Hey, Sam, I'm going to buy your properties." And then they flipped a bunch of the properties and made like 5 or 10 billion dollars um on the flip. the greatest ever wholesale deal ever completed was done by Blackstone more. You know, before anybody starts being like, you know, all this making up this, you know, these uh, you know, these stories or freaking out about the idea of wholesaling investors like myself, you know, I own a, uh, you know, pretty sizable portfolio, almost $20 million, uh, uh, you know, as a portfolio. Um, and guess what? You know, like there's people with multi-billion dollar portfolios and most very successful guys who've bought and sold hundreds of millions of dollars themselves as acquisitions have probably flipped paper a couple times. So, it's not unheard of. They don't think about it as wholesaling because that was never, you know, maybe wasn't the intention, but it's way more common than you realize in the commercial real estate world. It's just not as promoted.

[00:09:11]It's just not as talked about in the in the commercial real estate world as it is in the residential world. In residential, it's, you know, it's common place. I mean, it's very very common. uh buzzwords uh wholesaling, you know, like assignments, you know, it's very common in the residential world, but it's also very common in the commercial real estate business. It's just not as talked about. It's just taboo to talk about it.

[00:09:30]You know, it's just locking up uh some type of property and then flipping it, right? I mean, I mean, I've seen it all the time. I've seen it so many times.

[00:09:36]You know, I've done many of them, right?

[00:09:38]And you know, uh, in some instances, it's been wonderful in in very sizable spreads. But then I've also realized that there are instances where because I have a license that you might as well just take a broker fee and call it a day, which is essentially saying, hey, if you're going to take a deal and the seller's willing to net 5 million and you're going to list that property for sale at 53, which most brokers do, both residential and commercial real estate brokers do this all the time. It's very, very common place. Okay, you could just take a 6% spread as a fee as a as a commission and run it through your brokerage and call it a day. Most people just don't understand that, hey, having a license actually allows you to, you know, essentially, you know, create spread and take it as a commission and not deal with any of the nonsense and none of the risk, right? So, that's why most of the time when I'm talking to people and they say like, "Oh, well, I want to get into commercial real estate wholesaling." Become a broker first. If you want to do commercial real estate wholesaling, become a broker first. And you'll realize because most of the case in my many years, over a decade in experience in this industry, I have found that like there's just often not as much spread as you'd think. So what I want to share with you as an example is that most of the time I believe that there's somewhere between 1 and 10% spread in most deals. Now obviously as you go up the ladder in spread percentage, okay, it becomes more and more rare. Like it's very rare to find something that is a 10% spread in it.

[00:11:01]And in the commercial real estate industry, right? Even in the residential world, like, you know, a lot of the times it's actually it's actually way more common in the residential world to find 10% spread because the price points are very very low. You're talking about a $200,000 house, you're going to wholesale for 20,000 bucks, right? So 10% spread's nothing. But when you find a $5 million deal and trying to sell it for 55, it's a lot more complicated, right? It's it's not as common, okay?

[00:11:22]Because most people in the commercial real estate industry most know their values where in residential, you know, they're going off of his estimate, right? I mean like it's not as usual.

[00:11:30]Okay. Um however, what I found is that it's very common place. It's very very common that you'll see 1 to 4% spreads on deals where you know it's common that like you can find a deal where the seller will take 5 million and you could sell it for 52. Like that is not overly complicated or finding a deal for 2 million and selling it for 2 one and essentially creating a $100,000 spread.

[00:11:51]Okay. Uh and not assigning it or wholesaling it but taking it as a commission. It's very very common place.

[00:11:57]Okay. So, when you're looking at commercial real estate wholesaling, it's essentially just creating spread, getting your fee paid in a specific way.

[00:12:04]Well, what people what people don't realize is that if you're going to double close, okay, as an example, a friend of mine uh who was looking at a deal for over $20 million. And it was like, "Oh, okay. Well, you can lock this deal up for uh 23 million and then we can double close on it and sell it for $24 million." And a lot of you and him as an example were very, very excited. I was like, "Wow, a million dollar spread.

[00:12:26]This is insane." I mean, you know, to find a deal where you can create a million dollar spread is not very common like we talked about. But let's take [snorts] a few steps back. Like, let's really analyze this for a second. Okay, you have a deal for 23 million and you're going to try to sell it for 24.

[00:12:38]By the way, super achieve like it's not uncommon that this is possible, but what I want you to think about is the following. How much spread is there on a percentage basis? It's a little over 4%.

[00:12:48]I think it's like 4 and a half% maybe, right? 4.2 something%, right? Whatever it comes to. So, it's like when you look at this type of deal that has less than 5%. First and foremost to double close on it, you're essentially going to end up spending just in closing costs alone, especially in New Jersey with, you know, the the transfer taxes and all the right, of all this other stuff you're going to be paying, you know, for closing costs if you even and then that's not even including transactional funding, okay? Which again will cost you a point minimum, maybe even a point and a half. So, when you have all this, let's just call it a point or a point and a half in transactional funding.

[00:13:22]Most of transactional funding, by the way, they'll charge you like 1.75 to 2%.

[00:13:25]But I'm saying even if you got it for cheap at a point, which is not really uh common, it's going to cost you a point to close on the buy side, and then you're going to sell it, and you're probably going to end up paying another point or two on the sell side when it comes to transfer tax. So, I'm like, all of a sudden, you're paying four points.

[00:13:39]You're spending a million dollars just in closing fees. It doesn't make any sense. But you could broker it and make a million dollars. And both the seller's happy because they went in the net 23 and the buyer's happy because they're willing to pay 24, right? And all of a sudden, everybody's happy. No one cares that you make 4% because you could just tell the buyer that the seller's willing to pay the 4% commission and the you could tell the sell seller that the buyer's technically paying it because they they were willing to quote overpay for the property. He wanted the debt 23.

[00:14:00]I told them that and they were willing to pay the 24 to get us compensated, right? So everybody's thrilled. But if you try to double close on that deal, all of a sudden, you know, you start looking at this from the perspective of like, I'm actually not going to make any money. And then imagine if you were going to try to assign it. Imagine you're trying to put a $1 million assignment fee where on the contract it specifically shows that you're going to make a million dollars, right? How do you think the seller is going to look at you? And if you have a license, you just can't do that, right? Like, you know, again, I'm by the book. We're like, you know, if I'm buying the deal, I'm buying the deal. And if I'm, you know, if I'm brokering the deal, I'm brokering the deal, right? Like, I don't do assignments. Like, I just I, you know, it's like I'm very transparent. I'm a very clear-cut. There is no gray area.

[00:14:39]It's black and white. I'm either brokering it or buying it. That's it.

[00:14:44]And if I choose to sell it thereafterwards, who cares, right? Like it's not, you know, it doesn't really matter. But I don't assign properties, right? Like there's no assignment fees, okay? It's very cleancut, right? I'm either a broker hat or I'm I'm a purchaser. I'm a principal. Okay? Uh for those of you, right, if you don't have a broker's license, totally fine. But I I definitely want you to think about it from the perspective of like the whole goal is to create spread so that you can make compensation instead of succumbing to the idea that you have to agree to whatever the seller is willing to pay you. like I'm only willing to pay you 1 or 2% and you you know he's like well broker down the street is willing to do it for 1%. You're like I guess I'll do it for 1%. No, that's not the life I not the life I want to live and it's not the world I believe that like that I have to succumb to. No, I'm going to choose to create spread in every deal and see what I can make. If I can make money, great.

[00:15:29]If I, you know, if I have to make 1% I make 1%. But I believe and it's worked out where in most instances we make way more than 1% this way, okay? Where we create spread. If you're looking to wholesale commercial real estate, you must analyze these factors. This is like kind of like the fundamentals behind the world of wholesaling in the commercial real estate world. Now, let's talk about how to identify a deal. Okay, this is one of the most important aspects of wholesaling because most people just think that like, oh, I'm getting this for a good deal. I should be able to quote make a spread. But if you found a deal for, let's just say, you know, uh I had somebody recently bring me a property like, oh, this could be a really really good deal. Uh, I think you can make money on it. And then I think we actually could, you know, maybe we can co-h wholesale it. Okay. And they brought me the deal. It was a um it was a multif family deal in Florida. Okay.

[00:16:15]And the deal was like 20 units or something like that. The seller was willing to sell it for like 3.8 million, which is just under 200 a uh 200 a door.

[00:16:23]And he's like, "Well, I think we could sell it for like 200 a door or something like that. You know, we can get this locked up for 3.8, sell it for four $4 million." Right? In my opinion, like this is not wholesale worthy, right?

[00:16:32]this is this is broker worthy all day long and call it a day, right? Like I would never buy this deal. So when I look at deals that I'm considering wholesaling, I want to explain to you how I see this. Okay, very first thing I would buy it myself. No question. Number one thing to pay attention to when it comes to wholesaling properties, the way I view it, okay? And I'm not looking for tiny little baby spreads. If you're looking for baby spreads, you know, like you obviously can figure it out um in other ways which I'll talk about momentarily. But for me, it's like I'm going to buy this deal regardless. This deal makes sense. It pencils. It's a great deal. In this instance, if we saw that we it could sell for 200 grand a door. You know, I'm buying it for 100 grand a door, right? I'm going to buy this deal no matter what. No question, okay, that I'm buying. You know, we've bought many deals just like this, okay?

[00:17:15]Where, you know, we are getting an unbelievable price where I don't care if I sell the p, you know, like if I sell the property afterwards. I don't care if some buyer wants to come in and pay me, you as again, if I'm buying it for 100 grand a $100 a foot and someone's willing to pay me 2x what I paid for it, fine. I can then choose to sell it if I'd like to, but my intention is to close on this deal. That's what I look for when I'm when I'm buying a property.

[00:17:37]And then I it's not about saying like, hey, this is a great wholesale deal.

[00:17:41]That's not what I look for. I go, this is a good deal. I would I'm looking at buying it. And then I can then explore the option after I'm under contract or in the process of being under contract.

[00:17:50]I can look at it from the lens of, hey, let me soft toss this to a few investors that I trust and say, hey, this is a property that I have under contract. uh love to kind of, you know, get a feel for where you think the value is. They come in with a purchase price and based on what they believe the value is, I decide if I'm going to sell it or if I'm going to buy it. Uh just to kind of get a feeler for it. I I do this a lot on almost every deal that I buy. I'm like, "Hey, I'd like to get the feedback of the other professionals that I trust in the industry and let me just see where their head's at." And if they're like, "Hey, like I'm buying it for a million bucks." And then they offer me a million or a million one, then obviously number one, I'm not wholesaling it. Number two, I get to second guess myself if I think it's a really really good deal. that really happens. But what most of the time happens is if I'm buying it for like a million and then I get offered a million7, right? Because I know I'm getting a great deal. I then can discuss it and be like, hey, I can either sell it for a million7 now or I can buy it, run my numbers and see like I think I could probably achieve a $2.5 million number. So I can either sell it and make 700 today, which again would be double closing. So I'm not going to pay nothing in closing costs, right? I'm probably going to lose 100 $150,000, you know, call 100 grand minimum in closing cost.

[00:18:53]So, I can either take 600K today, which I would be paying tax on, and I maybe probably 10:31, but I'd be paying tax on it. Or I could take this down in a million. I can renovate it, clean it up, stabilize it, and maybe recash out, refi, be nothing into this deal, or sell it for $2.5 million in a year, 2, three, with four or five, whatever my plan was, and then do a 1031 at that point on a much larger number. So, it just depends.

[00:19:14]Every single deal is different. It's not exactly that perfect of a scenario.

[00:19:17]Sometimes it's only 200k in profit or 300k in profit versus maybe a million if I kept it or more. I get to analyze that. But it's always about is this deal lucrative enough for me to buy it. Okay, that's what I specifically look for. Do the math. You must do the math before you choose to wholesale something because I've seen in some instances where like very smart people just like my friend as an example was going to wholesale a deal at 23 million selling for 24 million. Um, and he almost decided to do all that before. I was like, "You don't realize the math, do you?" And he goes, "What are you talking about?" And I explained it to him. Do the math. Okay? Okay, if you choose to do something like that as an example, you're going to choose to double close, you need to have like 15% cuz you're going to burn 4% probably depending on your transfer taxes in your state or you know like the closing cost in your state. You just got to be you have to do the math. Be careful. Do the math before you decide to double close. And last but not least, it's very, very important factor here is you must, and I'd highly recommend that you have a great title company that you work with who understands wholesaling, an attorney who really understands wholesaling at a high level. You must have that great partner.

[00:20:21]Okay? Uh some obviously a lot of people who are very um uh very used to and very seasoned in the world of wholesaling, a lot of them will tell you that you just need a title company. But in the commercial real estate industry, I believe both are very important. You should have a title company who's very aware of how it works and a commercial real estate attorney who also understands how it works and can protect you. You're going to want every single contingency under the sun so that you can back out worst case scenario. And you want to make sure that your buyer has the tightest contract on planet Earth so that they can't back out for any reason whatsoever. It's only for very limited things, right? They have a um you know, very limited contingencies, okay? Versus yours. Uh and they're going to be able to help you walk through the idea here. So, if you're interested in learning more about commercial real estate wholesaling and working with me at a higher level so that you can make lots and lots of money in the commercial real estate world, comment down below CR. We'll reach out to you right away.

[00:21:12]And by the way, there's tons of free resources down below. Make sure you guys check that out as well. And if you're interested in uh possibly booking a call and working together in some capacity, you can also book a call down below.

[00:21:20]Love to connect with you and see how we can do some amazing business together and I can support you in doing lots of wholesale deals in the future. Okay. By the way, again, I'm an investor who buys in the state of New Jersey in the state of Florida. Um, I would love to be able to check out some of the deals that you have. Love to help you guys make a lot of money. I bought plenty of deals off of people, you know, in my audience, my people who watch our content, uh, our subscribers or followers. So, if you have amazing deals, specifically New Jersey would be the most ideal. I'm constantly looking to buy properties.

[00:21:45]I'm under a contract between 5 and $10 million, uh, in deals almost all the time because we're constantly looking at amazing deals. So, if you have anything amazing in the state of New Jersey and possibly even Florida, it's really the only secondary market we look at. Um, love to take a look. Love to make you some money. Uh, I don't care about wholesaling deals or fees and all that kind of stuff. so you enjoy, you make your money. But anyways, thank you guys so much for watching the content, subscribe me if you haven't, give this a thumbs up, and comment down below with any questions you have. I'm always going to make sure I reach out um I'm always going to make sure I read all the comments. So anyways, besides that, see you later. See you in the next video.

[00:22:13]Peace out. Hey, so if you enjoyed this type of content, I think you might actually enjoy this video over here as well, where I dive into a bunch of the similar type of concepts that we covered here in this video. Again, if you enjoyed it, make sure you give it a thumbs up and subscribe to the channel.

[00:22:25]I'll see you next time.