Apartment Wholesaling – How Much Money Can You Make Buying And Selling Apartment Buildings?
How much money can you really make?
Let’s be honest, if you are asking this question, your real estate activities are squarely placed within the realm of single family homes. To make money in real estate, houses are attractive in the beginning because they are familiar; everyone has either rented a house or bought a house so you know the numbers involved.
From there it’s not a great leap to start working with those numbers in the business of quick turning houses. Buying a house for $80,000, spending $20,000 on repairs, and selling it for full retail value of $150,000; pocketing a net profit of $35,000 (after expenses and costs of selling).
This is good money, for sure … “life changing” money. But after a few years it starts to be a lot of work for what you get out of it, and you start thinking how you can make more with the time and effort you put into your business.
The answer is, of course, apartments. You already know how to manage everyone to buy and flip a single family property, why not simply turn your and your team’s time, effort and attention to a multi-family property and move your business activities up the food chain a notch?
No doubt you know apartment buildings are higher priced properties than single family. Well, when you flip properties with higher values, you make bigger profits.
Sorry if this is stating the obvious, but it is this very fact of bigger numbers that keeps most people out of the apartment business; both apartment investing, holding for the long term, and flipping apartment buildings for the quick five or six figure profit checks.
The bigger numbers are too unfamiliar, and too s-c-a-r-y!
I want to let you in on a little known secret that is “robbing” you of the chance to have a lot of money coming in each month, and yes, having a multi-million dollar net worth.
Flipping (i.e. wholesaling) a 200 unit apartment building, a deal that would net you around $150,000, depending on what market you buy in, involves the same time, effort, and concentration that wholesaling a $150,000 house for about $10,000 profit, does.
Maybe you believe me, but discussing 200 units after talking about a single family deal is going too big too fast.
OK, fine. Let’s come down a bit.
Take a 15 unit apartment building in say, Indianapolis, IN.
The property is Class C in a Class B area, 40% vacant, has below market rents and deferred maintenance. The seller is fed up and wants out but is asking $500,000. You walk him through the numbers and show him his property is only worth $385,000 based on it’s current income and condition. You come to terms and put the property under contract for $390,000.
Over the next week the seller sends you all the documentation you asked for to do your due diligence. Everything checks out. You hire a commercial property inspector to look at the building. There are no major problems.
Late the next evening, you email a flyer, and a link to your due diligence documentation, to your buyer’s list with a price of $465,000. Because you have qualified your buyers for their liquidity (access to immediate cash) and understanding of value plays, you feel good about offering this price because you know they will run their own numbers and realize that, after repairing the property, raising rents and filling vacancies they will have an apartment building worth $950,000.
The next morning you check your Inbox and see you have two emails from your list. One subject line reads, “I want it”, another reads, “this looks good …. let’s meet”.
You open the email that came in first and call the investor. He has already been to the property and walked the grounds. Turns out he’s been loosely tracking this property for a couple of years, and is excited about the price. You set an appointment to meet him at the title company at 2pm, and instruct him to bring a cashier’s check for $75,000 made out to your C corp..
At 2pm you meet at the title company and pick up your check, your investor invites you to dinner that evening, you politely decline. You go to your bank and deposit the check.
So why does your investor improbably hand $75,000 to you within 24 hours of getting your email?
Two reasons; a) he/she is a player in their local market, b) you just increased their net worth by $485,000, a good portion of which they will convert to cash when they refinance 18 months from now.
So let me ask you … is $75,000 better than $10,000?
Here is the really absurd thing. The $75,000 will probably come to you a lot more quickly and easily than the $10,000, due to there being less competition for deals (remember the fear of the large numbers) and the buyers of apartment buildings are usually far more liquid than buyers of single family homes.
We could walk through what you would make wholesaling a 100 unit building in say, Los Angeles, but let’s face it, that would freak you out.
Suffice it to say, buying and selling apartment buildings puts you in the realm of making 5 times, 10 times, 20 times what you would make wholesaling single family homes, while making the same effort, and putting in the same time.
If you are a real estate entrepreneur trying to figure out how to make more money and you are still in single family, time to make a change.