Teaming Up And Co-Wholesaling Apartment Buildings
Wholesaling apartment buildings is an amazing opportunity. You leverage multi million dollar transaction values, slice off five and six figure assignment fees, all without taking any risk or using any of your own money.
In the early stages though, there is a lot to get your head around. In the world of project management, it’s well established that if you have to learn more than one new skill during the course of executing a project, your chances of successful completion start to go down.
This is definitely the case with apartment wholesaling, and it illustrates quite neatly why the first deal is the hardest deal to do. You are learning how to find deals, how to negotiate with sellers, you are learning how to raise private money, you are learning how to qualify buyers, and shepherd them through the closing process, all the while dealing with your own fears and maintaining a “can-do” mindset.
When you look at this way, it’s not a surprise that, most people struggle getting their first apartment deal done. There are a lot of firsts you have to achieve, and an unforgiving time frame in which to achieve them.
One way to lower the bar though, and increase your overall chances of succeeding, is to break the doing of the deal down into separate parts, and assign the accountability for producing a result in each part to another person. This can be a partner, someone in your network, it can be another Apartment Entrepreneur.
For example, suppose a 200 unit property were being wholesaled, if one person found the deal and put it under contract at a great price, another person rounded up the private money to pay in the earnest money on the seller contract, and yet another person found the buyer, qualified them and got them to the point of wanting to go ahead and buy, the whole project would suddenly become a lot more achievable, and much more likely to succeed.
Let’s say this property is in the Midwest, and the wholesale profit on a 200 unit building is in the ballpark of $200K. Split three ways, pro-rata for the value of each activity to the deal, the profits are still be very healthy for the time each individual put in.
The main thing is to focus on what you are best at, and let those who are best in other areas do the same. If, for example, you are attracted to the hunt, the take-down of negotiation, the creativity of deal making, then finding deals and getting them under contract will be your area. If you love talking about deals, can talk at length about how they work, regaling listeners with all the details, but you never seem to get around to creating any dealflow, then raising private money will be your area. If hunting down deals is hard work for you, but you love getting the word out about a hot deal you already have, dropping blood in the water and creating a feeding frenzy of buyer interest, then making prospects prove they have the money to close, playing them off each other until the most aggressive buyer pays a premium over what you are asking and slaps down a huge earnest money deposit to take the deal off the market, then finding buyers will be your area.
The key is, “three” people working on a single deal in the areas they excel at will always close more quickly, easily, and certainly than a single Apartment Entrepreneur trying to do it all themselves … especially the first time through.
The way this plays out in the market place is co-wholesaling. You have spent a lot of time and effort establishing your network and contacting apartment owners. Now you have a property under contact and it’s a smoking hot deal. Through networking at your local REIA you found an individual who was very well connected and has lined up $25,000 for your earnest money. Now, with the property under control you promote the deal. You generate some interest, though no buyers are committing.
One of the calls you receive though is another Apartment Entrepreneur who lets you know that he has a lot of buyers on his buyers list from the deal he recently closed and he’s pretty certain at least a couple of them would be interested in this deal. All this time you have been focused on a $200K wholesale profit, and realize if you co-wholesale with your colleague here, that could be reduced quite a bit.
Nevertheless, it won’t take long to find out if he is for real, or just blowing smoke, and a bird in hand is worth two in the bush. So you tell him to run the deal by his buyers. He comes back to you with a positive and wants to go ahead.
To close, you structure the deal as a simultaneous close. Your co-wholesaler will want to keep control of his buyer and not reveal any details of the deal he has with you, so you assign your contract with the seller to your co-wholesaler. You charge $105K as an assignment fee ($100K for you, $5K for your private money partner), and the deal is now the co-wholesalers to close with his buyer. He may mark the deal up another $50K, $100K, $200K. Whatever though, it is none of your concern any more. You have the assignment fee you asked for, now your job is to just work with everyone to make the deal close.
On closing day $105K is wired into your bank account, and you wire $5K to your private money partner. Now he is happy, and likely to start badgering you in a week or two about when the deal is going to be.
You may not want to co-wholesale on every deal you do, however it is an excellent way to lower the bar, especially on your first deal, to make a BIG goal, simpler, and much more achievable.