wholesaling multi family real estate

Pros and Cons of Wholesaling Multi-Family Housing

Do you want to make quick returns from short-term investments? Then wholesale properties. This is a viable and profitable investment opportunity for a smart, creative, and hardworking investor.

In wholesaling, you search for an undervalued property. Get the property under contract and assign the contract to another buyer. Most wholesalers do it because they don’t have the infrastructure, time, and money to close the deal themselves. Some don’t have an interest in managing the property in the long run.

There are several property types you can wholesale to make a fortune. Multi-family housing is one niche to invest profitably. But what are multi-family homes? These are properties with over one rentable space, also known as apartment complexes. Let’s learn about wholesaling multifamily housing and the pros and cons that come with it.

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How to Wholesale Multifamily Housing

1. Find Sellers

Like any wholesaling deal, you need to find motivated sellers. These are owners or property managers of old or foreclosed apartments. Use online platforms to get in touch with sellers in your locality. Or get information from your network on distressed apartments on sale.

2. Calculate the Maximum Allowable Offer (MAO)

This is the maximum price point you can deal in and get a profit. To calculate MAO, research the average gross rent of similar properties in that area. Deduct 75% (operating expenses) to get the estimated net operating income (NOI). Depending on the apartment classification, find out the desired cap rate. Divide the projected NOI by the cap rate to get after the repair value of the property(ARV).

To get your maximum allowable offer, take the ARV and subtract; expected repairs if any, lost NOI during the turnaround period, and your desired wholesaling fee. The value you arrive at is the MAO of the property.

3. Get the Property Under Contract

Now that you know your offer price, present it to the seller for negotiation. Upon agreement, sign a well-drafted contract to gain ownership rights to the property.

Resource: How to Flip Houses and Make $100k Per Year

4. Hunt for a Buyer

Your potential buyers are fellow investors looking to flip houses. Use both online and offline techniques to line up a buyer.

5. Close the Deal

Transfer the property ownership rights to the buyer by assigning them the contract. Get your assignment fee and close the deal.

Pros of Wholesaling Multi-family Housing

As a wholesaler you will benefit immeasurably by dealing with apartment complexes in the following ways:

#1: Less Risky

When wholesaling a multi-family home, you don’t buy or renovate the property. You are only a middleman. You can opt to use a 30 days option agreement. With this method, the agreement locks the seller in the deal. But as the wholesaler, the agreement does not commit you. The worst-case scenario is lacking a buyer and losing your option fee. Which you should ensure is very low.

Alternatively, have a list of lined-up buyers. Assign them the contract in time and get your profits. With this option, there is little to no capital input. None of your money is at risk, which makes it the best entry point to real estate investing.

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#2: Quick Profits

The rate of pocketing your returns depends on your speed of finding a property, getting it under contract, and winning a buyer. When timely executed, a wholesale deal can take from a few days or a month to close.

#3: Better Profit Margins

Apartment complexes are highly priced compared to single-family homes. This is because they have many units. If you do your math right, with one deal you get excellent profit margins. To make such returns in single-family homes, you would have to wholesale several properties.

#4: Gain Knowledge in Real Estate Investing

Wholesaling is an intensive process, from finding the right properties, hunting for sellers to closing a deal. It needs a resourceful network, deal analysis skills, and a deep understanding of the market.

Closing your first deal might be hard. But as you get into the business, it gets smoother. You gain experience in all aspects of investing. The knowledge and skills will help you advance your career from wholesaling to more profitable investing strategies.

Cons of Wholesaling Multi-family Housing

#1: High Competition

The sellers of multifamily apartments understand what they are doing and are keen on pricing their properties appropriately. Being highly valued properties, they have stiff competition. The more the number of units in a home, the more attractive it is in the market. Getting apartments under market value to wholesale is hard. Because of their demand, you have limited time to line up a buyer.

#2: Dealing with Brokers

The majority of multifamily home deals are done by brokers. Their job is to protect the seller. They will scrutinize you before getting into a contract with you. To pass their criteria calls for a lot of experience, a good reputation, and proof of financial capability.

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#3: Unpredictable Income

Wholesaling does not guarantee a consistent flow of income. It can take time to get another multi-family house  to wholesale after closing a deal. To get regular returns, be on the lookout for properties to wholesale and build a list of buyers.

#4: Laborious Process

While it is a quick option to making money, it requires work. Finding multifamily properties to wholesale is challenging and time-consuming. Analyzing the property is another uphill task. If not carefully done you will get minimum returns. It does not end there. You have to get a buyer. This is also very difficult and requires a good network. To prosper you must be ready to work hard and remain determined.

Bottom Line

Wholesaling multifamily homes is a rewarding opportunity. However, to succeed you must know how and where to find the right properties and have a list of buyers. It requires little to no capital but you need top-notch deal analysis skills. At first, it might be a hard rock to crack but with time it gets easy.You must remain focused and dedicated to achieving your financial dreams through wholesaling multi-family homes.

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