There are three ways to make money flipping commercial real estate, wholesaling commercial deals, value add
commercial flips and the Commercial Back Flip TM.
To wholesale a commercial property all you need to do is find a screaming great deal, get it under contract and then assign your contract to another commercial real estate investor for a fee. The challenges with this method in this marketplace is in finding a buyer that is able to come up with conventional financing. One method that some savvy investors use is negotiating a commercial master lease purchase, or owner carry financing deal and then assigning their contract once the creative financing terms are in place.
The best Value Add Commercial Flips are done by finding a vacant commercial property, getting it under contract and then locating a suitable commercial tenant who is willing to sign lease with you, contingent upon your purchase of the commercial property. Then you can assign your contract on a property you negotiated a great deal on because it didn’t have any income coming in. With your new tenant the property now makes sense and thus is attractive to your new commercial real estate buyer.
The best method in this market seems to be the Commercial Back Flip TM. To do Commercial Back Flip TM deal you’ll look for a commercial property owner who is in default, not too hard to find in this real estate market. You can also look for commercial attorneys who specialize in helping commercial property owners who owe too much on their commercial buildings.
The Commercial Back Flip TM is typically structured like a 47 unit apartment building that we did recently. The apartment building was a 95% occupied building; it wasn’t distressed, it wasn’t run down, it was in tip-top shape and it was right next to a big university so they can keep it full pretty easily. So the commercial property was in a great location, and it was a great building.
The apartment building owner owed $1.2 million on this building and the bank was willing to let it go for $400,000. That price is, of course, way below what the building is worth in today’s market place. I am pretty conservative in my estimates, but I would put the value on this property at $950,000. In a good market it could be worth $1.3 to $1.5 million.
So if you could own that apartment building for $400,000, based on the net operating income that it’s currently bringing is, that’s a 25 cap rate. So why if the property is worth almost 1 million, will the bank take $400,000 for it? The reason is that if the bank has to go through and take that property back, they will spend a ton of money on legal fees, a commercial broker; and they will have to hire a property management company to manage the property. The property value will be diminished greatly by the time the lender gets it back.
So if you are thinking whether or not you should get into commercial real estate investing, that’s what’s so fun about flipping a deal. You are in and out and you are making your money right now, today. By doing Commercial Back Flips TM you can make some real quick money on these things.
The Commercial Back Flip TM is a cutting edge method and as of this writing, Peter Conti and Jerry Norton are the only ones who are sharing this information with other commercial real estate investors.