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How To Make Money In Commercial Investment Properties Without Ever Owning One

A Real Life Example...

When I tell some people that they can make money with commercial investment properties without ever owning them, they usually think I've been watching too many late night infomercials.

When I tell them they can do it with as little as $1000 they usually roll their eyes and think I'm crazy. And then of course they want to know how! I usually oblige.

But, instead of offering some hypothetical example, I walk them through an actual deal (involving a 23 unit apartment property) that I was a part of.

Sidebar: The technique that I am about to share works with any type of real estate... houses, land, commercial property, apartment buildings, etc. The important thing is to try and understand the concept, and once you do that you can apply it to any real estate investment.

Let's walk through this example together. I will tell you which party to the deal I was after the fact.

Controlling Commercial Investment Properties With $1,000

An real estate investor found a 23 unit apartment complex for sale. The property had been on the market for a while without much action. This particular investor knew the market quite well, and hence, knew what the true market value of the property was. With the knowledge that the investment property had been for sale for a while, he made a below market offer on the property. He offered a $1,000 deposit and asked for (in his offer) time to conduct his due diligence. The offer was accepted.

The investor was excited. Not only did he know that he was getting the apartment complex below market value, he also knew that the rents were below market. Another thing he knew (as all commercial real estate investors know) was that when it comes to commercial investment properties, for every $1 in monthly rent increases, the value of the property increases by approximately $120.  

For example, assuming a 10% cap rate, if he could raise the rent of each of the units by $50 per month, he could instantly add $138,000 to the value of the property.

Combining the below market price he had negotiated and the value he knew he could add to the property, the investor figured that within the first year of ownership, his new investment property would be worth $250,000 more than he paid for it. In other words, he now controlled a potential profit of $250,000, for just $1,000.

When A Deal Sours, Turn Lemons Into Lemonade "As They Say"

Unfortunately for the investor, he could not qualify for the financing (apparently he owned too many other commercial investment properties at the time) that he needed in order to close on the deal. He was disappointed to say the least, but instead of walking away from the deal empty handed he sat back and evaluated his options.

Because he still had an assignable contract he knew that he still owned the right to purchase the property, and he knew he had a good deal. After all, the owner of the contract stood to make a quick profit of $250,000!

The Solution?

Sell the contract.

Knowing what you know now, (and trusting that the figures I have given you are correct) would you be interested in purchasing this contract? Probably. At least you should be.

As it turns out, the investor did sell the contract to another investor for $25,000. In other words, he turned his $1,000 deposit into a quick $25,000 profit (less the fees he paid to a commercial real estate agent to find a buyer for the contract).

Clearly it was a good deal for the initial investor. But was it a good deal for the other party who bought the contract? Well, I can tell you that it has been one of the most profitable commercial investment properties that I have ever owned (yes, I was the one who bought the contract).

If you would like more details on this deal and how it played out click here.

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