19 year old with question about selling based on cap rate

[Devon Rollison]

Hello I am 19 and soon to start wholesaling, can someone PLEASE look at this and tell me what is wrong with this/ how this is not the true reality... it seems WAY to good to be true it is literally insane, but realistically it should be very reasonable I would think. So yes please anyone if you have any educated feedback id very much so appreciate it.

Wholesaling Profit Calculations Based Off The Cap Rate (Also pertains to anyone selling a multi family property not just wholesaling)

Ex: 1:

I Buy/put under contract a $1m property to wholesale

I Buy:

-@10% Cap Rate, which=$100k NOI

I Sell To Buyer Of The Contract:

-@9% Cap Rate =$1.111m Property (11% more ie $111k profit)

-@8% Cap Rate =$1.255m Property (25% more ie $255k profit)

-@7% Cap Rate =$1.433m Property (43% more ie $433k profit)

Ex 2:

I Buy/put under contract a $1m property

I Buy:

-@8% Cap Rate =$80k NOI

I Sell To Buyer Of The Contract:

-@7% Cap Rate =$1.145m Property (14% more ie $145k profit)

-@6% Cap Rate =$1.333m Property (33% more ie $333k profit)

Obviously this should be very possible and reliable because it is simply putting a property under contract at a certain cap rate and selling it to a investor that will accept at least .1 percent less Cap Rate, which is obviously guaranteed. So I can simply get buyers that will accept the lowest cap rate possible, say 6-7% is decently reasonable, and I can find deals above 6-7 cap rate then simply raise the property price to whatever the buyers acceptable Cap Rate is and keep the the difference as seen above. Best part to is profit does not even go down depending on if you have a high cap rate deal or a low cap rate deal, a profit margin of 1% lower cap rate to the buyer is 11%-14% of the PP as NET before tax profit, which is absurd. Only problem I could really see is that you cant just put the property price to whatever you want, however you can put it to whatever amount people are willing to pay, and people are willing to pay for 6-7 caps all the time and the math is basic undeniable math, so I really cant see what i'm missing. The only other thing I can think of is the fact that most people buying apartments/commercial go off other factors than the Cap Rate, like the pro forma, ability to increase rents, cash flow etc.

[Charles Carillo]

@Devon Rollison

The biggest obstacle when wholesaling multifamily is all of the factors that come up during the buyer's due diligence. When you wholesale a single family it is really simple. $200k ARV, $30k in repairs = $100k offer for $10k wholesale profit. When you purchase multifamily there is financing usually required, there are cap rates and many other factors that need to be addressed before a sale. What size deposit are you putting down ($100 is not going to be accepted). How much are you asking for a deposit from the buyer? Is it contingent on financing? What happens if he is not approved? Proforma numbers (from a broker) are never really used by true MF investors when they underwrite.

Lastly, where are you finding properties so discounted? MF is really competitive with every MF owner getting calls and direct mail. They are more sophisticated sellers compared with traditional single family wholesale sellers. Just another thought since we do direct marketing and when we actually find a seller that is interested, it is a long process.