Distressed Commercial Properties

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Buy a Distressed Commercial Property

Distress Commercial Property

If you are cutting costs at work but you are also expanding then you might think about buying a distressed commercial property as your place of business. This will be a good decision if you need a location for your company. The good news is that you will save thousands of dollars when you buy a distressed commercial property because the bank will already have lowered the price of the building significantly lower than the market value. You can never really go wrong when you buy a discounted building for your business.

Banks want to sell the commercial real estate foreclosures they have on their books. They are practically desperate. It can really put your business in a great financial situation if you buy a building and have instant equity. You may have had a very low amount of equity in the business in the past but when you purchase commercial real estate foreclosures then you can be sure that your business has thousands in equity to work with. This is a great way to start a new business and it looks very good on the books when you have tons of equity in the company. Buying a commercial building at market value will possibly put you upside down and owing but not give you instant equity.

A distressed commercial property is an excellent opportunity for a company to remain alive. If you currently own a business and you need a lower monthly payment on your building, if you rent at a high rate, or if you need equity in the company then you should consider commercial real estate foreclosures.

Challenges facing the owner generally fall into one of three categories:

  • Financial: For example, the owner is unable to keep up with monthly loan payments. Just the same, the owner could be facing negative cash flow concerns, thus forcing them to make payments out of pocket. 
  • Physically: It can be physically challenging to maintain a commercial property, mainly if it’s run down and needed repairs. This often goes hand and hand with financial challenges, as it takes money to repair and/or maintain commercial real estate.
  • Legal: This takes on many forms, including but not limited to lawsuits, liens, building violations, and the potential for foreclosure.

With all this in mind, you may wonder why so many people are interested in buying distressed commercial properties. Even with challenges standing in your way, the right plan can put you on the path to generating income.

How to Find Distressed Commercial Properties

There are several ways to find distressed commercial properties, with these among the best:

  • Online: Some websites list nothing more than commercial real estate opportunities. Some of these platforms even focus on distressed commercial properties, so you know exactly what you’re getting.
  • Broker or agent: A real estate broker or agent — especially one who focuses on commercial real estate — can point you toward investment opportunities in your local area.
  • Lenders: If you have a good relationship with your lender, ask them to keep you in the loop regarding any distressed commercial properties that come across their desk. This is a great way to get a jump on other buyers.
  • Direct mail: Don’t be shy about sending direct mail to commercial property owners in your desired areas. While most won’t respond, as they’re not looking to sell, you never know when you’ll find an owner who is ready to move on.

The more distressed commercial properties you purchase, the more connections you’ll make.

You can then rely on your network to find and buy more properties in the future. 

The Benefits of Buying Distressed Commercial Properties

Before you decide for or against a distressed commercial property investment, you must understand the benefits. Here are just a few of the many reasons to consider this strongly:

  • Priced to sell: When an owner is struggling to pay for and/or maintain their property, they’re more likely to be flexible with their asking price. Taking this one step further, foreclosed commercial properties are generally priced to sell.
  • Fast closing: Unless the property is in foreclosure, you can work out a quick closing with the seller. This benefits you, as you’re able to get into the property sooner rather than later. And it helps the seller because it allows them to get out from underneath the property. 
  • Make it your own: While not always the case, many distressed commercial properties require repairs and upgrades to bring it up to par. It’ll cost you money, but it also allows you to put your personal touch on the property.

If you’re unsure if investing in distressed commercial properties is a good idea, let these benefits guide you.

They’ll help you understand if this is the type of investment that’s best for you, your financial circumstances, and your future. 

How to Finance

In a perfect world, you’d have enough cash on hand to purchase distressed commercial properties outright. This allows you to forgo the loan application process while also saving money on interest charges.

But most people find that this is not their reality.

They realize that they need to finance their real estate purchases.

Fortunately, there are many ways to finance distressed commercial properties, including the following:

  • Conventional bank loan: With conventional financing, you’ll agree to terms and conditions with a financial institution. You’ll then repay the loan, with interest, over the period you selected upfront. The issue with conventional financing is that many distressed properties don’t qualify.
  • Seller financing: This isn’t always an option, but it’s something to discuss with the seller. As the name suggests, the seller acts as the bank. You negotiate the details of the contract and then repay the current owner in much the same way as a conventional bank loan. 
  • Hard money loan: Hard money lenders can quickly provide you with the funds you need to close on the property. In exchange for this — as well as the fact that they don’t have to follow traditional banking regulations — expect your interest rate to be much higher. 

You don’t want to make a mistake when choosing how to finance your commercial property purchase.

Doing so will put you in a challenging position from day one. 

Frequently Asked Questions

Investing in any type of real estate is a big decision.

For that reason, you must answer any lingering questions.

Here are some frequently asked questions regarding distressed commercial property investing. Answer these as they pertain to your specific goals and financial circumstances:

  • How much money are you comfortable borrowing?
  • Are you seeking an investment in a particular area?
  • Do you have a relationship with a lender you trust?
  • What type of financing are you most interested in?
  • Do you have a system for finding distressed commercial properties for sale?

Final Thoughts

Now that you understand how to find and buy distressed commercial properties, there’s only one thing left to do: determine if this is the decision you want to make.

You may come to find that this is just the type of real estate investment you’ve been searching for. 

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