The current state of the real estate market can often be a tricky one. With so many different options available, it can be difficult to find the right property for your needs. If you’re looking for a commercial property that is distressed, there are certain strategies and tips that can help you locate one more easily.
This article outlines how to find a distressed commercial property for sale, including tips on identifying potential properties, what questions to ask, and how to make an offer. With the right preparation, you can put yourself in a strong position to land your dream property.
What Is A Distressed Commercial Property?
A distressed commercial property is one that has been through foreclosure, bankruptcy, or some other form of distress. This type of property may have been neglected by the owner, resulting in a low purchase price and potentially high returns for an investor. Make no mistake, although it can be risky to invest in distressed properties, they can provide great opportunities for profit.
These distressed properties can be found in a variety of settings, including:
- Office Buildings: Office buildings can become distressed due to a lack of occupancy or rental income, high vacancy rates, or deferred maintenance. This can result in a decline in property value and difficulty in attracting new tenants.
- Retail Stores: Retail stores can become distressed due to changing consumer trends, competition from e-commerce, high operating costs, or declining foot traffic. This can result in reduced sales, lower rental income, and difficulty in finding new tenants.
- Warehouses: Warehouses can become distressed due to changes in demand for industrial space, obsolete technology, or a lack of investment in maintenance and upgrades. This can result in lower occupancy rates, reduced rental income, and difficulty in finding new tenants.
- Factories: Factories can become distressed due to changes in demand for their products, high operating costs, or a lack of investment in technology and infrastructure. This can result in lower productivity, reduced revenues, and difficulty in finding new buyers or investors.
Why Buy A Distressed Commercial Property?
Buying distressed commercial property can be an opportunity for investors to acquire real estate at a discounted price. These properties typically need work, but they could be extremely profitable if the right renovations and upgrades are done. Investors who purchase distressed properties also benefit from potential tax incentives, such as depreciation write-offs and cost segregation deductions.
Great Source Of Income
Distressed properties can provide a steady stream of income for investors. With the right renovations and upgrades, distressed properties can often be turned into highly desirable rental properties.
Offers Tax Benefits
Investors who purchase distressed commercial properties can take advantage of various tax incentives. Depreciation write-offs and cost segregation deductions are just two of the potential benefits. Investors should consult with a qualified tax advisor to determine which incentives are available for their particular situation.
Value Appreciates Over Time
Investing in distressed commercial properties can provide investors with long-term returns. Over time, the value of the property is likely to appreciate, and this appreciation can result in substantial capital gains. Additionally, rental income from tenants can also be a significant source of income for investors.
How To Find Distressed Commercial Properties
When looking for distressed commercial properties, start by searching online for properties in your desired location or region. Analyze the property’s condition to determine its viability as an investment and look for recent activity such as tenant turnover or repairs.
Develop a list of possible properties and then contact local brokers or agents who specialize in commercial real estate transactions.
Here’s a detailed list of steps to use when searching for distressed commercial properties:
Look For Seemingly Abandoned Properties In Your Area
Check public records and search for properties that have been neglected or abandoned. Pay attention to signs of neglect, such as overgrown grass or weeds on the grounds, broken windows, and boarded-up entrances. Run a land title search to determine if the property is in foreclosure or has a lien against it.
Check With Your Local Real Estate Agent Or Broker
Look for real estate agents or brokers who specialize in distressed commercial properties. Ask questions about vacancy rates, tenant turnover, and other properties that they manage in the area. Get a feel for the market and what kind of deals may be available.
Browse Through Commercial Property Websites
Look for properties that appear to be neglected or abandoned, and contact the owners if possible. Ask questions about their plans for the property and whether they are interested in selling or leasing it. You may even find a great deal on a property if you search diligently.
Here are some website sources for commercial properties to start your search:
Zillow
Zillow is one of the largest online marketplaces for commercial properties, with thousands of listings across the United States. You can filter your search by location and type of property to find exactly what you’re looking for.
Realtor.com
Realtor.com is a great resource if you’re looking for commercial properties in specific areas. You can search by location, size, and type of property to find what you need quickly and easily. It also offers helpful resources such as market reports and property reviews.
LoopNet
LoopNet is one of the most popular commercial real estate websites. It has a great selection of properties available for sale or lease in different parts of the country and provides detailed information about each listing. You can also find helpful resources such as market reports and analysis.
Auction.com
Auction.com is a great resource for those looking to buy commercial properties at auction. It has listings from all over the country and provides detailed information about each property before it goes up for sale. You can also find helpful resources such as market reports and updates on upcoming auctions.
Cityfeet.com
Cityfeet.com is an excellent service for those looking to buy or lease commercial properties in any city in the United States. It has a comprehensive database of listings, up-to-date market insights, and helpful resources such as local news and events.
CoStar.com
CoStar.com is one of the most comprehensive online commercial property marketplaces, with an extensive database of both office and industrial listings from across the country. It offers detailed information about each listing, including square footage, potential tenants, and availability dates.
Attend Foreclosure Auctions
Attending foreclosure auctions is another great way to find good deals on commercial property. These auctions are held by local governments when a borrower defaults on their mortgage loan and the lender attempts to recoup their losses through an auction.
It is important to do your research before attending any foreclosure auction, as the rules and regulations of buying real estate at these auctions vary depending on the area.
Additionally, you should be aware of any potential liens or back taxes that may be attached to the property before bidding on it.
Look For Short Sales
Short sales in real estate occur when the homeowner is unable to pay their mortgage and owes more than their home is worth. In a short sale, the homeowner asks their mortgage lender to allow them to sell the property for less than what is owed on the mortgage. The lender agrees to take a loss on the mortgage, and the homeowner can avoid foreclosure and its associated costs.
Short sales can be difficult to find for a few reasons. First, not all homeowners qualify for a short sale. They must demonstrate that they are unable to make their mortgage payments and that the property is worth less than the amount owed on the mortgage. Additionally, lenders may be reluctant to approve a short sale, as they will lose money on the mortgage.
The Risks Of Buying Distressed Commercial Properties
Distressed commercial properties may be available at a discount, but they also carry significant risks for potential buyers. Here are some risks to consider before buying distressed commercial properties:
1. There May Be More Need Of Repairs Than Expected
Distressed commercial properties may have more repairs than initially thought. It is important to inspect the property thoroughly and get an estimate of what the repair costs will be.
2. Its Value May Not Appreciate As Much As You Hoped
When a property is purchased at a discount, its future potential for appreciation may be limited. Research the area and local market to determine how much (if any) potential growth your property might have in the future.
3. The Neighborhood Could Decline In Property Values
Areas where the property is located can decline in terms of business activity and the quality of life, which could include noise, pollution, traffic congestion, and crime.
4. May Be Situated In A Disaster-Prone Area
If the property is located in an area considered to be prone to natural disasters such as floods, earthquakes, or hurricanes, you should take extra precautions. Flood insurance, for example, may be required, and you should evaluate the cost of earthquake retrofitting or other necessary repairs.
How To Avoid Scams When Buying Distressed Commercial Real Estate
Buying distressed commercial real estate can be a smart investment, but it also carries some risks, including the potential for scams. Here are some tips on how to avoid scams when buying distressed commercial real estate:
Research The Property Before Making An Offer
Before making an offer on the property, do your due diligence to ensure that the property is a good investment and worth the asking price. Conduct an inspection and research the local market to get a better understanding of the property’s value.
Be Cautious Of Sellers Asking For A Large Down Payment
Be wary of sellers who require a large down payment. If the seller is asking for more than 20 percent of the purchase price, it could be a sign that something isn’t quite right with the property.
Be Sure To Get All Paperwork Done For The Property
Make sure to read all documents involved in the purchase and sale of the property, such as deeds and leases. You’ll also want to review any legal paperwork related to the property that may be required by local or state regulations. Get help from a real estate attorney if necessary.
Watch Out For Properties That Are Significantly Undervalued
Be wary of properties that seem significantly undervalued. It could be a sign that there is something wrong with the property or its neighborhood. Make sure to check out all aspects of the property, including the local market and nearby amenities, before making an offer.
Explore Distressed Properties As Your Next Investment Opportunity
If you’re looking for an investment opportunity with high potential returns, distressed properties may be the right choice for you. With the right strategy and financing in place, investing in distressed properties can provide a solid return on your investment.
Pine Financial Group has the experience and knowledge to help you navigate the process of financing and investing in distressed properties. We can help you find the right property and get the financing you need to make your investment a success.