Investing in Commercial Foreclosures can be a good strategy for investors looking to make good returns while taking a higher risk on the property. As a rule of thumb – higher the returns, higher will be the risks.
But that should not stop you from thinking of investing in Commercial Foreclosures. If done right, investing in commercial foreclosures might be a lucrative investment in the long run.
The best part of investing in commercial foreclosures is that investors can secure good properties at discounted prices. Since lenders are desperately looking out for buyers, the negotiations on the property value would generally not be a tough nut to crack either.
If there’s one myth that needs to be busted about investing in commercial foreclosures [wiki], then that is – investing in commercial foreclosures isn’t a worthy one because of low returns or low value for such properties in general. In reality, it is the opposite of this myth.
Foreclosed properties have nothing to do with lousy repute or adverse property conditions but only to do with the borrower’s inability to repay the loan.
That’s not a sign that these properties cannot be a form of consistent cash-generating assets. They can be a tremendous revenue-generating asset. Thus, it is safe to say that investing in commercial foreclosures is a beneficial deal.
However, there are a few guidelines on how to utilize or how to assess such properties. This blog is a quick guide to buying commercial foreclosures and building a successful deal around it. Read on.
Know about Commercial Foreclosures
#1 – Decide what you want to do with the property before you decide to buy the property
One of the most common mistakes novice investors make while investing in commercial foreclosures is to invest in a commercial property without knowing what they intend to do with the property. Having a plan gives a headstart.
It acts as a guideline in making further decisions concerning the repairs and renovations to be made to the property, and the overall application of the property.
Having no plan is not right, and you wouldn’t be able to make right decision concerning choosing the best Commercial foreclosed property in the locality.
For example: If you want to use a foreclosed commercial property like shopping complex by renting out to various small to medium businesses.
But the property you’re looking at looks more like a multi-family property, then investing in this type of Commercial Foreclosure might not be your best bet. It’s not the right fit naturally because it does not fall in line with the goal that you want to accomplish.
Hasty decisions in this regard will lead to wastage of time, resources, energy, and money. Have a concrete plan for what goals you want to get your commercial foreclosed property before you make your decision to purchase and fix the property as per your needs.
#2 – Be Wise in Choosing Your Property
In the beginning – commercial property foreclosures might seem very appealing, and you may want to rush in to seal the deal as soon as possible. But before you make such hasty decisions, wait and carefully examine what you’re getting into.
If a property is foreclosed, there should be a reason, and you should know it. It may be due to the poor financial condition of the owner or the borrower; it may be due to the poor state of the building, which led the owner to stop making his loan payments on time. so on.
The reasons could be many. Being aware of this reason is very important. Understand that there’s nothing wrong in taking an honest approach and asking the lender who’s selling a foreclosed property the idea behind such a foreclosure.
In fact, lenders must keep their new buyers informed about the reason behind the foreclosed property. However, the onus of ensuring that you are well aware of the reason behind foreclosure is on you as a property buyer.
Remember also to cross verify the reason stated by the lender and check for the authenticity of facts. Bottom line: regardless of how tempting or irresistible the property looks to you, be sure to take your time to conduct due diligence by asking neighbors, taking advice from experts and then make the call of investing your time and money in a particular property. Don’t let your emotions override your objectives and logic.
#3 – Figure out the best form of financing for your foreclosed property
With various types of commercial real estate financing available out there, it could be daunting to figure out the best fit that’ll perfect your individual financing needs. However, you cannot overlook this decision.
You have to do your research, ask around, consult Lending institutions and agencies to find out the best financing option that’s available for you.
Foreclosed properties, to begin with, do not have the best repute in the market, and you will find that many lenders and banks are simply not interested in lending their capital to you.
So, be prepared to be turned down by a bunch of lenders before you find someone willing to finance your need. As a general rule, remember that it comes down to your repute and confidence as an investor that’ll make lenders believe in you and your ability to bring them good returns for the capital they lent.
So, as explained in #1, having a concise plan will come a long way here to help lenders buy your idea of turning a foreclosed commercial property into a revenue-generating asset and lend you money.
Be creative and explorative to find out exciting loan options you can choose from and know that there is no “One-size-fits-all” type of financing option out there, and you have to do your research to find out the best one for your financing need.
Working with private money lenders can be your best bet since they are interested in investing in such high-risk-high-reward investments and will lend your capital if they’re satisfied with your game plan of what you wish to do with the property.
On the other hand, hard money lenders could be a good option too if you have a somewhat-good-looking credit score and want a reliable source of funding home, which you can count.
Bottom line: Don’t rush into buying the cheapest loan in the market; take your time but be sure to make a well-informed decision.
#4 – Conduct a due background check on the property
Foreclosed properties aren’t necessarily the ones that are vacant and have no legally binding contracts attached to them. In many cases, you’ll find there are business or residential tenants in a foreclosed property whose terms of staying or periods of lease or rent is not over.
You need to run a thorough background check to understand what contracts are still legally binding on the property and understand the nature of the tenants living in the commercial foreclosures property.
You may want to rewrite a new contract based on your terms and conditions or might want to continue with whatever that’s existing. The point is – be sure of every contract or an agreement that’s attached to the property you’re looking at before deciding to buy it.
Conducting a background check also involves checking the condition of the property concerning the number of rooms, pillars, quality of the construction materials used, property’s heating or cooling systems, property’s sewage treatment systems, etc.
Make a report on the condition of the property well in advance before you go ahead with making a purchase. Hiring a CRE broker is the right decision here.
These are 4 Things you need to know about Commercial Foreclosures before you go ahead and begin your hunt for such properties. For beginner investors or for someone who has no experience in dealing with commercial foreclosures, it can be a daunting task to get through the whole process of finding the best property, making the best plan, and decide what to do with the property value and so on.
Thus, working with experienced real estate partners can be your solution. You can avoid a lot of expensive mistakes when you choose to work with real estate agents or partner with real estate agencies and seek their help or guidance. Their experience and expertise in the field will be your biggest asset, which will not only keep you from making wrong decisions but will also ensure your real estate investing success to a great extent. Talk to our experienced agents at Private Capital Investors today and let us know how we could help you. We’d be glad to assist you.
