What should I know about distressed commercial property?

| Dec 3, 2020 | Real Estate Transactions | 0 comments

It is the nature of human beings to want a good deal. Given how commercial real estate can be very expensive, many potential property buyers look toward distressed commercial property to hopefully save money.

For a multitude of reasons, distressed commercial property may be far cheaper than purchasing “regular” commercial property. According to Commercial Property Advisors, a property can experience physical, or financial distress, as well as distress caused by an owner’s personal issues.

What makes commercial property “stressed?” 

The most obvious variety of distress is physical. This is when the commercial property is in poor physical condition. For example, the buyer might need to replace the roof or rewire the structure. Commercial property can also be financially distressed. This is when the current owner is experiencing negative cash flow or an underwater property. In this situation, the owner is usually highly motivated to sell or rent.

Personal issues can extend to just about anything. It is possible that the owner is dealing with building violations, for instance. They might also be in a toxic business partnership that is going badly.

When should I buy a distressed property? 

First, you should absolutely know the story behind what distressed the property. The more you know about the property’s story, the better your approach to financing the property will be. You will be able to have a better exit strategy if you have appropriate knowledge, and you will gain a realistic understanding of how you can fix whatever is distressing the property.

Essentially, if the after repair value is greater than acquisition, repair, and holding costs, you should purchase a distressed commercial property.