Distressed properties can be located in basically every city. They are available to those investors who have a clear vision and an eye for creating value that is currently obsolete. This strategy of investing is available to anyone, and is used by the most astute investors. The result is a solid, well-performing property that generates the most cash it possibly can.
Very often distressed properties need some maintenance, focus, and a new, professional management team to get the property up to speed with the rest of the market. If it is the owner who is distressed, they very often just want the property taken off their hands so they no longer have to deal with it. Commercial properties can often become difficult and expensive to maintain, and some owners simply don’t have the time, money or patience to keep them up.
Distressed properties are identified by some sort of problem. This problem generally resides with two aspects of the property: either the property itself or the owner. The problem can be simple like a high vacancy rate of an apartment complex, or something much larger like the possibility of a property going into foreclosure because the owner cannot make the mortgage payments on time. This can ultimately ruin a person’s credit if a property is to go into foreclosure.
Before we look at a few ways to locate distressed properties, let’s first look at some specific characteristics of distressed properties that you may come across in your search.
A distressed property may have:
high vacancy rates
below market rents
poor management
old, run-down condition
poor common areas
no amenities
low net operating income (NOI)
A distressed owner may:
be too old to maintain the property
have inherited the property and doesn’t want the hassle
cannot pay the mortgage
be facing foreclosure
be in bankruptcy
be going through a divorce
Distressed properties can have a multitude of characteristics, combination of characteristics, and even odd problems specific to a property or owner.
So how do you identify these distressed properties? One way is to drive around your community looking for buildings that look vacant, run down, not fully leased, and those that display for sale by owner (FSBO) signs. If a property looks like a sore thumb in a nice area, then that is a flag that there might be something wrong. You can go to the county, find out who owns these buildings and send out a letter campaign telling them you wish to purchase the property. Many deals can develop this way, and you can get great prices on properties you didn’t even know would be for sale.
Another way to find distressed properties is to call brokers on listings you find on the internet and simply ask why the owner is selling. You may have to call on quite a few properties, but eventually you will find that gold mine property being offered way below the market rate. With just a few changes that distressed property may be a money generating machine once more! You can even call on brokers to locate and bring you properties with problems that fit your targeted criteria. This strategy of finding distressed properties is a great one, as you can very quickly cut through the many listings that do not fit your criteria.
In order to turn these distressed properties into current market premium properties that retail investors would envy, use the following tools to bring the property up to par. You can renovate the building, change the management team, fill vacancies, add amenities, raise rents to market level, change the leasing agreement, lower overall expenses, and market it properly to a wider audience. With these simple tools, your once run-down, non-performing property will create more cash than anyone would have imagined.
Don’t discount the value of poorly performing properties. Working with distressed properties can be a great way to purchase a property inexpensively and get your foot in the door of the commercial real estate industry. This investing strategy can be far easier than purchasing retail properties at a premium price! A little work and the property can be worth so much more, and supply you either passive income for years to come, or a retail property you can sell at a premium.
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