“Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.”
-Theodore Roosevelt
A distressed commercial property seems like a dream come true for investors. With their lower price point and high potential, these can be sold at a higher price with some major or minor repairs. But are they worth more than properties owned by individuals who are in financial distress?
Investing in Distressed Properties
Whether you are interested in investing in a distressed motorhome or multi-family unit, weigh the following pros and cons to make a smarter decision:
The Upside
It can be purchased at prices lower than market value.
Promise higher returns compared to standard commercial real estate.
Have a high potential for improvement, which can increase their value.
The Downside
Renovations may be very costly.
The investment is susceptible to market conditions, which can reduce its value.
Commercial property renovations take considerable time and resources.
Unhappy tenants may be fleeing the property due to deferred maintenance or other issues
Investing in Distressed Owners
Investing in commercial property whose owners are facing bankruptcy or foreclosure has its pros and cons:
The Upside
Distressed commercial property owners may be more willing to negotiate a lower-than-market price.
Investors may be able to come in with more favorable financial terms.
Rents may be below market as the distressed owner may have the fear of increased vacancy,
The Downside
Even though you may be buying the property and not the owning entity there may be unpaid vendors that could cause legal issues.
Unhappy tenants may be fleeing the property due to deferred maintenance or other issues
The investment is susceptible to market conditions, which can reduce its value.
Your choice should depend on your risk tolerance, financial health, and investment goals. If you invest in distressed properties, you can get more value for your buck, but unpredictable market conditions can reduce their value significantly down the line.
While you can target distressed property owners instead, you still have issues with dissatisfied tenants that may have been ignored due to the duress of the previous owner,
Reach out to us to explore opportunities and learn about the distressed investments we are looking to invest in!