Why There is Opportunity in Distressed Commercial Real Estate

Commercial real estate has always held some advantages over residential. Because of the strong cash flows in commercial real estate, just one good deal can set you up for life, if you can manage to purchase and hold it. A commercial property can also throw off enough cash flow to allow you to hire a competent management team right from the start, whereas you might have to buy forty or more houses before you could afford a management company. With the right commercial deal you can attract silent partners who would normally not be interested in partnering on a residential property. Seller financing is much more common with a commercial deal. Although some homeowners Average Time To Sell A House By Zip Code will tolerate seller seconds, and a few will even prefer them, most will balk. They want their money out now to meet their personal needs…another house, college, travel. Now with commercial, I am not talking about the type of small seller-carry-back that you often see on residential deals. I am talking about up to 100% seller financing. Owner financing of commercial properties averages a much higher percentage of the purchase price than residential owner financing does. If some one has owned a profitable business for many years they may not need cash now, and they are often sophisticated enough to appreciate the tax benefits of receiving payments over time.
Bank financing may be easier on a commercial deal. If the property has good cash flow the banks will look more to the property for the repayment of their loan, and less to the borrower’s credit and personal financial bank will be very interested in the debt-coverage ratio.
If you are just flipping the deal, you still benefit from the fact that you are working with higher numbers. Higher numbers means there is more room for profit for you. Flipping can be tricky as you will be working with very sophisticated sellers, buyers and lenders, any and all of which may try to limit your profit, or cut you out of the deal all together. It is essential that you develop a number of strategies to protect your profit. You can protect yourself best if you put yourself in a position to actually close on the property and then resell it.
If you have worked on residential short sales you know the main horror- delay. The lender can’t make up their mind or won’t agree to a reasonable sales price. Months pass, Nj Real Estate License Search now the paper work is all out of date, resubmit it, renegotiate with the lender. Perhaps you finally get your deal, perhaps the foreclosure goes through instead.
Commercial short sales can proceed much more rapidly. You are dealing with a more senior official at the bank. The buyer has possibly put up a large deposit and they are tying up a lot of other money in readiness for the purchase. Sophisticated buyers with ample funds will not allow the lender a long time to approve the sale. They either get a price they can live with quickly or they move on to the next deal.

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