Distressed commercial properties are under-performing assets that pose significant challenges to owners from a physical and financial point of view. Whether they’re run down, obsolete properties or they’re producing a negative cashflow every month, distressed properties can be great investment opportunities.
But investing in distressed properties is not always easy. We put together a list of the most important questions you should have an answer for when looking for distressed properties in Florida.
How do you find distressed properties?
There are quite a few ways to find distressed property listings in Florida, with some of the most common including Multiple Listing Service (MLS), bank websites, and online specialist websites. Websites such as Foreclosure.com, Loopnet.com, or Re-Max are some examples.
You can also find distressed properties at local auctions, from county court records and county tax records, as well as simply by driving around and spotting buildings that are abandoned or in disrepair.
For more information on distressed properties, read our comprehensive guide on where to find distressed properties in Florida.
What is the primary problem of using distressed sales as comparables?
Appraisers may use distressed commercial properties as comparables when doing an appraisal of non-distressed properties. While short sales and foreclosures can provide important information for appraisers, many argue that distressed properties shouldn’t be used as comparables, mostly because distressed properties have contingencies and are likely to sell for less.
What is distress value of property?
A property that’s in the process of foreclosure is typically referred to as distressed and its owners are generally motivated to sell. This means that the distress value may be much lower than the current true market. In many cases, the owner of a distressed commercial property will attempt to sell the property even if the current market value is lower than the amount they owe to the lender.
What is fair market value of property?
Fair market value of property refers to the determined price a property sells for in an open market. This is agreed upon between a seller and a willing buyer. It’s important to understand that fair market value is not necessarily the appraised price of a property.
To calculate fair market value, the seller and buyer can use a comparative market analysis of similar properties in the area and have an appraiser determine the valuation. While the appraised price is not the final way to determine fair market value, it can help as an estimate.
What are distressed asset opportunities in commercial real estate?
Distressed asset opportunities in commercial real estate typically refer to fixer-uppers. These are properties that perform well below their potential, whether because of physical condition, market factors or mismanagement. This makes them available for a lower-than-average purchase price.
It’s important to keep in mind, though, that even though there’s a lot of potential for significant gains with distressed asset opportunities, investors may also have to deal with more complex issues to resolve.
What are some important things to know about investing in distressed properties?
– The initial purchase price is typically lower than average, but the potential for appreciation is high with distressed properties.
– Business plan. Making a distressed asset profitable requires a solid business plan. Any unaddressed issues related to anything from maintenance to disgruntled can have an impact on the final cost and timeline of a project.
– Due diligence. Sellers generally award distressed deals to investors who are willing to close quickly. This means that the purchasing process may be shortened, so there could be less time to evaluate the potential of the project.
– Legal costs. There may be extra legal costs associated with purchasing a distressed property, which may also come with borrower bankruptcy risk.
Bottom line
Distressed assets offer unique buying opportunities for investors because they can get a good deal on the sale. Moreover, commercial investors are typically well-equipped to handle any issues they may discover on the property.
It generally makes sense to purchase distressed assets when the after-repair value for the property is greater than the acquisition cost, the repair cost, and the holding cost.
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