Investing in commercial real estate has been one of the most dependable paths to financial independence in the United States for centuries. Unfortunately, finding the right commercial property to buy is easier said than done.
Buying REO real estate can make you a small fortune if you play your cards right.
A REO or real estate owned property is a property that’s owned by a lending institution. Banks become owners of
commercial real estate when borrowers can’t make their payments and fail to find new buyers via short sales or
auctions. Buying REO real estate can be particularly difficult for small-time investors to secure.
The biggest advantage of buying REO real estate is the potential for superior returns on
investment. Many commercial REOs sell for far less than their market value due to a variety of factors. If a
property simply needs a minor cosmetic facelift, a buyer can reap a substantial windfall.
Another great benefit of commercial REOs is the quick turnaround times that often accompany their sales. To put it in simple terms, banks are “motivated sellers” since they don’t want non-performing assets on their balance sheets.
Banks earn their profits by lending money, not by acting as commercial property managers.
Lastly, commercial REOs allow entry-level investors to get into the commercial real estate game without a lot of
capital. If you do a little homework and find a diamond in the rough by scouring commercial REO listings, you can
easily obtain a great property at a fraction of its value.
The biggest risk that commercial RIO buyers assume is the possibility of unexpected repair and renovation costs. Most commercial REO properties are sold “as is” and come with no guarantees that they will be viable investments. What’s more, buyers typically don’t have a lot of time to assess property beforehand.
Another major wrinkle to ponder is the financing arrangements needed to pull off commercial REO investment. If you’re using a bridge loan to buy a commercial REO, getting the property up to snuff ASAP is critical. Finding a long-term lender to finance your play can be difficult even after the property is renovated.
For the most part, sites like Zillow, Trulia and Redfin aren’t the best places to find commercial REOs. The good news is that the USDA, HUD, Fannie Mae, Freddie Mac, Wells Fargo, Bank of America and many other lenders maintain their own online listings of commercial REO real estate worth perusing.
Most banks that own REOs use realtors to offload unwanted property. Becoming good friends with local realtors who
specialize in foreclosure deals is a wise move if you’re on the prowl for viable commercial real estate. Top realtors will pay for themselves and then some by directing you to the best buying REO real estate before they hit the market.
Not every commercial REO worth looking at is owned by a nation-wide lender. Many local credit unions have
foreclosures on their books that they’d like to sell in a hurry. Contact regional banks nearby and ask to speak with their REO specialists to get a better read on your options.
Commercial REO investment opportunities are everywhere if you know where to look. Do your due diligence and kick the tires on any deal before you make a firm commitment. As long as you understand the potential pitfalls of buying REO real estate there’s plenty of gold in that market no matter what the overall economic situation may be.
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