Investing in real estate is an excellent way to create wealth and achieve financial independence. However, finding the right commercial property to buy can be challenging. Fortunately, commercial Real Estate Owned (REO) properties can provide small-time investors with a chance to make a small fortune if played right. In this article, we will provide you with everything you need to know about buying REO real estate.
Real Estate Owned Property
Real Estate Owned property refers to properties that lending institutions own. When borrowers fail to make their payments and fail to find new buyers via short sales or auctions, banks become the owners of commercial real estate. Buying commercial REO property can be particularly difficult for small-time investors to secure.
The Benefits of Investing in Commercial REOs
Investing in commercial REO properties can provide investors with 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. Banks are “motivated sellers” and don’t want non-performing assets on their balance sheets. Banks earn their profits by lending money, not by acting as commercial property managers.
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.
Notable Downsides to Commercial REO
The biggest risk that commercial REO 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 the 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.
Commercial REOs Worth Buying
Sites like Zillow, Trulia, and Redfin aren’t the best places to find commercial REOs. However, 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 pursuing.
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.
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.
Investing in commercial REOs offers a unique opportunity for small-time investors to make a significant return on investment. However, potential investors should be aware of the risks associated with investing in commercial REOs, such as unexpected repair and renovation costs and challenges in securing financing. By following the tips outlined in this article, investors can find REO properties worth purchasing and start their investment journey on the right foot
