There is nothing like the word “foreclosed property” that gets the blood of the entrepreneurial investor pumping. Especially investors sitting on those hoards of sweet cash, that have contacted me recently about investing. While we are seeing the foreclosure activity picking up in the commercial and multifamily arena, arguably most of these properties have fallen prey to the challenges imposed by years of capital starvation. Crime, deferred maintenance, and undesirable tenant profiles…all spell risk and expensive corrections to get the property healthy and profitably operating again. Because of these risks, there is well-deserved stigmatism attached to the word “foreclosure” that can cloud judgement when looking at an investment property.
Occasionally, however, we will come across a foreclosed investment property that is a diamond in the rough. Yes, you have to kiss many of those toads to get the prince…but it is almost poetic when you finally get to the altar with one.
Many investors tend to think that all foreclosures are alike…but nothing is further than the truth. Some perfectly healthy properties foreclose due to ownership illness or death, lacking a competent family member to take over management or understand the consequences of not paying the mortgage. I’ve seen a few of these that have landed on the courthouse steps and traded at a price well below the actual value. Others foreclose due to ownership dysfunction or political reasons. I’m seeing a few of these right now as well, where the owners are too spooked by the capital markets and unable to make a joint decision to put in the financial resources to keep the properties going. Several of these deals have positive equity.
We have bought several foreclosed deals that were 100% leased to credit tenants, at a fair price (not bargain basement), that were publicly marketed through national brokers. We were able to get these deals because most of the viable buyers were spooked by the “foreclosure” stamp in the history books, and only interested if the price spelled ”bargain”. After we were able to flip these properties at enviable profits, my colleagues would kick themselves for not buying when they had the chance.
On the flip side, there are foreclosed properties out there that I would not pay even $1 to purchase. Yet, there are lines of investors willing to make offers just because “it is a good deal” in terms of price.
If you want to find gold in them “foreclosed property hills”, you need to be patient and persistent, and not mentally stigmatize the property just because it is a foreclosure. You need to make sure that you undertake the risk of ownership of the property by undertaking a thorough due diligence. If you don’t know what your doing but still want to buy, then surround yourself with the experienced, trustworthy people who are not afraid of a stigmatized properties. You also need to really understand the risk of these deals and not invest just because the purchase price is attractive. Yes, times in the commercial and multifamily investment world are tough right now, but there has never been a better time to search for the gold.
Does anyone want to comment or share their experiences?
Yes, “patients and persistents” are the key words when dealing with these types of properties. I’ve been in the Hospitality/Hotel business for a long time and can see the points where others don’t seem to. Also “surrounding yourself with the experienced, trustworthy people” is the other half of the equation. There is tons of money still to be made even in these times, but someone just has to be on the lookout for the deal.
Thanks!