Things to Be Mindful of When Buying Commercial Real Estate During a Recession

As many industries are seeing a downturn caused by the recent worldwide pandemic, real estate investors with cash on handstand to benefit from purchasing properties at lower prices. Good investors know there are investment opportunities to be had, but wise investors are also aware of possible hiccups that could arise while seeking out and purchasing these properties.

Here are some examples of those set-backs that could come up:

Deferred Maintenance

The chances of finding a property that is in immaculate condition with responsible tenants is going to be slim. Statistics show that most properties with landlords that take good care of the property and have stellar tenants are doing fairly well, they are not really in need of rescue. Generally, these properties are owned by landlords prepared for hardship with some reserve on hand.

Usually, when you come across a super cheap recession deal it is going to be a property that needed to focus funds to the bare necessity of survival until it just couldn’t anymore. Most super sale properties are going to require some maintenance. This is not a horrible trade-off for a lesser price though. Some of these properties are merely diamonds in the rough waiting to be restored back to glory and will have a line of tenants wanting to move in.

Make sure to have an inspection performed by a highly-skilled professional to get a good idea of what you will be getting into. Also be prepared to pay a little more in capital expenditures upfront.

Related: How to Choose the Right Lender

Non-Performers

A non-performer is a property that consistently has issues obtaining rent. This could be due to irresponsible tenants and/or unmotivated management. It happens quite often in properties that are completely managed and owned (paid off no loans) by the landlord.

Some tell-tale signs of non-performers include a lack of bookkeeping and relaxed maintenance and care. Non-performers are often sold by owners that need help making ends meet with personal finances. There are many reasons why searching for these properties is a good investment during a recession as long as you are willing to deal with a bit of a battle obtaining rent when you take it over. It is best to go in with a plan before making an offer.

Evictions

The number of people not able to pay rent right now is increasing every day, and though this would usually result in eviction, many governments have put a freeze on them. It is understandable why they would freeze the eviction process during this time, but what you want to be careful of is property sellers that have unreported non-paying tenants on their books. It is not unheard of for a seller to make a property appear more attractive by simply leaving a few tenants that have not been able to pay out of the reports.

Make sure to dig deep and find out about the true health of a property. You don’t want to end up with a building someone dumped off to avoid dealing with evictions later on. Review the seller’s numbers and see if they match up with the current leases. If they don’t seek proof that payments were made in the form or bank deposit statements. You don’t want to close on a property just to turn around and have a large number of evictions to deal with.

With a little knowledge and the help of a great commercial real estate agent, you can find some great investment properties during a recession. For info on commercial real estate in Minot and surrounding areas contact us at any time.

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