Investing in Below-Market Commercial Real Estate

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#1 Consider How Commercial Real Estate is Valued

First of all, if you’re looking into investing in commercial real estate, you should know that it is valued differently than residential property. Unlike residential property which is valued based on factors such as neighborhood, taxes, school district, job market, etc., commercial property is valued most significantly in relation to its useable square footage. So income on commercial real estate is correlative to how well the space can and will actually be utilized. Therefore, consider what you goal for the space is; depending on how it will be utilized, it can be very prudent to invest in commercial real estate. Also keep in mind that third-party appraisers determine market value, a process during which the best use of the property is determined and zoning ordinances are considered. If the feasibility of your commercial needs meets the specifications of the space, then investing in below-market real estate is a solid plan.

#2 Consider an Investor-Owned Home

While not technically commercial property, purchasing a residential property to rent out to tenants is an excellent way to invest in below-market property in order to turn a profit. There are often tenants living in these properties upon purchase which can be a benefit or an impediment to your financial success, depending on the quality of the tenants and the extent of the work you wish to do on the building.

#3 Consider Off-Market and Short Sale Properties

REO (Real Estate Owned) properties are typically listed in the MLS (multiple listing service) and can often be purchased for lower than market value. Some banks make repairs to properties prior to sale and some do not, which can also influence the price point at which you are able to solidify purchase. Additionally, some banks are more fluid on prices than others, but in the case of REO property, be ready to place your highest bid possible, as these properties are becoming harder to find and in turn spur more competition. Short sale real estate listings also offer the possibility of finding commercial property below market value, but the difference is that property is purchased from a private seller who owes the bank more than it is listed for. The key to snagging short sale deals is to act fast, as property is often sold to the first buyer who makes an offer; however, note that even if your offer is accepted, a bank loan may not be approved.

#4 Consider Payment Options

Do not underestimate the power of cash when attempting to invest in below-market real estate. Most banks won’t secure a loan for commercial property without at least 30% down, so cash-in-hand talks when it comes to acting fast to secure a smart and potentially lucrative property.

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