Commercial Real Estate Myths Series: Myth 2

Myth: “Distressed properties are cheaper and easier than working with a seller who’s under no particular pressure to sell.”

The reality is that when you’re buying a foreclosure from a bank or dealing with a lender on a short sale, don’t expect logical, rational or remotely timely decisions. Banks work on their own set of rules and have their own priorities. They make decisions based on the financials at the moment and usually don’t consider the future costs of a delayed sale or the condition of the property.

In fact, distressed sales often take much longer than normal to close if they close at all. And they are far more difficult. Lenders are extremely difficult to deal with, whether it be a lack of communication or incompetence, who knows? But it takes many months to get approval. And in the end, the buyer may not get the property and lose out on other good deals along the way with the wasted time dealing with a perceived ‘great deal’.

Another factor is that many times the degree of distress to the building systems the property has experienced during it’s time of vacancy can be substantial and not easily discovered until the property is reoccupied and set into full use again. This is but another unknown that should be considered.

While some foreclosed properties may yield a viable and valuable purchase to the fortunate and savvy investor, the sage advice of ‘Let the Buyer Beware’ certainly holds true for distressed / foreclosed real estate.

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