Bank-owned commercial properties for sale could give you a low-cost way to enter commercial real estate investing or grow your portfolio. The following article will help you make the right decisions that lead to success.
Related reading: How to Start a Commercial Real Estate Investment Company
What Is a Bank-owned Commercial Property
Bank-owned commercial properties have typically gone through the foreclosure process but failed to find interested buyers. As a result, the financial institution owns the real estate.
Commercial real estate goes through several steps before it becomes bank-owned commercial property. A common route to becoming a bank-owned property includes:
- Missing several mortgages—or another loan—payments
- Entering the foreclosure process, which returns ownership to the lender
- Attempting to sell the commercial real estate as a foreclosure, usually at a reduced price
- Failing to sell the property as a foreclosure
At this point, the financial institution completely owns the real estate. This can create challenges for banks and credit unions. They rarely want to own a lot of property because doing so can lead to higher taxes and maintenance costs.
This is an unfavorable situation for the lender that now owns the commercial property. At the same time, it creates an opportunity for investors.
Advantages of Buying Bank-Owned Commercial Properties
Commercial real estate investors can benefit from buying bank-owned properties in several ways. Most notably, the bank-owned properties sell at below-market prices. The bank has unsuccessfully tried to sell the real estate as a foreclose, so it wants to find someone willing to buy the property, even if that means slashing the price.
In addition to saving money on the overall price, you might find that loans for bank-owned commercial properties come with low-interest rates and down payments. Instead of making a 20 percent down payment, you could pay 10 percent. That saves you money upfront so you can start earning a return on your investment. The lower interest payments should also keep long-term expenses affordable.
Challenges of Buying Bank-owned Commercial Properties
Getting commercial property at a low price sounds like an excellent investment opportunity. Before you commit to buying real estate, you should learn about some challenges investors often encounter when getting involved with bank-owned commercial properties.
Some of the most common issues include:
- A prolonged process as the bank checks your credit history, assets, and other financials to determine whether you can buy the property and make payments reliably. The bank doesn’t want to face another foreclosure, so it will take a close look at your finances to avoid another disruption.
- Property titles don’t always get transferred as expected. Always verify that the previous owner does not have any stake in the property before you dedicate any money to the commercial real estate.
- The reasons that made it impossible for the previous owner to make loan payments could become more evident after buying the property. Conduct research to determine why the previous business plan failed and decide whether you can avoid the same fate.
Every investment has some risks. The more you know about bank-owned commercial properties before you buy them, the more likely you can make money from the real estate.
How to Find Bank-Owned Commercial Properties for Sale
You have a couple of options when searching for bank-owned commercial properties for sale. The most labor-intensive option involves contacting financial institutions in your area and inquiring about any commercial real estate they want to sell.
The amount of time and effort that this takes can vary greatly according to your location. If you live in a small metropolitan area, you might find that you can reach out to every major lender within a few days. Keep in mind that it will take some time for them to respond. Then, you will need to comb through the listings to find properties that interest you.
If you live in an urban area with a high population density and many commercial properties, you could spend weeks contacting lenders to get property lists.
A subscription database makes it much easier for you to find and track investment opportunities. The ProspectNow commercial database even lets you target properties likely to sell soon. The database and its algorithm look for signs that someone will sell a commercial property soon. Those signs include:
- Delinquent taxes that indicate money problems
- Filing for bankruptcy
- Missed loan payments that put them on the path to foreclosure
- Losing tenants
Depending on your preferred investment method, you could approach commercial property owners during the pre-foreclosure phase—giving them away to avoid financial hardship—or wait for the property’s ownership to revert to the bank, which should mean you can buy the real estate at an even lower price.
Related reading: 7 Things to Look for in a Commercial Real Estate CRM
Choosing a Bank-owned Property
The growing list of businesses filing for bankruptcy during and the after the pandemic makes it more likely that you can find low-cost real estate. A low price doesn’t necessarily mean that it makes sense for you to buy a bank-owned commercial property. There are other factors you should assess. Here are some additional tips.
Scout the location
Take the time to visit the commercial real estate, observe it, and answer a few questions like:
- Do you see a lot of traffic in the area?
- Are nearby businesses thriving or failing?
- Is the real estate located near a residential community?
Evaluate the property’s opportunities
The current version of a bank-owned commercial property might not serve your investment goals. Some work, however, could improve the property’s value and ability to generate revenue.
Opportunities often look like this:
- Additional land you could use to expand or construct buildings
- Developments that will soon introduce more residents or employees to the area
- Infrastructure improvements that will soon make it easier for people to visit the property
- Low-cost ways to improve the property and make it more attractive to tenants
Get the property inspected
A visual inspection can help you spot potential revenue opportunities. Always get the property inspected by a professional before you invest.
Once you have an inspection, you can estimate the money needed to repair and upgrade the commercial property. Add that amount to the property’s cost. Are you willing to spend that much money on real estate?
How ProspectNow Can Help
Bank-owned commercial properties for sale could give you investment opportunities that lead to impressive profits. Start your ProspectNow membership now so you can access information that will help you make better investment decisions.
ProspectNow comes with a database that lets you search more than 42 million commercial properties. The database also makes it easy for you to find a property’s true owner. In this case, you will find out which financial institution owns the property so that you can contact them for details.
Start a free trial with ProspectNow so you can experience the benefits of using a comprehensive commercial real estate CRM built for investors like you. We’ve been collecting and sharing commercial real estate data since 2008, so we know how to offer the accuracy and insight you need to make successful deals.