Uncovering the Best Distressed Real Estate

Acquiring distressed real estate in the United States is a tricky prospect but can be very lucrative for those who are able accomplish the task. Many commercial and residential real estate markets throughout the US have seen values decline 40-70% from the market high in 2007 which puts prices in a range where a smart investor or developer can acquire and add considerable value. But, as they say in the real estate world, “buyer beware” for there are many factors to consider in acquiring distressed property.

The key to acquiring good commercial or residential real estate is having quality local knowledge. Unlike acquiring publically held companies for which you can pull up extensive data on the internet, real estate information is extremely difficult to find unless you know where to look. There are some web-based programs available that track real estate, but they are very expensive and not particularly user friendly. The key is to do your homework but also hire good people to help in the acquisition.

Knowing your local market is very important. Most investors research large markets such as San Francisco, New York or Los Angeles and become comfortable with the overall economic factors that influence those markets. They can then locate smaller submarkets, within those markets, where they track key real estate indicators such as leasing activity, sales activity, and building permits to track potential new competition and numerous other factors. Based on these myriad factors you can then target acquiring properties that show the typical signs of distress such as low occupancy or insufficient cash flow to cover debt service requirements.

Finding good distressed properties is an art and not a science. During these troubled times there are many distressed properties on the market but the key to acquiring the right property is having connections with the sellers. Many commercial banks and life companies in the US have large portfolios of underperforming properties. Having a personal contact within these organizations helps the buyer of distressed real estate cut directly to the source. If you do not have the direct contacts, the next best way to find property is to have a large stable of real estate brokers that know your investment parameters. Again, this is a fairly inefficient process because brokers will always market properties to their best clients first and then to the mass market. Remember to stay in close contact with your brokers and constantly reassure them that you have the funds and knowledge to move quickly to close on any property they bring your way.