Let’s be frank: buying a pre foreclosure can sometimes be difficult given the unfortunate position of the owner.
Still, buying a multi family or commercial pre foreclosure can offer investors huge potential savings, and so they remain a hot commodity among interested investors.
How to Buy a Pre Foreclosure
While many resources exist for searching, finding, and buying pre foreclosure homes across the U.S., the same cannot be said for commercial property and land pre foreclosures.
With that, in this article, we’ll cover the five surprisingly easy steps needed to identify pre foreclosure properties and owners, reach them directly, and close a deal before their property reaches foreclosure.
|Five Steps to Buying a Commercial Pre Foreclosure|
|1. Identify Your Target Pre Foreclosures|
|2. Find Owner Contact Information|
|3. Understand the Owner|
|4. Communicate & Negotiate with the Owner|
|5. Put a Formal Agreement in Place|
1. Identify Your Target Pre Foreclosures
First, of course, is finding the actual properties, or leads, that you might want to pursue as an investment.
For this, you can search properties that are either off-market or on the market.
To search off-market, you can either use Reonomy’s pre foreclosure search or sift through local public records. To search on-market, you can turn to commercial listings, although the options are slim.
Find Pre Foreclosures with Reonomy
Within any U.S. market, Reonomy can be used to search for any multi family, land, or commercial property currently in pre foreclosure.
You can search within various levels of geography—from an entire state, to a city, MSA, county, zip code, neighborhood, all the way down to an exact street or street address.
Then, you can add filters for specific asset classes and sub-classes, to further narrow down your search within your target geographical focus.
For example, you might be primarily interested in finding multi family properties in the MSA of Cincinnati, OH-KY-IN that are currently in pre foreclosure.
In that case, once you’ve added location and asset type filters, you can visit the Debt tab to add filters for properties in pre foreclosure based on their pre foreclosure category and/or auction date.
If you’d like to hone in on even more specific assets, you can also add filters for the size and age of the building and lot. Or, you can choose to only see pre foreclosures in an Opportunity Zone.
Lastly, you can add filters for sales and debt history, and for specific types of business tenants.
Given the typical number of commercial pre foreclosures at any one point in time, your results may not be abundant. With so many applicable filters, however, you can narrow your list of properties down to a very specific bunch.
Find Pre Foreclosures with Public Records
Another way to find commercial properties in pre foreclosure is to search your local county recorder for specific types of foreclosure documents.
Whether you’re looking for Lis Pendens, Notice of Default, or another type of pre foreclosure recording, many counties make these documents available through their online search platforms.
Maricopa County, for example, allows you to search by Document Code, of which you can find codes like “Assignment of Lis Pendens,” “Lis Pendens,” and so on.
Using public records search platforms can be very helpful, but is usually more helpful when checking the status of a known property, as opposed to finding leads and identifying new pre foreclosures to pursue.
Find Pre Foreclosures through Real Estate Listings
When it comes to commercial pre foreclosures, finding properties listed on the market might actually be more difficult than searching off-market.
Commercial listings websites that have foreclosed properties typically have them listed as bank or real estate-owned (REO) properties, or they may simply include auctions as opposed to actual active listings. Pre foreclosures aren’t often actively listed and promoted.
2. Find Owner Contact Information
From there, you need to find out who the owner is, then find their contact information to reach out directly.
This can all be done—whether an owner is an LLC or an individual—within the Reonomy platform.
When you generate a list of property search results in Reonomy, you can click into any individual property, visit the Ownership tab, and see the name and contact information of the owning LLC and its affiliated members.
Within that tab, you’ll be able to find office phone lines and mobile numbers that you can use to reach out directly and start a conversation.
For reaching out in bulk, you can also export your entire list of results, with owner contact information broken out separately (if you prefer).
3. Understand the Owner
Interacting with a pre foreclosure owner is going to take a bit more ice-breaking than usual.
With a phone number in-hand, however, you can keep a safe distance while still reaching out directly. All things considered, calling an owner over the phone is a bit less intrusive than the residential door knock.
With the sensitive nature of the interaction, it’s best for you to understand as much about the owner as possible before and during any interaction.
Use property building-level, sales, debt, and tenant information to understand who that owner is and what their purpose of ownership is.
For example, a property owner who’s losing the only property they own—the property they operate their business out of—will be much different to interact with than a member of a portfolio-investing LLC that only has a single property in pre foreclosure.
By analyzing an owner’s portfolio, you can gather quite a bit about them. You can also glean potential reasons as to why they might have defaulted on their mortgage.
Additionally, you can use your interactions with them to continue learning and understanding the market that the asset lies within—to better gauge the risk of investing in the property so that you don’t eventually find yourself in the same situation as them.
4. Communicate & Negotiate with the Owner
For this one, “communicate” is a very choice-word.
Given the nature of the call, of course, it’s very important for you to be personable, honest, and communicative in your negotiation process with a pre foreclosure owner.
Communicating is much more important than simply reaching out to make a pitch. After all, in buying a pre foreclosure, you can help the owner avoid losing the property for nothing.
Negotiate, but do your best to acknowledge the fact that you can both benefit—work together with the owner to strike a deal.
Use Reonomy to see the current mortgage and project the likely remaining debt on the property.
Then, you can use the platform to see the present day value of the asset.
Not only can you base your offer off of these numbers, but you can be transparent with the owner that you have these numbers, therefore giving them a spotlight into the fairness of your offer.
By understanding the owner’s situation, the debt they owe, and the current value of their asset, you can best speak honestly about what sales price benefits both parties to the highest extent.
5. Put a Formal Agreement in Place
If and when you do reach a verbal agreement with the owner, and assuming you have been approved for the necessary loan amount, it’s important to put the agreement into writing, and of course, eventually a formal contract.
The process of paperwork needed for a property transaction typically begins with a Letter of Intent.
Essentially, a Letter of Intent is a form that includes the preliminary terms of an agreement, the structure of which will ultimately become the final, official agreement.
When it comes to pre foreclosure sales, the buyers and sellers may also need to fill out a sale addendum, which is a document that essentially states that the sale is an honest one, and not one that is only being used between friends or colleagues to save an owner from going into foreclosure.
After the preliminary stages, what’s left is the commercial real estate purchase and sale agreement, referred to by the American Bar Association as, the “roadmap” of an entire transaction. This is the matured, more formal version of the original Letter of Intent.
With the help of both party’s attorneys, the purchase and sale agreement can be built out and filed as necessary.