In the commercial real estate business, you will come across properties that need repairs. Depending on the agreement, parties and condition of the property your ultimate decision may either make or break you. So, here are a few options you may want to consider when buying commercial buildings that need repairs.
Negotiate a Fair Purchase Price
It only makes sense to buy a distressed property if the value of the property after repairs is greater than the sum of fixing costs, holding costs, and acquisition cost. It wouldn’t make sense to have to undergo all the pressure of buying and repairing a property only to end up making a loss. Also, its logical to bring the figures to the table. The property value after repairs should be about 50% greater than the value of the distressed property before renovations. After analyzing all these figures, negotiate with the seller about bringing down the price of the property to a point where the deal seems reasonable to both parties.
Can the Seller Pay for Repairs?
It takes two parties to tango and this might be just what you need. The seller should be reasonable enough to admit that the damages on the property are apparent and someone needs to take care of them. Of course, the property value before repairs should be slightly lower but will rise immediately the seller decides to take the repairs into his or her own hands. On the good side, it offloads the distress that comes with structure repair and renovation projects. If the seller decides to fix the repairs in his or her own account, you might want to analyze if the final purchasing price makes sense. If it does, you won’t get a better deal elsewhere.
Sometimes You Need to Find a Different Building
Sometimes deals aren’t for you. For instance, in a case where the seller won’t bend to negotiate for a fair deal or fix the damage, you might want to step back and go back to the drawing board. Whenever the figures keep dragging you back to making losses on the accounts sheet, do yourself a favor and walk away. Keep browsing the commercial listing market to find other favorable deals that won’t leave dents on your bank account.
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