As you run into owners of commercial real estate, you’re going to run into owners who are doing okay, and some owners who are not doing okay. We’re going to focus today’, on those who are not doing okay, and have some level of distress on their property or in their lives causing them to be potential motivated sellers.
Understanding the nature of distressed sellers and how they think and act is critically important when convincing them to sell their property to you. Distressed sellers are no different from you and I in that they are in the midst of the trials of life, and need resolute solutions. Don’t you agree?
Three Most Common Types of Commercial Distressed Sellers
1. The Out of State Owner.
2. The Local Owner
3. The Life Issue Owner
Distressed Out of State Owner
What does that person look like? Well, these owners tend to have a mindset that their property is out of sight and out of mind. Their property is in disrepair, either knowingly or unknowingly. They may have vacancies that are over ninety days old. That’s a great sign that there’s something wrong there.
They may have poor records or no records of the financial positioning of their property. There could be negative cash flow for a long time. They’re not in denial of their property issues. But, I tell you what, they have put in their own money to support their property. Those are tell-tale signs of a distressed out of state owner. There are plenty of those out there which mean there are tons of commercial deals to be made.
Another thing about the distressed out of state owner is most of them do keep their mortgage, insurance and tax payments current. Most of them do, right? Let me tell you this. They, also, originally bought their property for cash flow, but they have little to no training on how to run their property profitably. That’s a big sign of them, and that’s a big problem. A few of them bought their property sight unseen, which I highly, highly do not recommend you do. Nearly all of them regret buying their property.
The key thing is they are motivated to sell.
That’s the bottom line. They are motivated to get out of their negative cash flowing position. That’s who the distressed out of state owners are.
Distressed Local Owner
These owners are local. They’re physically there near the property, but mentally checked out. They may admit that there’s property cash flow, but there really isn’t. Most have small or manageable loans on their property, which allows them to financially afford being negative cash flow, but they still are distressed. In fact, they’ve been distressed for years, and they have no clue what to do. We run into these owners more often than you think.
Another sign is the landscaping around their property is very poor, not kept up. Interestingly, most of them do their own property management, and they do it because they have many failed attempts at hiring good management themselves, mainly because they didn’t know how to manage the management.
Next, there is a lack of management skills. Their “self-managing” methods have failed to improve their property over time, and this is a huge issue. In my opinion, fifty percent of local owners are motivated, and the other half is not motivated, and they are in denial.
These first two types of commercial property owners – the distressed out of state owner and the local owner – make up the majority of distressed motivated owners out there. You’re going to run into them. I can guarantee it. If you do a good job of finding commercial property owners then you’re going to find a lot of these types of owners.
The Distressed Life Issue Owner
These owners have personal life circumstances that dictated or caused their property distress to occur, such as an illness in the family, a divorce, death in the family, partnership dispute, an unplanned relocation, all the above. These are life issues out of their control, and this has caused them and their property to be distressed.
Their property may or may not be in poor condition, but I’ll tell you what, selling the property will remove a burden from their lives. For these guys, creative financing may not work for the reasons above. They need a quick sale and something concrete.
I want you to be aware that these sellers are motivated, but, also, are prone to disappear for periods of time handling their life issues. They’re not the most stable people, and because of that, you need to move fast, because they’re likely to make rash and emotional decisions to sell to someone else, so you really need to recognize who the distressed life owner is and be concrete.
Distressed Owner Priority Levels
In my opinion, the first priority – the first guys to focus on and the guys that are most distressed is the distressed life issue owner. They are the most motivated, but they’re, also, the most volatile.
Secondly most motivated is the distressed out of state owner. Be prepared for misdirection, sometimes lies. They don’t know a lot of things, and be prepared for the lack of information on their property, so get good commercial training so you can pick up these things.
On the third level of motivation is the distressed local owner. They’re likely to be the most difficult negotiator of the three.