Copyright (c) 2010 Jack Bosch

Difference Between Residential and Commercial Short Sale?

You may know something about commercial short sales in general. The next step is to ask the question of why gurus recommend that you go into commercial short sales in particular. In part, it's a practical reason—residential and commercial real estate markets are two different beasts.

Advantage of Commercial Foreclosures

As to why commercial short sales are better, the answer has to do with the state of your "target" commercial property. These target bank owned properties are in danger of foreclosure—in other words, delinquent on loan or mortgage payments—but they are still valuable to a potential buyer, allowing you to resell them quickly. Hundreds of these properties hit the market every day, but they don't stick around for long.

Why So Many Commercial Pre Foreclosures?

Now why does this happen? It's mostly because life isn't fair. Even the best laid-plans go astray due to events beyond the planners' control. In this case, it was because of the market crash—a confluence of many factors that almost no one could predict. When the market was still healthy, thousands of real estate investors across the country took out loans and used rent from the property to pay off the interest an earn their profit. They intended to eventually either sell the property to pay off the remaining debt or refinance to keep the rent flowing. Unfortunately, the downturn of the real estate market put an end to both of these plans. Property values dropped, preventing a normal sale. In addition, the credit market scuttled too, so that the investors could not refinance, and even commercial loan modification has failed. As a result, otherwise normal properties are facing foreclosure.

More info on Commercial Real Estate

There are other reasons why the commercial property market is a better entrance into real estate than the residential market. The residential market is driven by homeowner preferences, and the already-intimidating prospect of homeshopping becomes a nightmare. By contrast, the state of the commercial real estate market is directly influenced by how many businesses require new property—in other words, it is driven by fellow entrepreneurs. It is no surprise then that the commercial market is set to recover first.

Making Money in Real Estate

So that's the tale of two markets. Commercial short sales are overall easier to make, letting you make a lot for large profits. Learning how to find the performing gems among all the junk is the key.