Commercial property can be intimidating to many investors . . . but it doesn’t have to be! Watch this video to discover many of the advantages and disadvantages of purchasing these properties at tax sale and tax deed auctions!
Transcript:
Hi there! Casey Denman here with TaxSaleAcademy.com. In this video, we’re talking about the pros and the cons of buying commercial property at tax sales.
Now in past videos, I talked about the pros and cons of buying houses, vacant land and condominiums at tax sales. So if you haven’t checked those videos yet, consider finding those videos and watching them because those are some awesome videos. But again, this video is all about that commercial property.
First off, what is commercial property? Well, there’s six different types of commercial property. The first one is going to be office property. We’re talking like a bank, for instance. The second one is industrial properties. Consider where maybe a Ford warehouse is where they manufacture vehicles. The third one is your retail properties. Say a Best Buy or a RadioShack. The fourth one is your commercial land. And the fifth one is the miscellaneous stuff. We could be talking like a self-storage building or a marina, for instance. Just kind of the miscellaneous stuff that doesn’t fit any other categories.
So, let’s talk about some of the advantages of buying commercial properties at tax sales. The first one is the obvious one and it kind of applies to just about every sector of tax sale investing. And that is that there is a lot of equity. You’d be able to buy these properties at deep, deep discounts. It will put basically a lot of cash in your pocket if you purchase them right.
The second one is there is less competition. Now, if you were to buy commercial property on the open market, you are competing with a lot of different people. If you were to buy anything at a tax sale, you’re obviously taking that audience and narrowing it lower and lower by getting less and less potential buyers. So what happens here is that by investing in the tax sale niche, you have only people that know about this tax sale niche.
And to take it a step further, when you have commercial properties at tax sales, a lot of the tax sale investors are only going to stick to the residential stuff. They don’t want to mess with the commercial stuff just because they don’t know a whole lot about it, so your audience is even smaller. So there’s not a whole lot of competition for the commercial properties at tax sales.
And the third benefit that we’re going to talk about is that you have the flexibility to be creative. Now if you purchase a retail building, for instance, on the open market, you’re going to be stuck with that lease. You’re going to be stuck with a lot of things about the property that you don’t have a whole lot of choice about. But if you buy retail properties, for instance, at a tax sale auction, most of the time, those properties are going to be vacant. That way, you can possibly make some improvements on the building, increase those rental rates, and maybe get somebody in there for a long term lease. So you do have a lot of flexibility when it comes to commercial property compared to buying that same commercial property on the open market where you’re basically stuck living somebody else’s dream for that property.
Now, obviously there’s a few cons here. Let’s talk about the first one. And again, this one kind of goes with a lot of the tax sale properties, and that is that there’s typically no inspection. It is possible that you are buying a lot of hidden problems. A beautiful warehouse on the outside might have nothing but a bunch of 50 gallon drums of oil on the inside that have leaked all over the floor so you have contaminated soil. There’s all sorts of situations so you are dealing with some hidden problems potentially.
The second disadvantage is that it could come with large tax bills. Let’s face it, commercial property has a huge impact on the infrastructure. It has a huge impact on the soil, the economy, the environment. All sorts of things. So with that commercial property, it usually has higher tax bills compared to residential property. So when you buy a piece of property, you of course get a tax bill with it, and this tax bill could be large.
And the third disadvantage here is that it might be an undertaking that you aren’t quite ready for. If you buy say something small like a house, that’s just one thing that you have to worry about. It’s just one little, minor issues here and there, and a lot of beginning investors can take care of this stuff. But when it comes to a commercial structure, not only do you have to build a property or to renovate a piece of property, or maintain at the very least up to county and city standards, you also have to ready that piece of property to have an occupant in it, to get a CO, and it has to be held at a higher standard. So there’s a lot more expenses that go along with maintaining commercial properties compared to residential properties.
So there you have it; the pros and the cons of buying commercial properties at tax sales. I really hope you’ve enjoyed this video. If you’d like to see similar videos, head on over to my website at TaxSaleAcademy.com, which you can do by clicking the blue link right here next to my head. Again, it will take you to TaxSaleAcademy.com. And you get there, download your free copy of my e-book, The Tax Sale Investing Blueprint, and you’ll be on your way to a very successful tax sale investing career.
Have a wonderful day, folks! Bye-bye.