Sellers Offer Deep Discounts on Properties

Sellers Offer Deep Discounts on Properties

Assets are going on sale. This is how you buy them. In some parts of the real estate market, owners want to sell their properties. They made bad deals a couple of years ago and now they are out of time. This means opportunity is coming. Someone has to buy these properties at lower prices, some are 60% less than they sold for just a few years ago. And that someone could be you.

Real estate investor Brian Burke, a seasoned expert with decades of experience, believes the market is shifting. He predicts that by 2027, buyers will find a much better market with more distressed properties available. He joined BiggerPockets’ Dave Meyer and Henry Washington to discuss these changes and how investors can prepare.

Market Shift to Buyer Advantage

Burke has a history of accurately predicting market cycles. He previously stated that 2025 would be a year of decline in commercial real estate, with 2026 being a transition year to find the market bottom. He anticipates 2027 will be “buyer heaven,” offering opportunities for both commercial and residential real estate investors to expand their portfolios.

“I think 26 is going to be a transition year where we kind of find the bottom,” Burke explained. “We go through that bottoming process and then we get everything set up and ready for 27 when you’re going to have a little bit more distressed sales, some more sellers that are really pressured to make a move.”

This outlook contrasts with the market of the past few years. Many sellers have been unwilling to lower their prices, leading to a stalemate. However, Burke notes a change in seller attitudes. He hears more owners saying they will have to let properties go back to the bank or sell at a significant loss just to pay off their lenders.

“I’m hearing more from people I know who are saying to me I’m going to have to let this go back to the bank or I’m going to have to hand in the keys,” Burke said. This shift is driven by the reality that waiting for interest rates to drop or for rents to increase significantly hasn’t materialized for many. The human factor of owners coming to terms with necessary, albeit painful, moves is starting to drive distressed sales.

Distressed Sales and Short Sales on the Rise

These changing seller attitudes are leading to more opportunities like short sales. A short sale happens when a lender agrees to accept less than the total amount owed on a mortgage. Burke recently purchased senior housing properties through lender short sales at about 45% of the loan balance. This is a strategy he hasn’t seen widely used since 2011.

While short sales might not be as common in the single-family home market due to existing home equity, they are becoming more prevalent in commercial real estate. This is especially true for larger properties (over 50 or 200 units) where lenders are more willing to negotiate to recover principal.

Delinquency rates are also rising, particularly in the multifamily sector. Multifamily delinquency is currently at its highest point since the 2008 financial crisis and continues to increase. While single-family delinquency is also up, it remains below 2019 levels. However, overall market weakness in the single-family sector is creating opportunities for investors to make offers without facing intense bidding wars.

Strategies for Finding Deals

For investors looking to capitalize on these opportunities, Burke advises being proactive. Deals won’t simply appear in an inbox; active searching is required. He suggests several methods:

• Networking with Brokers: Build relationships with brokers, especially those dealing with distressed properties or REOs (Real Estate Owned by banks). Being a reliable and capable buyer can lead to being the go-to option when a deal falls through.
• Connecting with Property Management Companies: Management companies often work with lenders on foreclosed or distressed assets. They can provide leads on properties that may become available. Burke himself purchased several REO apartment complexes at significant discounts after the 2008 crisis through property managers brought in by lenders.
• Attending Conferences: Going to industry conferences and talking to owners and brokers can uncover off-market deals.
• Engaging with Smaller Banks: For local investors, building relationships with smaller, community banks that handle smaller commercial loans might yield opportunities. These banks may be more willing to work directly with investors on distressed assets compared to large national banks.
• Foreclosure Auctions: On the residential side, attending foreclosure auctions can be a source of deals, though it requires competing with other professionals.

“You’ve got to get yourself out there,” Burke emphasized. “Some specific examples of what we’ve done, going to conferences and talking to people, especially where owners are present.”

Understanding Market Cycles and Syndications

Burke also highlighted the importance of understanding different market cycles within real estate. He began investing in senior housing deals over a year ago because that market cycle was ahead of the commercial multifamily cycle and was already recovering. This allowed him to find deals with lenders forcing hands and sellers offering discounts.

For those interested in investing through syndications (pooling money with other investors for larger deals), Burke advises caution. While syndications are still a viable path, investors must ensure they are investing in a syndication with a sound business plan and appropriate market timing. He believes it might still be a bit early to invest in multifamily syndicates aiming for quick returns, as the market correction has not fully begun.

“If you’re investing in assets that are just going nowhere, like multifamilies that don’t pencil, that’s probably not going to work out very well for you,” Burke stated. He suggests waiting for clear market recovery signals before investing in short-term syndication plays. However, for long-term holdings in a personal portfolio, the current time might be suitable for strategic buying.

The key takeaway is that while opportunities are emerging, they require diligent work, strategic networking, and a clear understanding of market timing. Investors who are prepared and proactive are best positioned to benefit from the upcoming market shift.

Source: Seller Pressure is Starting to Peak (Discounts of 50%+ on These Properties) (YouTube)