Taking On What No One Else Wants
The distressed assets market is the subprime market of the real estate investing market. It involves taking on those pieces of wealth that have lost their marketability due to the poor management of the asset portfolio. The distress can be linked to the property itself or to the person occupying the property.
Where the distress is just about the property and not the people who live in it, a number of steps can be taken to ensure that the causes of the distress are mitigated. Where the distress is related to the people occupying the house, then they can be removed to allow for the rehabilitation of the property. This article aims to shine the light on some of the interesting aspects of this side of the business.
A Risky but Potentially Profitable Proposition
There is no doubt that the business of dealing in distressed assets carries with risks that often greater than ones which would be expected in a non distressed situation. This is because the reasons for the distress will almost always still be prevailing even at the time of the purchase.
Take for example a house that has gone into foreclosure. When the tenant is informed of the requirement to vacate the house, they will not be best pleased at the suggestion that they might have to lose their home. This resentment will influence the way the treat the property in their last months of the tenancy. Vandalism is not entirely uncommon in these situations. When the new owner comes to the house, they might be shocked at the state in which it has been left.
You, the real estate investor are then tasked with the obligation to repair the house before it is ready for reselling. If you have bought the house at an auction, you will notice that the bailiffs will do their utmost best to prevent you from examining the property properly before parting with your money.
This is a natural reaction from them because they will not be sure about the hidden sins that could affect the property and they do not want you to be in a position whereby you change your mind about the deal before completing the payment. The real problems come about when the repair bill all but eats your profit margin.
The vagaries of the housing market can also cause the real estate investor to lose quite a bit of profit. Imagine that the house you have bought has been repaired and valued at a profit of twenty percent. All over a sudden the housing market collapses by exactly the same amount of profit that they had hoped to make. This means that the asset is being sold for a net value without a profit.
This is not the way to run a successful real estate investing scheme. What some experienced business people do is to account for these vagaries by adopting a strategy of keeping back some money for use to over those periods when the vagaries of the pricing structures do not allow for making a profit.