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STEP BY STEP GUIDE TO BUY DISTRESSED ASSETS

Distressed Assets - Archana Mohanty

INTRODUCTION

  • What is distressed asset

Everyone tries to utilise the resource in best possible manner by investing in right assets by getting the most of it in this increasing business of both the real estate and scope of business. When it comes to distressed assets being a complicated investment process, some investors still appreciate such investment in an effective manner.

A distressed asset basically gets listed for sale below the market value, becomes the centre of profit for various investors. We can define such asset as assets over which lender reclaims payment after the buyer fails in making the payment for mortgage. Widely speaking such sale of distressed asset gets initiated by the lender. Basically the person who financed the purchase gives the listing rather than the owner of such asset. Defining distressed asset in simplest form would be “A property whose owner fails to keep up with the mortgage payment or tax bills or both”.

BENEFITS OF THE PURCHASE

Two main factors that come into consider are-

  1. a) Before investment High Return over Investment, this becomes more efficient.
  2. b) And with low market value buying the asset becomes asset.

Where investment requires a basic return, distressed asset makes sure a fine return comparison to their buying price which is below the market price as mentioned above. On the other hand they are not financial burden comparing to other financial assets. After making the necessary up gradation these assets can become valuable commodity.

A good negotiation before sale can become a basic advantage. Because it makes sure for the real estate investors that they will get the asset in most efficient way possible. It can be noted that such easy and fast investment attracts the beginners who tries to step their foot in real estate investment.

Summarizing the benefits we can say that distress assets comes in a price lower than average capital value with huge returns.

RISK IN THE PURCHASE

Different circumstances such as high competition, high maintenance cost and risk over return are several risks that come along with these assets. When a lender reclaims control over the mortgage, availability of distressed assets becomes low which in turn makes a situation of competition among real estate investment concerning the high returns.

PROCESS OF BUYING DISTRESS ASSETS

The process of buying distressed assets occurs differently as comparison to buying other traditional assets. But the process comes totally handy for the investors who freshly come into the domain of real estate investment.

  • Finding distressed property for sale

Mash visor’s real estate investment software offers an easy and effective solution for those looking for investment properties for sale in the US housing market. You can quickly search for a variety of distressed properties for sale that meet your criteria by using the Mash visor property market place.

The advantage of using this tool is that it allows you to analyze distressed properties on the platform so that you can make wiser investment decisions. Using our investment property calculator, you can get pre-calculated data on the expected rate of return on a rental property. Additionally, you can use Dashboard to find distressed property owners. You can access property owner data such as email addresses and phone numbers and connect with them.

  • Concerning an experience real estate agent

If the investor is new to such investment they must hire some real estate agent who can help them analyzing the investment value and future assessment. Investing in distressed asset being a controversial step requires guidance from experienced field for better returning scope.

  • Choosing a real estate market to invest in

An investor should never compromise on choosing the location where distressed asset for sale is located. In determining the potential profit the location plays vital role. So it is relevant to do a research over the neighbourhoods before considering to buy a distressed asset. You’ll want to focus on up and coming neighborhoods which will come under the convenience of the investor’s budget.

  • Determining the ownership of the property

It is easy to search for personal property ownership as it is like searching for real estate. The process starts with searching for any lien which is secured by the personal property you are buying then go for the checking procedure in tax records.  Nearly every state taxes personal property and you can also check to see who has paid the taxes on the equipment you are buying. 

  • Ownership of business entity

A detailed analysis must be performed of the records of the entity to determine the ownership of a business entity. First, search the lien and tax records just like you would for personal property.  Next, you must determine the applicable secretary of state’s office for all corporate filings made by the entity.

  • Calculating the sale price

You can get a distressed property in a very cheap price below average price. Considering the availability and financial burden negotiation can be a valuable option out there before purchasing the assets. In order to prevent falling in foreclosure predefining the budget of asset is more preferable.

Repairs and investment being included in that budget of buying distress asset must be calculated properly before going for such investment.

It is pertinent for the investors not to make any relevant purchase of huge amount before making these investments. Also they must review credit reports as it will help them qualifying the process of getting better loans.

  • Due diligence

It’s not always pleasant to invest in distress assets, as the return is not always profitable if proper investment tools were not made use of. So, before investing the investor must made proper due diligence in order to have a good return and unpleasant surprises.

  • Finalizing the investment

After analysing all the above factors, doing proper due diligence and making proper negotiation investor must decide a distress asset with potential profit. Then he must make the offer which should be below the offer of seller so that a better comparison must take place. A good realtor will help you write a competitive offer and negotiate the best deal.

CONCLUSION

As cheap investment sales are a dream for most real estate investors, these Distressed Assets provides a wider scheme along with high investment. But the upgrade needed requires work for the high return the investment comes at a stake. Real-estate investment strategies play a great rule for those who will to work for it. We can conclude this as potential investment.

Basically the investor needs to focus on some major factors before purchasing a distress asset. Those are verifying the debt associated proper ownership and last but not the list the actual value of the asset.

Verifying debt makes sure the further obligation which comes along with the asset which can become a financial burden in future for the investors buying such distressed asset. In order to check the potentiality of the asset and to ascertain the budget of investment a proper debt calculation must be done before hand. The main concern before doing such is to make sure that the owner is telling truth about the amount of the debt, number of the debt associated to the property being sold.

The investor must make sure that the party he is dealing with is the real owner of such property in order to avoid falling in any fraud or foreclose.  In case of real estate business it is easy to find the real owner of assets. The country in which property is located maintains a list where the owner files a record of their ownership. Also, when acquiring real property, you nearly always engage a title company to insure a title, and title companies will not do that unless they perform their own search. Then finally investor must ensure actual value for the assets.

Considering all essential factors carefully investor must go for the purchase. In case of such controversial investment every step must be taken in to account keeping an eye over the concept of potential benefit. The debt, buying price and all the crucial factors are key for determining the investment is worthy or not.

Author(s) Name: Archana Mohanty (KIIT University, Bhubaneswar)

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References:

  1. https://www.mashvisor.com/
  2. Buying Distressed Properties: 3 Pros and 3 Cons
  3. How to Do Your Real Estate Diligence When Buying an Investment Property
  4. https://www.grayreed.com/
  5. Mashvisor Property Marketplace

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