Distressed Real Estate Operators Offer A Buffet Of Value
More distressed properties are becoming available, and offer great value opportunities for those that have prepared to take advantage of them.
We are at an interesting moment in the market, when inflation has kept rents and prices high, yet, there are also many discount investment opportunities to be had.
Distressed Sales Make A Comeback
From mom and pop investors to big funds we are again seeing an increase in distressed sales, to foreclosures, bankruptcies, short sales, and auctions. This ranges from individual assets to bulk sales of whole portfolios of dozens and hundreds of units.
There are a variety of underlying reasons driving this current trend, including:
- Inexperienced, novice investors who didn’t know how to finance assets intelligently
- Lack of sustainable and disciplined financial models that work in all market phases
- Lack of financial strength and backing to maintain assets
- Lack of preventative maintenance, or making repairs right the first time
- Neglecting items that result in code violations and extreme fines
- Investing in the wrong cities, which have become anti-investor friendly
There’s just a lot more to profitably investing in real estate than many newbies foresee. Factors which are only learned and mastered from engaging in this sector for years, and at high enough volumes.
In all phases of the market, there will unfortunately be those who execute poorly. This provides continuous fuel for others with the discipline and expertise to jump in.
The Resulting Opportunities
The most obvious result of the above is the ability to work with sellers to acquire their assets at substantial discounts. Even below what they’ve invested into them. They just need out, and any extra cash they can extract in addition to stopping the financial bleed and stress is a bonus.
Just as importantly, this level of negotiability and motivation enables buyers to demand the most favorable terms in their contracts.
In many cases these properties provide a speedy path to adding value by addressing deferred maintenance items and improvements.
In addition to forcing up appreciation, savvy and capable investment firms can dramatically increase profitability and yields with smarter and more efficient management processes.
All the above leads to being able to increase rents to current market rates, and with better tenants in place.
These assets can then be promptly exited for substantial gains, or held for passive income and steady cash flow, with strong underlying collateral.
