According to data from market research firm RealCapitalAnalytics, distressed real estate nationwide totaled $166.9 billion in January 2012. For knowledgeable investors willing to take calculated risks, distressed assets can have attractive upside potential.
Why invest In troubled properties?
Troubled property is by definition a financial burden to its owner. Though this may make a property seem unattractive to some prospective buyers, distressed real estate can offer excellent value. Because owners and lenders of troubled properties are under pressure to sell quickly, distressed assets are purchased at a discount, and oftentimes simple solutions exist that can help solve the problems facing the property.
How can investors profit?
Investing in troubled properties can deliver significant profits. However, it is naïve to downplay its risks. As with all speculative investments, financial returns are uncertain and it could be years before investors see a profit on a distressed asset, if at all. Therefore, investing in troubled real estate is best suited to those who can afford and tolerate high-risk situations. Profits can come from a variety or combination of factors, including a turnaround in the market, an improved system for promoting or managing the property, or including the property in a larger development plan.
How can I better manage my property?
One of the best ways to enhance the value of a troubled property is through effective property management. Property managers must be quick and effective communicators who respond to issues in a timely manner. They must provide clear policies on repair and maintenance, accounting, advertising and evictions in order to assure that tenants, managers and owners share and fully understand expectations.
Where do I begin?
If you are interested in investing in distressed assets, begin by looking at properties in your area. With an understanding of the local marketplace, identify reasons for the asset’s problems and how they can be effectively solved in order to transform the troubled property into an attractive investment. Fresh thinking, restructuring mortgages, and working with sellers and lenders can turn a distressed asset into a promising investment opportunity.
By Lloyd Berger
President, Berger Commercial Realty Corp.