Leveraging Distressed Assets to Your Advantage
May 31, 2011
By Lori Greymont
There’s a house on Vine Street in Atlanta. The homeowners defaulted and the bank foreclosed. Then the property was listed at 80% of its value by an agent specializing in REOs. The three-bedroom, one-bath house in a decent working class neighborhood didn’t sell. So the agent dropped the price. And dropped it again. Why wouldn’t the house sell? It was in good, not great, condition. The house didn’t sell because no one in the neighborhood could get a loan. Finally, the asset manager had to get the distressed property off the books. He slashed the asking price to $10,000 and listed it with other similarly priced houses, and then sent the bargain list to investors.
Distressed assets can be huge money makers for savvy investors—as long as they follow the five principles for converting empty properties into cash-producers.
1. Concentrate Efforts. Decide in advance which areas of the country you’d like to invest in. You’ll find the best bargains in the mid-west and southeast. Focus on a few cities and learn as much as you can about them. Other investors are a great help with this investigation. Also read local blogs. What are properties renting for? What is the inventory?
2. Do Due Diligence. Once you have focused on a few areas, start perusing lists of distressed assets. You’ll want the newest house you can find AND with the least liens. Make sure you adjust the offer price on this to be in line with the neighborhood’s other distressed homes. All distressed properties have liens, usually tax liens, but sometimes water or sewer liens. Factor those into your purchase price. Most on-line real estate sites can’t help much with understanding property condition. There is no substitute for feet on the ground, which leads us to….
3. Build a Team. Because you’ve concentrated your efforts, it’s a lot easier to find someone willing to drive by a property and peek in the windows. This banking meltdown has allowed the creation of many support businesses for the banks to look at, price and manage their own distressed assets. You can search the internet for “Distressed Asset Management”, “BPO’s”, “Drive-By Services” or a host of other words and pull resources that are your feet and eyes on the ground. Plug into the existing network of professionals and within a day or less you will know if you found a gem or not. And when you work with someone you like, call them back for repeat business. Relationships are also key.
4. Sell Quickly. There are more properties one the market than anyone can buy so how do you sell your property ahead of the neighbor? Finance your buyer. There are many creative financing methods that you can employ that offer you control and a great return. If your buyer can be approved by you, they can make a decision in days and be in the home in less than a week or two. This helps preserve your asset from vandalism, decay and overhead costs that you have to pay if it sits vacant.
5. Get in the Game. There is nothing more expensive than cost of lost opportunity. We all know that inflation is here to stay for the next few years. If our gas and groceries cost more today, won’t our housing cost more in a few years? The best time to buy properties has never been when the market is going up- its actually right now. Where else, outside of a game of Monopoly, have you been able to purchase multiple properties for as little as $25,000?
Lori Greymont is CEO of Summit Assets Group. She offers educational presentations around the U.S., trains and mentors people new to purchasing distressed assets and coaches on creative financing techniques. Her company sells single fix-and-flip properties, bulk lists, and tenanted cash-flowing properties.