Distressed Assets: An Investment Strategy Deep Dive

Investing in distressed assets may seem counterintuitive at first, but the strategy behind this method is key to understanding how successful real estate investment can work. At its most basic, purchasing distressed assets is simply the real estate version of buying low and selling high. Let’s take a closer look at distressed assets and how they can fit into your investment strategy.

What Is a Distressed Property?

Distressed assets are those that are undervalued on the market, but it doesn’t necessarily mean purchasing a property that’s in complete disrepair. Real estate can be undervalued, or distressed, due to a number of factors. For multifamily assets, these factors might include:

  • Physical condition
  • REO/foreclosure or risk of foreclosure
  • Poor property management

In some cases, these properties might be in a less desirable neighborhood. Their location alone might make them undervalued, but there are still opportunities to invest even in these areas. Whatever the reason behind the undervaluation, distressed properties can be ideal for savvy real estate investors. By purchasing an asset at a discount and bringing proper management and repairs to the property, investors can create a potentially steady cash flow for their portfolios.

The Benefits of Purchasing Distressed Assets

Purchasing assets at a lower price point provides a greater potential for profitability, and it can also lead to better financing options down the road. If the purchase of assets is obtained through a loan, refinancing after making capital improvements can reduce the overall interest rate, which can in turn reduce the cost of ownership even further. Distressed multifamily real estate assets may be renovated through capital improvements, creating a more desirable place for tenants to live and commanding higher rents as a result.

Capital Improvements

It is essential to plan for capital improvements when purchasing a distressed asset. Even if the property being purchased is in fairly good shape, investing money into the overall improvement of the property can add to the value of the asset. For example, adding new plumbing and appliances to a distressed apartment building or complex can have a positive impact on rents and vacancy rates, which may lead to better cash flow each month. Capital improvements for distressed assets are a necessary but beneficial cost of doing business for real estate investors.

What it Means for Investors

Distressed assets in your portfolio can provide a way to provide a steady cash flow stream, whether you’re an individual owner collecting rents or you’re investing with a group and receiving dividends. When the value of the property is appreciated over time, and when the market is right for it, the once-distressed asset can be sold at a profit. DiversyFund’s REITs and Premier Offerings let you take advantage of the strategy behind investing in distressed assets without having to become a landlord on your own. You can enjoy dividends from your investments and build wealth over time by choosing a sound real estate investment strategy, one that’s backed by a team of experts who vet each asset carefully before purchasing a distressed asset. 
You can learn more about DiversyFund and its offerings for investors of all experience levels here.

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