There is an saying in real estate, you make your money by buying right. Buying right in our lexicon is buying distressed property and adding value. This is prerequisite that our JV partners have told us and what we do day in and day out.
The idea of distressed real estate is also based on saving some money? Do you need a property and don’t mind doing some repairs to get you started? There you go….create uplift!
Distressed properties can be redundant offices or shops or even homes that are for sale not because the owner wants to sell, but because of repossession. These homes are usually offered up through an auction in which the highest bidder gets the property. If the auction is not successful, then the lending party, usually a bank or financial institution, will have to assume ownership of the property.
Here’s the kicker: These houses are usually offered way below market value. Basically, with these kinds of homes, all parties are trying to cut their losses. So, if you take into account the actual cost that goes into trying to sell something for a good price, lenders want to make sure they don’t have to invest a ridiculous amount of money or time trying to get that extra dollar. That means low prices. All they want to do is make sure they get at least some of their money back.
This also means that these properties usually have some work to be done. Most likely, the previous owner wasn’t able to carry out maintenance on the property because they were short on funds. Unfortunately, some homes really look pretty awful and need a lot of work.
The worse they look….the more uplift & value to be created. Ourselves and our JV partners seek out these ugly & redundant properties…This is the true meaning of distressed real estate.
An example of a redundant property,
Currently we are looking at a workshop in a very nice neighborhood of Manchester ( shocked how it ever was granted planning permission 100 years ago) in order to convert into 4 semi luxury flats. There are no flats in the immediate area however. We are right next to the train into city centre as well. We called several estate agents to get a feel of value. I personally felt they were a little high. However we compared a 2 bedroom house in the immediate area, that was recently done up and compared price per square meter. We came up with a number of 1785 per square meter. Thus our flats might fetch 90,000 depending if the real estate landscape doesn’t change…plus it might get better.
These are deals that we are creating uplift and value. We are waiting on our builders for a firm quote on costs & then probably we will look to proceed.
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