Investing In Distressed Assets? Keep This Checklist Handy

A distressed asset is the best way for a buyer to make a deal to land a first-class property. A number of banks that auction such assets that arise out of non-performing loans (NPAs) concentrate more on recovering their money. Hence, they might have a base price that is lower than the market price, allowing smart purchasers to profit from the opportunity, especially if they are located in good neighbourhoods.

However, this kind of property buying leaves less time to prepare for before taking over the asset. That would require more preparation before taking the decision to hunt or look for distressed assets.

Here is the checklist for those looking to buy such assets:

Check your finances

Remember that bankers selling such properties had a bad experience with these. It is crucial to have watertight documents and finances in place before going in for such a project, as bankers consider serious offers only. Secured financed and good background work would make you a better bidder.

Weigh the risks

Do your research and understand why the previous owner lost the property. Carefully examine and check the property, its age, fittings and other aspects, especially if someone occupied it earlier. If possible, use the services of an appraiser to determine the value of the asset and fix the right ceiling price before going into the bidding. If there is an issue with the property such as necessity of rework, add it into the actual price and calculate the depreciation. Enquire about the prices of similar properties around the one you are bidding for.

Get an experienced agent

It is advisable to choose a property agent, with a prior experience in dealing with such properties. There are agents, who have done professional courses on dealing with such projects. There are many unique issues that a distressed property can throw in, and an agent's expertise might come in handy while dealing with the pitfalls.

Damage repair

In cases where properties were evacuated, most previous owners do not leave it in good condition. There are cases where previous owners have done intentional damage to the home before they leave. Some of it might not be detected during an inspection bringing in the necessity to make an extra investment into the project. Keep extra money ready for that.

Talk it out

A good deal can be reached for a distressed property by negotiation only. This can happen in cases, where owners sell it before a bank forecloses on it. Bargaining with the owners directly might end up helping you clinch a good deal, if the seller is eager. For this to work, make sure you have all the documents and finances to show. The serious you look about a quick deal, the better are your changes to clinch it.

(Katya Naidu has been working as a business journalist for the last nine years, and has covered beats across banking, pharma, healthcare, telecom, technology, power, infrastructure, shipping and commodities)