Determine the Price
Tere's as much art as science to determining the appropriate price for a distressed
property, especially when there are no recent
comparable sales. A conventional model for
pricing distressed properties does not exist.
It is important that you clearly understand
your costs to bring the property back into
service and factor that into your calculations
when deciding what you are willing to pay.
Keep in mind your end goal is to charge the
rent you ultimately need to be proftable. If
the seller is motivated to get out, you might
be able to pay even less for the property.
In one case where Broder & Sachse
recently stepped in, the lender got into a protracted fght with the borrower over a 25-unit
overleveraged property in a solid apartment
market. The property deteriorated and
Broder & Sachse became the receiver. Even
though we stabilized the property, the lender
wasn't willing to spend the necessary capital
Distressed properties can provide opportunities for
new players to enter a market in substantial ways.
for improvements in order to lease the units.
Eventually, a local buyer bought the property
for pennies on the dollar and immediately
began renovating it. Te property now is at
full occupancy.
Tat's what can happen when a buyer and
lender don't do their homework on the property. Te borrower paid too much and the
lender lent too much. Te next buyer knew
what he was getting — good bones in a good
location at a bargain price. He knew exactly
what he could do with the property and what
it would cost to make it proftable.
Dealing with troubled or challenged prop-
erties is not for the faint of heart or passive
investors. Inexperienced investors can ofen
overpay, and in the end, get hurt when they
can't manage the investment. Distressed
properties can provide opportunities for new
players to enter a market in substantial ways,
but the more you know about the property,
the better. If you don't have experience in the
arena, be sure to talk to someone who does.
Richard Broder, CPM, is CEO of Broder &
Sachse Real Estate Services, a full-service
company in Birmingham, Mich. Contact him
at rbroder@brodersachse.com.
Master of Real Estate Development Executive Program
a joint degree offered by the College of Architecture, Design and Construction and the College of Business
MAKE PLACES,
not projects.
Curriculum focuses on sustainable and responsible real estate development practices.
New class launches each May with rolling admissions.
For more information visit:
mred.auburn.edu
Auburn University is an equal opportunity educational institution/employer.
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