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What are Distressed Assets?

2017-06-27T11:21:47+00:00

The term 'Distressed Assets' is included in the Corporate Finance edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

Distressed assets are assets that a company or individual has been forced to place for sale at a significant discount to the acquired or actual value. This usually happens as the owner has no choice but to sell the asset to raise cash. Several different reasons might exist for why this is the case. These include excessive debt levels, bankruptcy, and regulatory requirements. Even debt can be put on sale at an amount that is lower than its face value. When this happens, it is known as distressed debt.

Although there are various types of distressed assets offered for sale, among the most common in the wake of 2007-2010’s financial crisis and Great Recession are non performing loans on houses or foreclosures on mortgaged properties. Investors of all sizes are able to take advantage of such distressed assets in property by availing themselves of a homeowner’s lack of ability to meet the mandatory mortgage payments or of his or her critical requirements for cash. In situations like this, such homeowners will consent much of the time to selling the property for a substantial discount in order to achieve a fast sale.

In the past, banks dealt with such distressed asset mortgages almost entirely themselves. As a result of the American banks still repairing their heavily damaged balance sheets from the countless write offs and over leveraging that they engaged in over the past five to ten years, they can not keep up any longer with the enormous number of foreclosures on their books. This leaves them with little choice but to have to sell some of their mortgage property asserts at massive discounts to actual value in order to be able to create quick cash flow.

The end result is that distressed assets can present a potentially profitable investment opportunity for you. The still ongoing crisis in global liquidity and credit has banks selling mortgages to individual, as well as to large, investors at significant discounts. Such discounts to perceived value would never occur in the days of normalized conditions in the mortgage and credit market place.

This means that investors are currently able to purchase distressed home assets with discounts amounting to as much as 72.5%. With as little as $100,000, smaller investors are able to get involved with this efficient and potentially lucrative investment strategy. Professional management teams are available to help small investors realize appropriate exit strategies whose goal is to generate an impressive 20% return on investment per year.

Purchasing distressed assets such as homes in mortgage payment trouble can offer ethical options and benefits as well. Investors are able to restructure the debt and payments of the home owner in such a way that distressed home owners are able to afford the new payments. This lets the troubled home owners stay in their houses so long as the investor owns the mortgage and the home owner is able to work with the newly arranged payment schedule.

Distressed assets of companies include many different types of assets. These might be commercial office buildings, commercial jets, and even factories and equipment sold at substantial discounts to real value. Many times, other corporations are able to acquire these distressed assets for their own uses at fantastic prices.

The term 'Distressed Assets' is included in the Corporate Finance edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.