Michael S. Gibson of Lexington, Kentucky is an experienced entrepreneur, business wealth strategist, and mentor across multiple industries. In the following article, Michael S. Gibson discusses what distressed assets are, how they can be acquired for little to no out-of-pocket cost, and how to profit from obtaining such investments.
The two main components of accumulating wealth are acquiring assets and investing in profitable ventures. Under the right circumstances, these factors can be combined by buying distressed assets.
Michael Shane Gibson of Lexington, Kentucky explains that distressed assets are tangible investments that are put on the market for less than their value. They can take the form of real estate properties, and personal property such as vehicles, or equity ownership in a business.
Distressed assets can be found through auctions, court filings, online listings, relationships with lenders, and more. Profiting from these investments requires extensive due diligence and can involve resale or long-term asset solutions.
The Details
In essence, distressed assets are properties that are
priced lower than their market value. For example, a residential property will be foreclosed on if the homeowner can no longer afford the payments and is heading toward bankruptcy.
Similarly, Michael Shane Gibson of Lexington, Kentucky explains that personal property such as a boat or car may require a rapid sale to provide fast cash that will alleviate a financial burden.
If a small business is struggling with profitability, the owner may list it for less than its value simply to be able to walk away from the venture.
Assets can become distressed for several reasons. The most common
influencing factors include improper management, disrepair, unfavorable market conditions, environmental concerns, or personal circumstances such as accumulating debt or large, unexpected expenses.
How to Acquire These Deals
There are a number of methods to track down distressed holdings. One of the more sustainable solutions is developing a relationship with lenders, brokers, and other industry specialists. When individuals or corporations are required to sell properties and other assets for any number of reasons, those professionals can fast track an investor’s awareness of the opportunity and provide them with the ability to purchase before the opportunity hits the market.
For investors that prefer to go it alone, there are a variety of ways to find low value prospects of any kind. Under-market properties can be found in court filings or online websites that list foreclosures, and distressed personal property like vehicles can be found for a bargain at auction locations.
Michael S. Gibson says that undervalued companies can be acquired by monitoring specific corporate sale websites or paying close attention to petitions that are filed by creditors or a business’ own directors.
How to Make it Profitable
The market in this industry is a mixed bag. Some holdings will be inherently low in value and not a worthwhile investment, but others can be hidden gems for those with the expertise to turn them around.
After performing extensive due diligence to locate these items with potential, they can become profitable in one of two ways – being resold for a profit or converted into income-generating resources for long-term profitability.
Due Diligence
Due diligence is essential before committing to the purchase of an undervalued investment. The due diligence process will provide crucial information about the potential profitability of the asset and ensure that an investor is equipped with the knowledge, team, and finances to turn it around.
Michael Shane Gibson says that this includes evaluating the current financial status or debt associated with a property or business, appraising the cost of repairs to personal or residential/commercial property, identifying ownership of the asset (the individual versus the creditor, for example), and gathering any other information that pertains to the legalities and future profitability of said asset.
Resale
Once a purchase has been acquired, it may be immediately put up for sale again, at market value this time. As long as the investor earns more than they spent on the initial purchase and during the repair/refurbishing period, they will be profitable. Michael Shane Gibson explains that this is a common course of action for personal property that the investor doesn’t need to hold onto.
Long-Term Income Generators
Long-term income generators are distressed assets that an investor will turn around and then keep in their portfolio to generate income. This is the most common solution for real estate properties that become rentals and businesses that have a full team in place to run them. Over time, these projects will make back the money the investor put into it and begin turning a profit.
Final Thoughts
Michael Shane Gibson says that although distressed assets can become incredibly profitable and can aid in an investor’s portfolio diversification, a lot of time, money, labor, and research must go into each project in order to maximize success.
