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PURCHASE OF DISTRESSED PROPERTIES

 

Buying distressed properties

 

Basic information about the investment.

1. Type of investment:

  • Buying distressed properties at 20-50% below market value for improvement and resale at 20-60% above their real market price before the improvements .

2. Forms of investment:

The investment can be in the form of "Cuentas en Participación" or "Debt Investment", depending on the preferences and risk profile of the investor.

  • With "Cuentas en Participación", the investor provides capital to the company in exchange for 50 to 80% from the profit from the successful implementation of the project. This form of investment allows the investor to benefit from the profit generated by the project together with the entrepreneur.
  • In "Debt Investment", the investor provides a loan to the company and receives a fixed annual interest of 20 to 26% , which is agreed in advance. This form provides a stable and predictable return without being tied to the success of the project.

3. Minimum amount of investment:

  • The minimum amount of investment depends on the available investment opportunities at the time of investing the funds. Typically, minimum participation amounts start at €100,000 , with some projects also offering smaller investments through collective participation.

4. Minimum term of the investment:

  • 12 months with the option of exiting the investment through the so-called "substitute party". In this case, the contract is terminated, and the investor receives back the funds paid by him, including a proportional part of the profit or the agreed interest. This part is calculated based on the time during which the funds were used, relative to the total contract period.

5. Minimum guaranteed annual return on investment:

  • 20% guaranteed annual return on the invested amount with full return of capital at the end of the investment period.

How the investment is made: Step by step

1. Identification of distressed properties:

  • We find distressed real estate owners who need to sell their property quickly and want an immediate down payment due to urgent needs. Our activity resembles the model used by iBuyer (Instant Buyer) companies and funds to buy residential properties 20-50% below their market value. This allows us to acquire real estate at significantly lower than market prices.

2. Purchase of the identified properties below their real market price:

  • We purchase identified distressed properties at prices 20-50% below their true market value. For example, if the market price of a property is € 100,000, we buy it for €70,000.

3. Improvement and renovation of the purchased properties:

  • After purchasing the properties, we carry out the necessary improvements and repairs. The goal is to increase their value by 20 to 60% and make them more attractive to future buyers. For example, if the market price of a property is €100,000, we increase its value to €140,000 through renovation.

4. Resale of the improved and renovated properties:

  • After the renovations and alterations are completed, we sell the properties at a significantly higher price than the original purchase price. For example, if we bought a property for €70,000, whose real market value was €100,000, and raised its value to €140,000 through renovation, reselling it at this new price provides a significant profit for the investors and the company.

5. Return of invested capital and profit distribution:

  • After the successful resale of the renovated properties, the investors receive back the initial investment and their share of the realized profit, which is proportional to the size of their investment.

6. Repeat the process:

  • After distribution of the profit, we start a new investment cycle, buying the next distressed properties. Investors who wish to continue co-investing with us can reinvest their funds in these new projects.

This systematic process ensures minimal risk and optimal return on investment for all parties involved.

Frequently Asked Questions (FAQ)

1. Who usually sells their property for 20 to 50% below its true market value?

There are a number of reasons why many people are interested in selling their property as quickly as possible. These are some of them:

  • Financial difficulties: Owners who are experiencing serious financial difficulties often need to sell the property quickly to cover their debts and avoid more serious consequences such as bankruptcy.
  • Mortgage Default: When property owners fail to make regular mortgage payments and are threatened with foreclosure, they often prefer to sell quickly to minimize losses.
  • Need for emergency funds: Personal issues such as divorce, job loss or unexpected events may force owners to seek a quick sale to cover urgent expenses.
  • Poor property condition: Properties that require expensive repairs or maintenance can sell quickly at a lower price if the owner is unable to invest in improvements.
  • Emigration or Relocation: When owners need to move quickly to another country or city, they are often willing to sell their property below market value to complete the sale before departure.
  • Inherited properties: Sometimes heirs have no interest in maintaining or managing an inherited property and prefer to sell it quickly at a lower price to split the proceeds.

These situations often result in lower sales prices because owners are pressed for time or circumstances, making them inclined to accept offers well below market value.

2. What repairs and improvements increase a home's value by 20 to 60%?

Major and more extensive renovations that significantly increase the value of a property include both standard improvements and more extensive remodeling. They can transform both apartments and houses, increasing their market value and attractiveness to prospective buyers.

Among the main renovations that increase the value of apartments are:

  • Kitchen and bathroom renovation
  • Replacement of flooring
  • Converting a closet into a new bathroom
  • Interior and exterior painting
  • Improving insulation and energy efficiency
  • Landscaping (for properties with yards)

For houses and larger properties, more drastic improvements include:

  • Dividing the house into apartments: This change can significantly increase income from rent or sale.
  • Converting the cellar into living space: Adding more usable area.
  • Building a single or double storey extension: This provides extra living space which is attractive to buyers.
  • Loft conversion into a bedroom with en-suite bathroom and walk-in closet: Improves the functionality and comfort of the property.
  • Converting a garage into living space: Increases value by adding new rooms.
  • Enhancing the garden space: Creating a beautifully landscaped outdoor courtyard enhances the appeal of the property.
  • Building a conservatory: Increases living space and adds style.
  • Extending the kitchen with "side return extension": Allows the extension of the kitchen, which significantly improves the interior design.
  • Adding a new bathroom or garage: Increases the functionality and comfort of the home.

Specific types of improvements can have the following impact on property value:

  • Home staging: According to the Real Estate Staging Association - USA, professional interior staging can increase a home's value by up to 10%.
  • Interior renovations: According to the Nationwide Building Society - United Kingdom, major interior renovations can increase the value of a home by up to 56%.
  • Exterior renovations: According to the Department of Energy & Climate Change - United Kingdom, exterior improvements can increase the value of a home by up to 38%.
  • Home extension: According to the Nationwide Building Society - United Kingdom, building an extra space or extension can add up to 25% to the value of the property.

These improvements create significant opportunities to increase the property's market value, resulting in a more successful resale and a higher return for investors.

3. What are the main risks with this type of investment?

  • The main risks include possible price fluctuations in the real estate market and delays in the resale of the properties. However, by buying properties at 20-50% below their market price, we minimize the risk of capital loss, because if there is a possible drop in the market, the real value of the property remains higher than the price at which we bought it. Even when property prices crash, we can sell the asset at close to the purchase price to recoup the investment before the market deteriorates significantly.

4. How is the security of my investment guaranteed?

  • The security of your investment is based on the fact that the properties are purchased well below their market value, which creates a "safeguard" against possible market fluctuations. In addition, we perform a detailed analysis of each property to ensure that the profit potential is there.

5. What does return on investment depend on? 

  • The return depends primarily on the form of the investment. Investors who choose to invest in the form of "Cuentas en Participación" can expect a percentage of the profit on a successful investment. For those who choose Debt Investment, the annual return is fixed and is based on a pre-agreed interest rate on the capital borrowed.
  • The return also depends on the size of the investment. Smaller investments offer a lower rate of return and lower interest, while larger amounts increase the rate of profit and interest. The larger the amount invested, the higher the return will be.
  • In addition, the return is also tied to the term of the investment. The longer the investor leaves his funds in the project, the higher the interest and profit he will be able to realize.

6. What happens if you fail to sell the properties?

  • In rare cases, if we are unable to sell the properties at the expected price, we will continue to work to find suitable buyers. If this drags on, we can offer various options for exiting the investment, including selling at a lower price or renting out the properties until market conditions improve.

7. Can I exit the investment before the end of the project?

  • Investments in this type of project are usually fixed-term. However, in some cases we may offer to buy out your share if there is such demand from other investors or partners. The conditions for this are discussed individually on a case-by-case basis.

8. Which form of investment is for you?

  • If you are an investor who is willing to take on higher risk in exchange for the possibility of greater profit, Cuentas en Participación is right for you.
  • If you are an investor who prefers minimal risk with predictable and stable returns, Debt Investment is the best solution for you.
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