Question

1. When considering an investment in “distressed properties” what are the two most important areas of research that should be undertaken? Please respond in at least 4 – 5 sentences.

2. What types of fees and conditions are prohibited under RESPA? Please respond in at least 3 – 4 sentences.

Answer 1

1

Over-Leverage: With the prevailing market scenario of increasing interest rates, a buyer must not take much debt for buying out the distressed asset. It is important to understand the existing debt against the asset, which the buyer will need to take on post the purchase of the property. This debt should ideally be bifurcated into short-term and long-term debt, with a holistic understanding of any security that may be backing the debt.

Future growth perspective: Attractive valuations is the main draw of a distressed asset acquisition. However, a clear development plan or utilization of the asset with a vision on the eventual monetization of the asset would make the deal worthwhile. The asset must intrinsically have the potential to grow and yield returns for the buyer.

2

Fees -  RESPA prohibits any person from giving or accepting any fee, kickback, or thing of value pursuant to any agreement or understanding that business incidental to or part of a real estate settlement service