You know we’re always looking for our next redevelopment opportunity. We’ve talked about distressed properties and the opportunities they present if you can look past their challenges. I’ve also talked about how the numbers have to make sense and we buy only a small percentage of the distressed properties we look at.
Why is that?
A distressed property is only one indication of what may be a motivated seller. The level of seller motivation rather than the level of property distress is the real driver of what makes a property we can buy.
Some of the things that may motivate an owner to sell include:
- Physical distress arising from deferred maintenance or the inability to pay for needed repairs
- Lack of interest in an inherited property or a second home the seller just doesn’t want to deal with
- Landlord fatigue that comes from not understanding how to manage rental properties and tenants or when the landlord moves away
- Financial distress arising form health problems, job loss, or financial mismanagement
In any of those cases we can help the seller overcome a (hopefully) temporary problem by buying their property and taking on the headaches they can’t or don’t want to deal with.
One of the challenges in our business is understanding the difference between distress and motivation. This article is one of the best example examples of how to tell the difference between distress and motivation. Here are a few salient facts if you don’t want to read the original article:
- An entire village near Lake Waitaki in New Zealand is for sale with an asking price of $1.8-million.
- Once home to almost 3,000 people, it has been “mostly vacant” for almost 30 years.
- In 1995, the village was awarded historically protected state to prevent its demolition.
- The current owners bought the village in 2011 to use as a corporate retreat center.
- When those plans failed, they put the it back on the market in 2015, but it has not sold as of this writing.
- Recent changes to New Zealand laws prohibit foreign investors from buying homes, limiting the pool of potential buyers for this property.
So far, that sounds like a classic distressed property, even without considering the condition of the homes and the lodge it comprises. I know I would be motivated to sell if I had almost $2-million tied up in an investment that generated no income and had been on the market for three years.
But is the current owner motivated?
“It’s simply a matter of waiting for a person to pay the price we are looking for,” is the definition of an unmotivated seller. So, no.
Even though Suna and I have discussed eventually retiring (for real this time!) in New Zealand, we would probably have to walk away from this property. Still…it never hurts to make an offer.