Distressed Asset Evaluation Framework

4 categories, 10 diagnostic questions, 1 decision.

Distressed ≠ Ugly

A cosmetic fixer is not distressed. Distressed = a gap between current market price and fair value that retail buyers can't or won't close.

The 4 Categories

Property Distress

Physical asset has issues — major rehab, structural, roof, foundation, plumbing, electrical, mold, fire. Can't be financed conventionally by a retail buyer.

Financial Distress

Owner's situation is forcing movement — pre-foreclosure, tax sale, judgment, probate estate, divorce. Property itself may be fine. The timeline is the distress.

Situational Distress

Tired landlord, out-of-state inheritor, problem tenants, owner exhausted by management. You buy the property and the exit from the problem.

Operational Distress

Small multifamily / commercial mismanaged — rents below market, expenses above, vacancy high, tenants poorly screened. Asset fine; operation is the distress.

10 Diagnostic Questions

1. Why is the owner selling?
2. How long has this been on market (or shopped off-market)?
3. What's the owner's timeline?
4. Is the property occupied? At what rent, on what lease?
5. Known physical issues / deferred maintenance?
6. Any liens, judgments, or tax issues?
7. What has prevented a retail sale?
8. Has it been under contract before and fallen through?
9. Can retail buyers realistically finance it in current condition?
10. What does a clean comp look like?

The 5-Assumption Survival Test

Every deal must survive:

• Today's rents (no growth)
• Today's rates (no cuts)
• Today's cap rates (no compression)
• No appreciation
• A soft market

If the deal only works when at least one of those moves in your favor, pass.

Next Steps

Grab The Practical BRRRR Starter Pack for the full operator framework.