A Kind and Fair Approach To Australian Distressed Property
Published 1:37 am 4 Dec 2020
For more than a decade, DG Institute’s Real Estate Rescue Program has been teaching students the secrets of making money from distressed property. A core principle is ensuring that both investor and property owner walk away winners, explains DG Institute Founder and CEO Dominique Grubisa.
I’m sometimes asked where the idea for the DG Institute’s popular Real Estate Rescue program came from. Over the past decade, the Institute has used the course to teach hundreds of Australians how to identify ‘distressed properties’ and then work with the property owners to make a profit. Along the way, we have helped countless people out of financial hardship while growing significant wealth for our students.
The truth is the concept came from my own uncomfortable experiences of going broke. During the global financial crisis, I found myself in a financial black hole. While I owned properties that I could potentially have sold to pay my creditors, I didn’t have the funds needed to prepare them for sale, and each week I fell deeper into debt. What I desperately needed was for an interested third party to look at my situation, to come up with a solution, and to invest their time and money into getting me back on my feet.
For me, unfortunately, that solution never came. I managed to avoid bankruptcy, but only by fighting tooth and nail and by using every skill I had as a lawyer to negotiate with my creditors.
But the experience opened my eyes to a gaping hole in the property and business landscape. What choice did regular Australians have when they fell seriously behind on their home payments but didn’t want to be foreclosed upon? How could they stop the bank from selling their home out from underneath them and leaving them without a cent? Why wasn’t there a service on the market that could help these people out?
Real Estate Rescue grew to fill that need, and right from the beginning the course has been about achieving two key goals. On the one hand, graduates should be rewarded for the time and effort they invest in projects. On the other, the owner of the distressed property should be given a pathway to a financial solution whilst staying in control of their situation and afforded the means to start afresh. Every ‘rescue’ should be a win-win situation.
And it’s remarkable how well these twin goals go together. Every week, I hear new success stories of how a property owner on the brink of having their home sold out from under them has instead navigated their way through their challenges without losing control and ultimately walked away with cash in their pocket to make a new start.
Take the case of a family in Boronia, Victoria, who found themselves between a rock and a hard place. Behind on their mortgage payments, they faced the prospect of the bank seizing control of and selling their property. They wanted instead to sell the home themselves to pay off the mortgage, but the property was so rundown and filled with rubbish that it couldn’t be shown, and would have sold for a pittance in the hands of the bank. A DGI graduate stepped up with a plan to work with the family. He agreed to fund the cost of both cleaning up and renovating the property and to negotiate with the bank to hold off on a mortgagee sale. The house which was originally valued at $380,000 and had a $157,000 mortgage, ultimately sold for $620,000 after $95,000 in renovations – with a healthy $225,500 going to the owners.
- Valuation as-is: $380,000
- Outstanding mortgage: $157,000
- Arrears: $24,000
- Monthly mortgage repayment: $1,125
- Full renovation (paid by graduate): $95,000
- Sold for: $620,000
- Owner share: $222,500
In another case, in Geelong, the bank was already in the process of taking possession of a property and evicting the owners when a DG Institute graduate stepped in. The student paid the mortgage arrears and for necessary renovations, convincing the bank to hold off on a mortgagee-in-possession sale. This allowed for the property to be sold privately and for the owner to walk away with their dignity, an intact credit record, and $60,000 – money that they likely wouldn’t have seen had the bank held the sale.
- Mortgage to bank: $190,000
- Bills, rates and other payments: $20,000
- Renovation cost: $30,000
- Sold for: $400,000
- Cash to owner: $60,000
Meanwhile, families dealing with deceased estates can also benefit from the intervention of DGI graduates. In one recent case, the beneficiaries of a will were able to sell a property in an “as-is” state and have a DGI graduate take care of the clean-up, renovations and re-sale. By stepping in before probate was completed and offering a long settlement, the graduate gave the family peace of mind and spared them going through the painful process of sorting through clutter and preparing for an on-market sale as well as avoiding agent’s commission.
Ascot Park deal
- Purchase price: $350,000
- Buying costs: $18,000
- Renovation and holding costs: $82,000
- Selling and staging costs: $13,000
- Total: $463,000
- Sale price: $530,000
- Profit: $67,000
So, don’t believe those who suggest there’s something wrong with distressed sales. When conducted fairly and ethically in the manner propounded by DGI, such sales can both create wealth for entrepreneurs and provide a path to financial stability and a better life for the property seller.
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