February 15, 2023 0 Comments Luxury Asset Loan, Luxury Line of Credit

Mitigating Risk, Maximizing Opportunity: How To Use LuxLoc To Leverage Distress Sale Opportunities

Mitigating Risk, Maximizing Opportunity: How To Use LuxLoc To Leverage Distress Sale Opportunities

Evelyn was busy in a meeting with her accountant going over the books when she received a call from Will Sanderson of Sanderson and Phillips, her asset managers. There was an opportunity to buy a distressed asset – a hospitality business in Palm Springs, CA was going insolvent. Will had just finished speaking to the owner’s attorneys and they had discussed the possibility of either the business changing hands or restructuring the debt. 

Evelyn remembered about a product that her friend Lisa had mentioned last week. It was LuxLoc from Vasco Assets. A secured line of credit backed by a luxury asset, it was ideal in this situation. She knew she had the perfect luxury assets that she could explore to raise funds quickly to maximize gains in this opportunity. She asked Will to share with her the various options in this transaction, like participating in the debt restructuring or buying the entire business in a joint venture with a couple of other investors. She was sure that with LuxLoc, she could move quickly and get additional maneuverability in the transaction, something that would work in her favor.  

Why does a Distressed Asset Sale Present a Great Opportunity for the Buyer?

A distress sale is one where the owner (or business entity) sells his/her/their assets “in distress” or financial duress, often at a much lower price. The sale may be due to a variety of reasons – the business (or individual) has become insolvent, the business is experiencing failure, the owner is facing medical expenses or the declining health of the owner is preventing him or her to manage the business including paying employees, a divorce, death of the spouse, relocation, unemployment, etc. The proceeds from such a sale will often be used to mitigate the financial hardship the owner finds himself in.  

A short sale is also a type of distress sale, where a homeowner attempts to sell their house at a price lower than the market price. This can happen if the homeowner is being forced by circumstances to leave the home and cannot wait for the value of his or her property to appreciate to market value.

A distress sale is a rare opportunity rather than a norm. According to data, only around 1% of real estate asset transactions in the first couple of months of 2022 were distressed sales. However, experts believe that with the moratorium on foreclosures being lifted in different parts of the U.S., there will be many distressed properties to hit the market, presenting opportunities for buyers to leverage.

There are different ways to find a distressed property – dedicated websites, bank REO sites, government agencies, local tax assessor’s offices, and attorneys. However, since distressed assets are attractive investment options, there will be competition to buy them. If you wish to be ahead in the race, you have to move fast, pay in cash and sign the agreement without much to and fro.

Apart from real estate, there are many opportunities to invest in distressed assets, for instance, business infrastructure out of insolvency or bankruptcy proceedings and even foreign market distressed assets.

However, to be able to leverage such opportunities, you need to be prepared with money to close the deal. This requires you to have a regular source of money to not only help run your business but to pay for an asset when the opportunity arises. So what are the options available for strategic investors to raise funds to buy distressed assets?

Why do Traditional Loans not Work for Distressed Assets Purchases? 

To help purchase real estate banks and financial institutions offer what are called CRE loans, or commercial real estate loans. However, it is not available to anyone wanting to invest in a property. CRE loans have certain eligibility criteria. They are offered to business entities (corporations, developers, funds and trusts). The individual’s or business entity’s creditworthiness is a major eligibility factor for many lenders. In case of no credit record of the business entity, the lender requires personal guarantees. Loan terms are anywhere between five years to 20 years and have a LTV (Loan-to-value) ratio between 65 to 80%. 

Many lenders also consider the debt-service coverage ratio which is calculated based on the income generating capacity of the property. For a distressed asset which needs some amount of refurbishment first before it can start generating income or is used for a one-time sale, this aspect may hamper the borrower’s ability to get a commercial loan.

Also, all distressed real estate may not be commercial properties. They may be residential properties that a buyer wishes to use as a fix-and-flip opportunity. In such cases, the borrower may find it difficult to avail of a CRE loan.  

Other options for an investor to finance his distressed asset purchase are conventional bank loans, hard money loans, private money loans, and home equity loans (including home equity line of credit, or HELOC). However, while there are a few advantages, all of these suffer from major drawbacks like the need for a high credit score, long approval times, high-interest rates, and so on.

As mentioned earlier, the most important aspect to win in a distress sale is the ability to move fast – offer your interest quickly and with cash in hand. This is usually not possible with a traditional loan when time is of the essence. This is where a financial product like Vasco’s LuxLoc can help.  

What is LuxLoc and How it can Help You Win a Distressed Asset Sale

LuxLoc is a secured line of credit. A secured loan means that it is backed by an asset, unlike an unsecured loan that is not backed by any asset, and the lender shoulders the risk of default. An example of an unsecured line of credit is a credit card. In a line of credit loan, you can draw as much money you wish (up to the credit limit) regularly and use it to fund your purchases and subsequent expenses.

Traditional lenders also offer lines of credit – personal line of credit and business line of credit. However, these loans have to be secured by vital assets like real estate, business infrastructure, stocks, money in savings accounts, certificates of deposit, etc.  

However, the most interesting aspect of LuxLoc is that you can pledge your luxury item to secure it. Luxury items include assets that we either inherit or buy for sentimental value – antique, heirloom jewelry, wedding and engagement rings and jewelry, precious metals and stones, high-end watches, designer purses, coin collections, pieces of art like paintings and sculpture, classic (or exotic) cars and bikes, yachts, jetliners and so on.

Most of us look at these items not as “assets” in the conventional term, thinking of them as items to flaunt or to keep safe and pass on to the next generation. What we fail to realize is that there is a market for these items should we choose to sell them. And this is what gives these items value – value that can be leveraged to avail of a loan with these items as security collateral. And Vasco has been doing just that – helping individuals and small businesses with loans for a variety of reasons by leveraging the intrinsic value of their luxury items.

LuxLoc is a unique financial product from a wide range of such products from the house of Vasco that helps you meet your financial objectives using the value of your luxury items.

So what are the benefits of LuxLoc over traditional loans?

  • You Pledge Assets that you can Afford to Lose

In case of traditional asset-backed loans, you have to pledge either the property (mortgage), provide personal guarantees, or pledge the remaining value of your home (your primary residence). In case of a default, there is a real risk of you losing that asset. Such a situation can be life-altering. However, when you are pledging luxury items – items you can easily live without – you can afford to lose them in the rare scenario of a loan default. This dramatically reduces your stress and the best part is that you can buy the luxury item again when times get better.     

  • Pay Interest Only on the Amount Drawn

Since LuxLoc is a line of credit, you get the flexibility to draw an amount regularly. And you pay interest only on the amount you have drawn. This is unlike traditional lump sum loans where you have to pay interest on the entire sum from the very first day.

  • Services a Wide Range of Individuals with Varied Needs

LuxLoc begins at $10,000 and goes beyond $100,000. Most of us already own luxury items worth over $10,000 which you can leverage to get LuxLoc. For amounts over $100,000, Vasco offers specially customized terms.

  • Zero Impact on Credit Score

LuxLoc does not require your credit score. Moreover, since we are not required to report the transaction to the Credit Bureau, there is no digital footprint of this loan and therefore no impact on your credit history. Bad credit score is never a hurdle in your path to get LuxLoc.

How LuxLoc Helped Evelyn to Mitigate Risks and Maximize Profits

Evelyn and her husband Mathew were vintage car enthusiasts and owned two classic cars that still make heads turn when she took them for a spin – a 1963 Porsche 911 and a 1965 Shelby Mustang GT350. They loved the cars like doting parents, taking them for a spin every weekend and taking care that they remained in top condition. But they’d never thought that apart from selling them outright and getting profits out of the sale – a thought that had never crossed their minds – the cars could be leveraged for their monetary value. 

Evelyn knew that with LuxLoc these cars could fund her distressed asset purchase. After a quick discussion with Mat, she decided to get the cars valued at Vasco – a service that is offered free of charge. She loved the loan value she was being offered. Since her requirement of loan amount was well over $100,000, she was able to negotiate a great deal. She got a much lower interest rate since she had high-value assets to pledge as collateral. After deciding the amount of monthly payments she would make in lieu of the loan, after the draw period, she set the tenure at six months. She was asked to pay only a small annual fee for maintenance and nothing else. With a fool proof plan that she usually followed with her previous distressed asset purchases, she was confident of repayment of the loan.

Unlike traditional loans, she was able to complete a highly simplified loan procedure within hours. At around the same time, she had called Will to go ahead with the option they had decided on. Since she had cash on hand quickly, she was listed among the handful of interested parties to participate in the distressed asset purchase. She, with the help of her asset managers, was able to strike a good deal that would help her mitigate any risks and maximize profits from this strategic investment. Within 72 hours, she received the first tranche of money from Vasco. Within hours, she was sitting with the business owners to chart a way forward.

Parting Thoughts

Distressed assets can open up a world of opportunities for strategic investors. The game is won when you can catch the opportunity in time. However, just because the asset is being sold at a lower price does not mean that it is a profitable investment. The price can still go down and may lead to losses on your part. It is advisable to verify the current debts on the assets, determine correct ownership of the asset and lastly determine the value so that you can take an informed decision that can help mitigate risks and maximize profits.

To meet your financial objectives – personal as well as professional – Vasco has been developing a wide range of products that leverage the value of your luxury items. At Vasco, we understand the value of time when it comes to money and we ensure that with a simplified process that takes hours rather than weeks, you have money with you when you need it the most.

To know more about LuxLoc, visit us at 2024, Quail Street, Newport Beach, CA 92660, call us at 949.610.7774/800.688.2994, or write to us at submissions@vascoassets.com.