Distressed Real Estate - How Smart Investors Capitalize–Without Taking Dumb Risks

by Trevor Calton 

Here we go again... As the saying goes, "When there's blood in the streets, buy property" and I'm already getting calls about "distressed real estate deals'. 

In 1997, I was an analyst at one of the largest REITs on the west coast. My team specialized in one thing: Buying pools of distressed assets. 

It was the aftermath of the RTC fallout. We were acquiring $100 to $500 million at a time. Big, messy portfolios. Some loans. Some assets. All distressed.

Our job was to figure out what to keep, what to sell, what to fix, and what to walk away from. Every deal required a full valuation, a workout strategy, and a contingency plan. We had to get creative, fast.

And here’s what I learned:

• Assets become distressed for a lot of reasons—and they’re not always financial. 
• Sometimes it’s physical or environmental issues (like toxic waste.) Other times it’s personal—such as divorce, lawsuits, bad partners.

I also learned something even more important:

• Distressed asset acquisitions aren’t for the faint of heart—or the under-capitalized. 
• They require money, manpower, infrastructure, and serious expertise. They’re not something most individual investors can—or should—build a strategy around.

But that doesn’t mean there’s no opportunity. 

The Opportunity Isn’t What You Think 

If you’re waiting for a 2008-style meltdown, with banks offloading assets at 40 cents on the dollar, you’re going to be waiting a long time.

Today’s distress doesn’t show up with flashing lights.

It shows up in subtler ways:

• An owner whose fixed-rate just adjusted 
• A syndicator who can’t refinance
• A borrower stuck with a loan maturity and no takeout 
• A bank that’s under pressure—but not advertising it

The distress isn’t always the deal.

Sometimes, it’s the seller. 

And that’s where individual investors actually have a shot.

When a Distressed Seller Becomes Your Best Deal 

Some of the best deals I’ve seen in the past few years didn’t come from broken properties.

They came from motivated sellers.

Here’s what I mean:

Recently, I helped an investor acquire a stabilized 40-unit property. The asset was clean. Good location. Solid cash flow. But the seller had raised money from friends and family and couldn’t refi his debt.

He was out of time—and out of options.

The buyer didn’t need to do a heavy lift. No repositioning. No major CapEx. Just understanding the seller’s problem, moving quickly, and structuring a deal that worked for both sides.

That’s the real game in 2025. 

So… Should You Build a Strategy Around Buying Distressed Assets? 

Here’s the honest answer:

Probably not. 

Not unless you’ve got deep pockets, a full ops team, and a serious appetite for risk.

Distressed acquisitions at scale require capital, systems, and a tolerance for complexity that most individual investors simply don’t have—and shouldn’t fake.

But that doesn’t mean you ignore distressed deals altogether.

It just means this:

• Don’t make distress your plan—but know how to recognize it when it shows up. 
• Whenever possible, find out what you can about the seller's true motivations–price, speed, etc. (This is where the value of choosing the right broker really shines.)

If you know how to spot distress, assess the risk, and act quickly, a one-off distressed opportunity could end up being your best deal.

If you don’t?

You’ll miss it—or worse, chase a “discount” that turns into a disaster.

What Distress Looks Like in 2025 and Where to Find It

Let’s break this down. In today’s market, distress is showing up in places that don’t always look distressed:

1. Loan Maturities with No Exit 

• Loans made in 2020–2022 are coming due. But cap rates are up. Values are down. And refinancing isn’t easy.
• Some borrowers are stuck.
• If you can bring capital—or a creative structure—you’ve got leverage.

2. Sellers Who Can’t Hold On 

• Not every distressed owner is in foreclosure.
• Some are just out of reserves. Or out of patience. Or getting pressure from their LPs.
• These are often clean assets with cloudy ownership.

3. Quiet Note Sales 

• Regional banks aren’t broadcasting it—but some are quietly unloading non-performing debt.
• Not at fire-sale prices. But still at a discount.
• Buy the note, take control, or restructure it for a return.
• But again—this isn’t amateur hour. If you don’t know loan docs inside and out, don’t play this game solo.

4. Rescue Capital & Preferred Equity 

You don’t have to buy the whole deal to create value.

In many cases, bringing capital at the right time—either as debt or preferred equity—can give you a strong return with downside protection.

Bottom Line: Know What You’re Walking Into 

Distress can create opportunity—but it can also eat you alive if you’re not prepared.

If you’re a well-capitalized investor with experience in workouts, debt structures, and asset management, maybe distressed acquisitions should be part of your strategy.

But if you’re an individual investor trying to build long-term wealth?

Focus on learning how to recognize distress—not chasing it. 

Because if you can:

• Spot the early signs
• Assess the risk clearly
• Understand the seller’s position
• And move with confidence…

You don’t need to be the buyer with $100 million to spend.

You just need to be the one who sees what others don’t.

Want help analyzing your next deal? 

I’ve built tools to help with that—based on the same framework I’ve used for 20+ years.

- 🎁 Download the free Multifamily Deal Pro Forma

- 📘 Explore course options

- 📚 See inside the Illuminated Investing Coaching program

Let me help you stop guessing—and start investing with confidence.

Trevor Calton is the founder of Real Estate Finance Academy. Since 1997, he has analyzed, acquired, or sold more than $5 billion of commercial real estate assets, financed over 500 commercial investment properties, and overseen the asset management of over 6000 units of multifamily housing. He has been coaching and teaching real estate courses investors and professionals since 2005, helping people at all levels develop a successful real estate investment strategy.