Case in point: investor John P. Grayken’s Dallas-based private equity firm, which earlier this week inked a fantastic deal with investment titan Merrill Lynch. Lone Star paid a paltry $6.2 billion for Merrill Lynch’s distressed-asset mortgage investment accounts. Grayken must be grinning. His firm paid 22 cents on the dollar, netting a package with a face value of $31 billion. Furthermore, Merrill Lynch also agreed to finance 75% of the price, therefore taking responsibility for the majority of any potential losses from accounts that don’t succeed.

Stated in more mundane terms, this is roughly the equivalent of paying $6,200 for a $31,000 car, and then having the seller promise to pay for 75% of all potential future repair costs.

Smarts and aggressiveness serve distressed-asset management companies like Lone Star Funds and Team Nation Holdings well.  Still, as the truism states, timing is everything. By knowing when to exploit the anxieties of the marketplace, these companies can secure deals that would be unheard of during calmer, healthier economic times. Furthermore, many of these distressed accounts can be immensely profitable once the economy regains its footing and the marketplace follows suit.

Lone Star and Team Nation aren’t the only ones engaging in this practice. According to The New York Times, “the business of trading distressed debt is undergoing a renaissance on Wall Street, as money managers and traders search for ways to profit from fears that defaults will keep rising on a wide range of consumer and duplicate loans.”

One caveat: if this practice were easy, more investors would do it. If you decide to allocate part of your investments into this increasingly popular niche area, find a company that specializes in this practice. With their help, your returns could be substantial.