Why Sell Your SFR Portfolio in Bulk?

With the current sellers market conditions across the U.S., it is extremely tempting for many property owners to cash in and sell their single family homes and use that capital gain to purchase other assets. As other investors enter the market, buying a portfolio makes sense rather than having to build one. Institutional investors are also buying portfolios and buy them based on their evaluation of cash flow like buying any other business. There's a common misconception that you can sell your homes for higher than the individual appraised value if you sell in singles on the MLS - NOT TRUE! I just sold a portfolio of 53 homes in Dallas for higher than the individual homes appraised values based on market comparables.

Common Objections to Selling as a Portfolio; Why not sell the homes individually, you could get much higher value for each property?

Friction Costs: Preparing a home for sale in the retail market requires the home to be vacant and ready for a new home owner. That would mean, the investor would have to remove the tenant, repair the house, paint, replace carpet, flooring, etc. Then the investor has to wait for the house to be marketed and close (approximately 90 days). That’s 3 months with no cash flow! The investor is still responsible for taxes, insurance, and mortgage costs during this time. This friction cost has been estimated to cost as high as 13-18% of the market value of the home.

1031 Exchange: You could try to 1031 exchange each home you own but managing that many transactions probably kill you. If you exit as a portfolio, it is much easier to exchange. Think about how much this can save you in Capital Gains taxes and depreciation recapture.

Discounts: Closing costs and brokerage fees are reduced when sold as a portfolio because of the volume.