Difficulty selling rental properties at loan amount
Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes
Difficulty selling rental properties at loan amount
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Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votesI was not involved in the sale of these properties, but have sat back and watched this thread for the better part of a day and what fascinates me is how easy it is to get the result you want from other people. The thing that makes BP so great is that you can get unfiltered advice and usually from people that, besides a picture, are anonymous strangers. That is also the bad part. Due to no filter and anonymity, sometimes the comments are just thrown out there without any real thought about facts and details. It is unfortunate, that after @K. Marie Poe stopped asking questions, no one really picked up where she left off. It was obvious that things did not add up from the original post to where the thread took off.
This is not about should you buy Turnkey or not. This is about the basics. This is about buying smart and being honest here on BP with all of the details and sharing ALL of the pertinent data if you truly want the users to help you. @Jay Hinrichs, you're getting a couple of votes or that last post, but as much as I like you, I'm not one of them. You make a lot of assumptions in your response and you castigate @Curt Davis when he is the only poster on here actually trying to help Sabrina achieve her original question. He is the only one being honest about her options and solutions and the realities of her situation. Yet, you knock him for his honesty about what it would take to sell to a turnkey company and then you knock him for his honesty about the value of her properties and the fact that blaming will not get her closer to her goal.
I would think that many of the smart investors and commentators on here would really want all of the data and details before really coming to a conclusion. Big props to @Michael Lauther for his straight forward and pragmatic comments about buying midwest turnkey properties and the way you have to be brutally honest with yourself if you are going to be successful.
As for Turnkey, who cares about that debate? No one is going to change their minds on this and that is ok. As for your comment @Cal C., I own a turnkey company and I will gladly share this thread. For most of us running reputable companies, we love having these types of threads shared because they really help to define the good and the bad in both turnkey companies and investors.
Here are a few facts that were left out that are easy to know if you are familiar with Memphis. Why they were left out of the original post, I have no idea, but when put into context, a lot of commentators may feel differently.
1. There was an AFFILIATE company out of Los Angeles who worked very hard to get Memphis companies to sell properties to their clients. First red flag - They charged people money to be a part of their group and then those people would get access to their turnkey properties. Second red flag - They pushed the no-money out of pocket investing, positive cash flow, sit on the couch and collect mentality so any investor coming through them was set up for failure from the beginning. Jay, you have harped on this topic and here is a real life example of a buyer who bought through them and how their expectation was not met - but does that mean someone got screwed?
2. The company selling these properties is not a big company and they do virtually zero marketing. They rely solely on affiliate relationships for sales. The owner is a very good real estate investor and a fantastic business man with a great reputation. He does not sell on customer service, he does not sell on great management - hell, he doesn't even sell on doing extensive rehabs. He sells based on being a small company with low overhead a small management company and they do low-end rehabs to sell properties below market pricing to investors.
3. @Alex Craig is spot on with his analysis of the renovations done to these properties. They are not extensively renovated and still have deferred maintenance to this day. I am quite sure the same holds true with Lazini and the poster already said that the Chelsea Hill property had to be boarded up because it was being vandalized.
I was not there when these properties were sold. But, I am familiar with what was going on at the time and how companies were selling including the Affiliate company in LA. I am very confident that none of these were sold as short term investments. I am quite sure they were absolutely sold as long-term buy and holds beyond a 10-year hold.
Now lets look just real quickly at the houses themselves and the posters original post.
The outrage from BP posters came from this investor being taken advantage of by a Turnkey company who overpriced the properties, lied about value and did shoddy work. This company does not have a reputation for those things...
All three properties were purchased in early 2010 (this data comes from the assessors website so if it is wrong or Sabrina says she paid more....I'm just listing what is on the gov. site):
3381 Kings Arms purchased for $76k
3958 Chelsea Hill purchased for $35k.
9265 Lazzini Cv purchased for $70k.
Again, that is from the property assessors website so perhaps they are wrong, but this is exactly the way the sales were recorded. Perhaps the affiliate company and the turnkey company both mislead the buyer about the amount of work that was done or the amount of deferred maintenance needed, but I highly doubt these properties were sold at or above retail value. Maybe Chelsea Hill was sold as a great area of town, which again, would be wrong, but like I said, they don't look overpriced to me based on what I know about Memphis. And at $35,000 I have no idea how a buyer can think they are being over priced. @Ben Leybovich, there is your under $50,000 pig property that is almost impossible to have success with as an out of state investor.
Are the properties any good? Chelsea Hill is an area of town that we do not want to buy or manage. Kings Arms is a nice area and a good property. Lazzini is in a nice area and also a good property, but is an abnormal property at 2 bedrooms in a 3 bedroom area.
So I don't think any of these properties are sold too high. Not for the area of town and not for the work or lack thereof that was done. Only the OP knows what her expectations were for renovation.
What about the claim that they were listed at 25% below market value with no bites? I know other posters thought that was a little odd. Well, here is what the MLS shows:
3381 Kings Arms was listed at $109,900 that is 44% increase in 5 years!!! No way that property is listed at 25% below market value. IN fact, it was overpriced. It has been dropped to $99,900 and as was pointed out by Alex, it may still be slightly over-priced considering the lack of retail updates. But if it is sold at $89,000 based on lack of upgrades, that is still a capture of equity or appreciation, whatever you want to call it and would probably be slightly below retail value based on the lack of updates.
9265 Lazzini Cv. was listed on the MLS at $95,000. It is no longer listed, but again, at 95,000 that is not 25% below market value. That is at a whopping 34.7% mark-up and priced right at max value for that property in that area. It may be priced perfect or may need a little less to move to a retail buyer.
3958 Chelsea Hill does not show to have been listed on the MLS.
So were they ever listed at 25% below market value? Doesn't look like it, but that is the claim that sent BP into a frenzy. How can these properties not sell at 25% below retail value and not get a bite unless this buyer was screwed by a company? Or, they are not listed on the MLS.
OP claimed that selling all three as a package was preferable and that she just wanted to get out of them at break even or possibly a little profit. It sounds like Chelsea Hill will be the challenge for a package. Curt Davis has offered to help with that multiple times here on the thread and was even asked by Linda Pliagas to reach out and try to help you. He has done that. He has stated that he thinks he can help you break even at worst. At least give him some props for trying to help and offering to help if he can based on the original post.
I get how BP works. I have been posting and writing articles here for almost 6 years now and understand which comments to laugh at and which to really dig into. The best way to make BP work is to be willing to be honest and ask for analysis and advice based on all the facts. These properties were bought with no money down from an affiliate and from a vendor who is usually pretty up front that he does not believe in over renovating and likes to keep prices low.
To me, it sounds like a bad deal all the way around, but not the way the OP has described and certainly not the way the thread took off. It sounds like she wants to move on to other investments, but her long-term properties in Memphis are not going to let her realize a big profit. If she truly wants to sell, then with all the details on the table, there is bound to be a buyer on here and a solution that can help her get out of the properties at a break even if not a little profit.
299 Replies
- Property Management · Memphis, TN · Member since 2009 · 667 posts · 362 votes11y
I'm sure there's a solution to your problem. One helpful key would be to find a company that's in touch with clients that buy for cash flow rather than immediate appreciation. If the acquisition cost is within reason of collected rents, you should be able to sell. Sometimes every delay is to your advantage!
- Investor · Salem, OR · Member since 2015 · 85 posts · 22 votes11y
Sounds like the market value is different than you think it is. If you had one set for a year with no income and then did repairs and ect I would think you should figure out how much you are loosing or have lost , so far, if any.
This might make them look different to you. Perhaps it is time to think about really getting rid of them instead of looking for a profit. Perhaps looking at the real value would be a better solution and then see how you can get out of them using those figures.
It might be better and quicker to take a loss and get rid of them and save your credit for the next ones.
The TK man said you could expect a tk person to want to get 15k if they sell them for you or take them over so I would use that as a short guideline as to price possibility and look at trying to sell them 15k less than you are in them or something like that. Using a Realtor will cost you around 10% and time and probly still have to sell at a lower price.
- 11yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
I dont think lenders let anyone " assume " loans anymore. The only people who will be able to turn this home for a close to full retail value will be a TK provider and you will have to pay the juice for this service.
Curt Davis - KAIZEN Realty538 Reviews - 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Curt Davis not exactly a ringing endorsement of buying Memphis properties if you can only sell them by hiring a turn key company for 15k... are you saying no one can sell a rental on the MLS system with you as a broker charging a normal 5 to 6% commission.
If this was a refi then it was probably a 70 or 75% LTV refi so your saying properties are not worth what the appraisals from nationwide lenders say they are worth. or that in the last 3 years the values have dropped by 25 to 30% in Memphis .
I would be curious as to your take on how someone who buys a property with 20 or 30% down or pays cash then refis or puts a hML then refi's who think they have equity what your saying is they do not... Is that what your saying and or you can only sell if your willing to pay a highly organized and financed TK company double what it would normally cost to sell them...
this has always left me kind of stumped how you have these two values one the banks give on a purchase then a reality check when you go to sell and the very people you bought them from tell you you can't sell them for anywhere near what you paid for them
- 11yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
In my experience the out of state buyer in most cases is looking for a turnkey property and or system. We can list these type of homes on the MLS and I have done this for investors in the past but the majority of offers coming in are from hedge funds making lower offers. I only charge 6% if I list it on the MLS. If the MLS doesnt help sell the home then it could be offered out to one of the company clients but understand that there is a possibility the buyer might come from an affiliate marketing company that demands a hefty fee and in order for us to use a buyer spot there is a cost involved. Why would we sell someone else's home and make less then by selling one of ours? Another issue is if we sell another investors home through out TK program then we have to stand behind the property as if we renovated it ourselves.
These homes do have an element of equity in them which is true equity.
It just seems that out of state buyers, and I would guess this for most markets are looking for a turnkey program when buying and your not going to find that on the MLS. Even savvy investors who invest long distance themselves dont usually buy a home already renovated from the MLS.
Again, this is just some of my experiences.
Curt Davis - KAIZEN Realty538 Reviews - 11yDouglas SkipworthBusiness MemberRental Property Investor · Memphis, TN · Member since 2014 · 1k+ posts · 1k+ votes
@Curt Davis, for what it's worth, I assumed 7 loans from a community bank in Memphis just six weeks ago. It is alive and well!
The main problem is that national lenders don't like that option.
Throughout my career, I have found that community banks and private lenders are oftentimes open to let borrowers assume loans. Of course, the buyer has to have a track record and be creditworthy.
Thanks,
Investor's Guide to Memphis Real Estate - 11yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
that's excellent!! You rarely hear of it anymore. Can you tell more about that process like any out of pocket expenses, appraisal, eye...?
Curt Davis - KAIZEN Realty538 Reviews - Wholesaler · Memphis, TN · Member since 2015 · 49 posts · 28 votes11y
Are these properties on one loan or multiple? Is it a small bank or large lender? Send addresses and I will let you know what I can do. With everyone on here I'm sure a deal can be worked out soon. I have end buyers and if they are turnkey with good work that will save an investor time.
Mike McGhee
- 11yDouglas SkipworthBusiness MemberRental Property Investor · Memphis, TN · Member since 2014 · 1k+ posts · 1k+ votes
Great question!
It depends on the bank, but usually there are two variations.
First is just the plain old assumption. In that case, we usually have to pick up the closing costs since we are basically stepping in for the former borrower.
The other type is an assumption and modification. Usually, the lender will roll the closing costs in since they are modifying the terms of the loan anyway (eg, a lower rate, a slightly larger amount, a longer amortization term, etc.).
Let's catch up more at MIG on Thu night.
Thanks,
Investor's Guide to Memphis Real Estate - 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Curt Davis this seller has put 20k into the homes they are probably better than turn key.
It just seems kind of weird the buyer buys and the turn key company makes 15k or more.. on the sale to her Your words... then same turn key company who sold it to her.. wants another 15k to sell it and she is lucky to break even and really lost money since the property was vacant for a year and she had to put 20k into a house that was supposedly bought from you turn key already... so you make 30k and she makes nothing and she takes all the risk.. something just seems a little screwy there ..
the reality is if you buy a Memphis rental you better hold it for many years other wise your going to lose money and you better hope to hell you make some cash flow or your really in trouble... that's what I hear you saying.. am I wrong ?
- 11yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
jay,
For example if someone brings me a house to buy and the value and price I can sell it for is $100k and they are only wanting $75k and the home is in excellent condition then yes I could purchase it from them. If the seller needs more or the home requires more repairs then I could not buy it from them.
In most cases the seller either owes too much or the home needs more repairs then expected. We try to help investors out as much as we can. It all comes down to the numbers. We have listed many homes for investors as realtors and we have purchased many homes from investors wanting to sell. Thankfully we can offer them both services.
This scenario is not just a Memphis situation as this would happen in any market.
Curt Davis - KAIZEN Realty538 Reviews - Durham, NC · Member since 2013 · 502 posts · 215 votes11y
To me it sounds like the houses were bought at a price significantly higher than market value. After a few years and 20 k additional expenses, there is not even a retail market for 25% below the "assumed" market value? Either the market value assumption is grossly over estimated or the "fee" for buying TK is higher than 25% of the market value. How can this be financed?
- 11yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by @Jay Hinrichs:
@Curt Davis not exactly a ringing endorsement of buying Memphis properties if you can only sell them by hiring a turn key company for 15k... are you saying no one can sell a rental on the MLS system with you as a broker charging a normal 5 to 6% commission.
If this was a refi then it was probably a 70 or 75% LTV refi so your saying properties are not worth what the appraisals from nationwide lenders say they are worth. or that in the last 3 years the values have dropped by 25 to 30% in Memphis .
I would be curious as to your take on how someone who buys a property with 20 or 30% down or pays cash then refis or puts a hML then refi's who think they have equity what your saying is they do not... Is that what your saying and or you can only sell if your willing to pay a highly organized and financed TK company double what it would normally cost to sell them...
this has always left me kind of stumped how you have these two values one the banks give on a purchase then a reality check when you go to sell and the very people you bought them from tell you you can't sell them for anywhere near what you paid for them
Hey Jay,
Unfortunately, this could be one of those old scenarios that you are very familiar with where a buyer borrows short term financing (Hard money) to purchase a property with no money out of pocket. It is then rate/term refinanced - not at 70% of value, but at current amount with a new rate and a new term. So the buyer is in the home at full purchase price with no money out of their pocket. I think that is what Curt was alluding to about having to pay at some point if you happen to purchase the property with deferred maintenance and/or close to retail price. You benefit from a return which cannot be calculated if you have zero out of pocket. If things go well, you are earning $$$ when you put nothing in. Again, unfortunately, It looks like these properties were bought with deferred maintenance, which effects everything including the ability for them to stay occupied and possibly at a high value.
So I think it is less an issue for Memphis and much more an issue for the way some companies operate and attract buyers. This is about as bad as it can get for an out of state buyer expecting one scenario and getting another.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Chris Clothier sadly aware of the rate and term refi ... cost me millions LOL.
as you expressed maybe I took Curts comments out of context... However I was curious why he thought he could not list them and sell them on the open market for at least what was owed... some refi lender had to appraise them for far more than the loan amount they were not doing 100% LTV refi loans in most instances.. I know mine were all at 70 to 75% but we know what happened in the GFC that equity went poof and then some.
- 11yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by @Jay Hinrichs:
@Chris Clothier sadly aware of the rate and term refi ... cost me millions LOL.
as you expressed maybe I took Curts comments out of context... However I was curious why he thought he could not list them and sell them on the open market for at least what was owed... some refi lender had to appraise them for far more than the loan amount they were not doing 100% LTV refi loans in most instances.. I know mine were all at 70 to 75% but we know what happened in the GFC that equity went poof and then some.
That was a quick reaction by Curt so maybe didn't come out exactly right on his part. He is an agent and easily could list as he has done for other investors. At the same time, no one knows the details yet as to what was done to sell the properties. Now that the BP community is aware, I am sure these properties will get sold at what the owner needs fairly qucikly unless they are in really bad areas.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Chris Clothier yes his comments struck me as odd... and I am sure others ... it gives the impression if you buy a turn key and need to sell it only a TK company can sell it and your going to pay double what the going MLS rates are ...
from the sounds of the rehab etc these should be very good buys as I think they were rehabbed to retail standards not rental standards.. and I am sure she bought these through one of the top 3 turn key providers in Memphis but who really knows right.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Jay Hinrichs:
@Chris Clothier yes his comments struck me as odd... and I am sure others ... it gives the impression if you buy a turn key and need to sell it only a TK company can sell it and your going to pay double what the going MLS rates are ...
That was my take-away as well. Buy retail turn-key in Memphis and you're forever in the TK system. :) Hopefully Curt meant something else. But it did give the impression that there is a separate value and pricing system for TKs.
Maybe the OP can post some details so we can understand what was going on with the props when she was receiving only offers for less than loan value. Condition? Location?
- 11yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
I must not be stating my thoughts as well on this subject as I would like. Selling the home back to or through a TK provider is just one way someone might be able to try and sell it thought it might come at a little higher price then say normally listing it on the MLS where you only pay 6% commission to Realtors.
Curt Davis - KAIZEN Realty538 Reviews - Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes11y
Hello everyone:
I purchased these properties at zero down through a TK provider, which at that time were appraised and financed through a smaller lender at 75% LTV after rehab was completed. The loans were then sold to Chase. There is DEFINITELY a different price system through TK providers and it is NOT in the favor or in a fair consideration of the investor, even if the investor asks the properties to be taken back by the TK provider in better shape than it was taken over.
The reasons why I received less than loan value offers was because INVESTORS, not retail home owners, are making these offers. They are mostly wholesalers or part of TK providers. The properties are meant to be held for long term investment and are already fully rehabbed but these investors make offers as if they were distressed properties. The condition of my properties are turn key/fully rehabbed/move in ready...no major repairs are needed, only cosmetic, if one chooses so, but they are in the standard of Memphis "styles".
These 3 properties are in 3 different locations: 1 in zip code 38128, which is a newly developed area, which used to be a challenge but has now been mostly fully occupied and either purchased by new home owners or rented. The 2nd property is in zip code 38115, close to a golf course and well respected school around the corner, perfect for a larger family. The 3rd on is in zip code 38016, a prime area and the property is on a cul-de-sac.
There is nothing wrong with the properties and they provide great returns but I would like to move on to buying commercial MFHs and get out of renting SFHs.
Any additional advise or information is greatly appreciated.
Thank you.
Sabrina
- 11yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
Send me a PM and lets see if we can make something happen. Linda P told me of your request to sell these homes a few weeks ago and she was to tell you to contact me.
Let me know.
Curt Davis - KAIZEN Realty538 Reviews - Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Sabrina Brown:
Hello everyone:
I purchased these properties at zero down through a TK provider, which at that time were appraised and financed through a smaller lender at 75% LTV after rehab was completed. The loans were then sold to Chase. There is DEFINITELY a different price system through TK providers and it is NOT in the favor or in a fair consideration of the investor, even if the investor asks the properties to be taken back by the TK provider in better shape than it was taken over.
The reasons why I received less than loan value offers was because INVESTORS, not retail home owners, are making these offers. They are mostly wholesalers or part of TK providers. The properties are meant to be held for long term investment and are already fully rehabbed but these investors make offers as if they were distressed properties. The condition of my properties are turn key/fully rehabbed/move in ready...no major repairs are needed, only cosmetic, if one chooses so, but they are in the standard of Memphis "styles".
These 3 properties are in 3 different locations: 1 in zip code 38128, which is a newly developed area, which used to be a challenge but has now been mostly fully occupied and either purchased by new home owners or rented. The 2nd property is in zip code 38115, close to a golf course and well respected school around the corner, perfect for a larger family. The 3rd on is in zip code 38016, a prime area and the property is on a cul-de-sac.
There is nothing wrong with the properties and they provide great returns but I would like to move on to buying commercial MFHs and get out of renting SFHs.
Any additional advise or information is greatly appreciated.
Thank you.
Sabrina
Sabrina: something isn't adding up. If the properties are desirable to owner occupant buyers, that's always your best buyer. If you received no offers from OO buyers, then the properties are not in a good area or are not desirable to them. Or, they area not being marketed properly. Were these properties offered separately? You cannot sell a package to OO buyers. IMO you need the help and opinion of value and desirability from outside the TK world.
- Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes11y
Originally posted by @Account Closed:
Sabrina: something isn't adding up. If the properties are desirable to owner occupant buyers, that's always your best buyer. If you received no offers from OO buyers, then the properties are not in a good area or are not desirable to them. Or, they area not being marketed properly. Were these properties offered separately? You cannot sell a package to OO buyers. IMO you need the help and opinion of value and desirability from outside the TK world.
Sounds to me like somebody drank the TK Kool-aid and now the reality of the situation is revealing itself. I think every person interested in buying turnkey houses should read this thread. It is the most honest and real information related to an exit strategy - extremely limited even at supposedly 75% of ARV - I've ever read on BP.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Aaron Mazzrillo:
Originally posted by @Account Closed:
Sabrina: something isn't adding up. If the properties are desirable to owner occupant buyers, that's always your best buyer. If you received no offers from OO buyers, then the properties are not in a good area or are not desirable to them. Or, they area not being marketed properly. Were these properties offered separately? You cannot sell a package to OO buyers. IMO you need the help and opinion of value and desirability from outside the TK world.
Sounds to me like somebody drank the TK Kool-aid and now the reality of the situation is revealing itself. I think every person interested in buying turnkey houses should read this thread. It is the most honest and real information related to an exit strategy - extremely limited even at supposedly 75% of ARV - I've ever read on BP.
Yeah, we definitely need to hear more about TK exits. In an emergency can you get out for what you paid? Can you get out for for loan amount? Will the TK provider buy you out? This isn't specific to TK of course. Everyone should be considering what the emergency exit might be. But with TK there is an acknowledged mark-up or premium price that might make that more difficult or impossible.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Sabrina Brown:
even if the investor asks the properties to be taken back by the TK provider in better shape than it was taken over.
Sabrina: Did you ask the TK provider to buy back the properties and if so, for how much? It's an extreme solution and understandably not a precedent any seller wants to set. But one that a TK provider with an unhappy customer should seriously consider.
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