Difficulty selling rental properties at loan amount

299 Replies

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I am not saying that we want to work "with" turnkey providers.  We would evaluate an investor's deal and help negotiate, if possible, and provide local and honest feedback going over exit strategies, looking at the property ourselves, their intent to see if it makes sense and if it meets their criteria.  Yes, there were some investors that had great experiences but unfortunately, most that I know didn't, including myself, and it cost me a fortune getting out of this misery.  

@George Jetson

Sorry, I forgot to mention that I held onto my properties for 7 years.  I would say that I bought my properties even ABOVE retail (the appraiser back then was most likely in business with the lender arriving at exactly 25% equity) and investment properties sell for 70% minus repairs or you put more money in to fix up and sell at retail.  There is not much appreciation here in Memphis unless you go above $150K in property values.  

I agree completely with you that TK providers know exactly what they are doing (I don't know how they can sleep at night) and we are in the business of doing it the right way.  There is no need to screw people over for everyone to be successful!  I know I can sleep better that way!

@Sabrina Brown

This is a helpful thread. Too many newbies get screwed by out of state TK. Very sad.

There is no free lunch in this world. Trying to take the shortcut usually is not a smart thing to do.

In my view, new investors shall never look for OOS TK. That is a dead end, especially for newbies with limited funds.

OOS investing might work for experienced investors with deep pockets, buying a whole street or commercial buildings. With limited funds, it is even less feasible than investing locally in more expensive areas. You will be scammed to ---.

@David Song - I would have a different viewpoint on OOS TK's being that I've been successful over the past four years. Further I know of another 400 other investors that are using the same company that I do that continue to go back and buy more. If I had the time or skills to run a RE company myself I would definitely make an additional 20-40% return, but 7% year in and year out works for me. 

Limited funds in California can buy multiple houses in Indiana, it's all relative. While I agree that TK's aren't for everyone, for those that don't have the experience in RE or have full time jobs and busy lives, TK's are a great solution but just like any other transaction require the investor to complete their due diligence. There's plenty of guides on how to buy, people to talk with that have been successful and good companies. just have to find them!

@Sabrina Brown @Account Closed   the reality of buying ANY rental in ANY market is if you have no appreciation over a given time U will lose money If you exit before appreciation happens.. its just simple math... sales cost eat up your equity since it never went up in value.

One of my first posts on BP which was quite raucous  200 or 300 responses like this one was  "2% rule kills values".. lots of arguing but I was right.

fact is you have these homes they are sold are rate of return.. value ONLY increase's is rents increase substantially and cash flow is consistent...

I bought 12 homes in Mississippi all brand new construction A grade.. and am now selling 10 years later.. I am losing money on each and everyone of them as I sell them off.. they never appreciated.. and I am selling them for about what I paid for them or a little less.. you have to boot the tenant.. you have to do 5 to 7k of fix up work to sell retail ( at least ) and you have sales costs.. now I made my money when I bought them because I took go zone tax bene's that I was allowed to take.. so at the end of the day not sure if I made money or not.. but I know I broke even at least..

When you buy in any non appreciating market your buying for the long haul and I mean until its paid for..  Or if you buy in an area that is  RE gentrifying.. like say Fountain square in INdy or even Bates  we have made appreciation there.. but just vanilla residential areas of the mid west.. you need to as the buyer understand that there is no exit in a short amount time that will not cost you money..

Homeowners do not buy these.. you do not have a marketing company that sells out of state representing you.. your limited to what locals ( generally speaking will pay for a given cash flow) and that is usually a lot less than someone else from out of area will pay....   this is how you end up getting stuck

Jetson,  Morris is simply selling the hood.. most of the top Memphis providers have moved out of the hood .. as Craig who responded on this.. Fetke is a broker she is not a provider which is OK that's how real estate is sold..

Sabrina has a great idea I wrote a Book For Aussie investors about the exact same thing.. they were getting absolutely killed in Memphis  since they did not know what they did not know..   Its not turn key its math.. its non appreciating markets and its investor expectation.. you have a CA bias or expectation you can't take it to Memphis.. if your going to go down the mid west rental path you need a way to scale to 10 homes.. you need to know how to find the right deals put in some time and effort to make sure you not getting hosed up front.. and you need to pay these homes off..  then give them to your kids ..

this idea of max leverage for 30 years in this asset class is just plain wrong. you want them paid for as soon as possible that's when you make money. and the idea floated up by some of the TK brokers on this site that buying rentals turn key or not is a set it and forget it investment is just plain bad advice and sales hyperbole..

Sabrina is right you need to be fully engaged owning rentals takes time effort and work if your going to maximize your cash flow .. I know I suck at it too.

this weekend I was chasing one renter that that is 7 months behind and another that is 2.. now granted I admit I am bad at this and its why I am selling out even if it cost me 10 to 20k per deal to get rid of them..

So that's both sides of the coin.. buy rentals and buy for long term get engaged and stay in engaged..

I have lived in Memphis for over 10yrs now. All of my rental homes were purchased using the zero down to refi program. I can tell you that all of my homes I purchased back then have had some level of appreciation along with low mortgage pay down. When I have had tenant issues or repairs I have had to pay them and deal with the issues Bc that is a part of this process. There is no guarantee of success and I certainly do not have anyone to point my finger at to blame for my troubles when they happen. I expect this will happen at some point and I have never thought about selling my homes Bc of some problems. Owning investment homes is not for everyone. All my homes I own (24 of them ) are in most of the same areas that are considered B type areas. Some C and some A. I even use property management.  the only difference from buying from a turnkey and from the mls is when you buy  from turnkey you have someone to blame when problems come up. You are not really getting a better deal or a home in better condition. 

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I am simply stating that I purchased my homes similar to others who used the hard money purchase to refi program.  I also use a management company. My only real difference is that I saved a few dollars on my purchase but aside from that my process is not that different. 

@Brian M.   all I can say is I don't need the money so I don't follow it much.. unlike others who may not be able to handle negative cash flow.. have no other excuse other than that.. and the fact that I hate being a landlord and even looking at the stuff..

@Curt Davis   you make my point perfectly... you live there you have scale and your on top of it.. if not the units themselves the managers... you are probably no more than a 20 minute drive from any of your doors.. big difference.. and one I totally subscribe too.. If I lived in the mid west I would be right back to were I was 5 years ago when I owned 350 of these homes.. but for me trying to run them from Oregon was kind of tough and frankly as I state I simply don't have the mind set and patience to be a landlord.. I prefer to work with professionals not professional tenants.. and peoples drama in their lives.. and that is what landlording is at its base..

Now we can mitigate that somewhat with A class SFR's and our west coast stuff is a little easier but no immune.. IE here in pdx were we have less than 1% vacancy you can really dictate to a tenant and they know it.. don't have a 720 fico your not going to get a great place.. have a 580 fico and your renting in Memphis.

Originally posted by @Sabrina Brown :

I own 3 rental properties in Memphis and have been renting them out since I got them.  However, last year I tried to sell them at 25% below market value and still only got offers for less than the loan amount.  I ended up having to put tenants in it again after not receiving any income for a year in addition to putting in another 20K to fix these properties up to make them turn key.  I can't refi because I am self employed and I can't do a short sale or approach the banks as to not to jeopardize my excellent credit rating.  

I would like to sell these properties as a package. They generate at least 1K/month in net profits (after PITI and management fees) and don't need any repairs.

Is there any other strategy I could use to offload these properties at a minimum of breaking even or just a tiny bit of a profit?  

I am currently looking for MFH's in CA and would also consider an exchange or other unique options.  Please advise!

You're looking for MFH's in CA - but don't have a W-2 income (according to your posts)? Even if you are able to sell these to pay off those loans, how will that help you get MFHs in CA? (After all, your net income will go DOWN by $1k/m, right?) 

@Dean Letfus quoted his mentor earlier: "When you buy in Memphis it's like a tattoo, you have to keep it for life".

But if they DO cash flow, with your TENANTS paying them off - why wouldn't you WANT to keep them?

It's not the worst thing in the world to have made the rookie mistake of paying too much - if the numbers STILL work!

As far as I saw, you didn't have MUCH skin in the game to begin with? It was only the year of vacancy while you tried your hand at being a Flipper that REALLY set you back, right? Was that $20k ALSO borrowed? [Sorry if I misspoke]...

I think most investors expect to potentially take a loss on a TK deal if they have to sell early on. Can you really expect to "flip" a house twice in a short period of time and make two consecutive profits?

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You put them on the market and the market spoke:   They are worth less than you want.

Selling single family rentals is super tricky.   There is a defined market to sell apartment buildings, but not as much for single family rentals.  I almost feel they are worth more vacant.   A vacant house can be bought by a home buyer or a landlord.   

You might have to stick with them for awhile.   Some of the properties that I bought before the great real estate crash of 2008 took many years before they were not upside down anymore.   The alternative would have been foreclosure, which I couldn't handle.    I stuck it out.

@John P.

I would not be either.  What I have been figuring out with other trustworthy and successful investors here in Memphis is how to help other out of state investors so they will get a good deal that makes sense just as if they were local people.  If they have a property in mind, we can go look at it, be their second set of eyes, tell them about the area, pros/cons, talk about the investor's goals and help them meet their goals based on the "real" current market.

I don't wish anybody to go through what happened to me.  Thankfully, I have always been able to pull myself back up but others may not have the willpower or energy, especially when one loses a lot of money.  If I had known back then what I know now, and had I known the great people I know now, I would have definitely made money.  However, I would have ONLY made money WITHOUT TK Providers!  I am happy for those that say that they have made money WITH TK Providers but if they knew how much they overpay for often less than standard services, they may change their minds, too.  

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TK's are in business to give you cash-flow.  We tell all of our investors up front, that if they're looking for appreciation, they're looking at the wrong product.  Yes, Indy is going through a renaissance, and there is opportunity for appreciation, but it is only a bonus if it happens.  A TK product is for investors who are sick of the rollercoaster of the stock market, have busy lives (and don't want to rehab), and live in areas where they cannot achieve the same price-to-rent ratios.  

Wow, this thread is lonnngggg but has a lot of good info so I'm going to chime in also since I just got back from Memphis on Saturday night.  I spent last week there looking for a handful of homes.  For those who say there is no appreciation in Memphis, I thought the same thing but I don't believe it now.  I have purchased 16 homes of varying quality over almost four years.  It's crazy what people are asking for properties out there today, and the rents haven't gone up much.  It's hard to get good deals like I was able to over the past few years. 

I do buy primarily from turnkey companies, knowing that I will hold them for a long time, but that is my goal.  Long term investing.  Yes, I'm often paying almost full retail but as long as they manage them well I don't complain.  I met with more than five providers that I talk to on a consistent basis and their returns are significantly lower for the very few houses they have available. 

I have purchased from wholesalers out there but after I pay someone 15% to manage the rehab, since I don't live there (from CA), plus the rehab I don't get much equity compared to turnkey and I think the turnkey was rehabbed better than what I have paid for. 

I talked to the few wholesalers I normally deal with and they didn't have anything good. The number of homes they actually had was really low compared to any other time I have talked to them.

I did go to the Auction at Comfort Inn on Thursday to look for deals and there were a few there.  The only thing is you have to compete with Memphis Invest, Mid South Homebuyers, Rent to Reward and all of the other people/companies there looking for deals.  There were 12 other people/entities bidding on a total of nine homes. 

Overall I noticed there are not as many homes available and everyone is looking for homes to rehab. The wholesalers are passing them on as quick as they can get them, the turnkey companies are struggling to maintain a decent inventory to keep up with demand and the homes I saw on the MLS (MARS) were mainly overpriced. It's a good time to have many homes there. This is the first time in four years I have gone out there and not purchased/contracted for a home while on ground. I do have a few leads but who knows what I will actually purchase.

If you are new to the area or looking to buy, like all of the others have stated, do your due diligence.  I have always recommended visiting the Memphis area to see the quality of homes, what areas you are comfortable investing in to meet the agents, turnkey providers or whoever else you are working with out there while actually standing in front of a house you are interested in purchasing.  I spent about $1,500 for five days and it's well worth it.  You will learn so much more from people if you actually visit.  I always learn a lot from the people I talk to.

@Account Closed

Glad you had the chance to check everything out by driving through areas, getting information from TK providers, and researching online but it is not the same as actually living here (ask me how I know this!).  I did the same as you in 2010.  Real estate is all about the exit strategy.  I predicted back in 2010 that I would hold onto my properties for a long time "since it's all about the cash flow" but the reality was different for me having to deal with excessive repairs, non-paying tenants (that TK providers didn't collect), rent-ready repairs and loss of further rent, entity maintenance, etc.  If at the end of the year you look at it, there were much higher expenses than you took in, it's hardly worth it.  And you may be doing well in the first few years but after about 7 years, you end up putting a lot of cash back into the properties for high ticket items including new HVAC, flooring, windows, etc. One will need a lot of reserves for it.  In hindsight, I wish I had never invested in literally any of my rental properties (I owned in other states, too) and I would have a pretty big fat bank account.  If there is anything else, like a secret :-), please let us know!

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