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
- Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes11y
@Account Closed The details of the properties, including addresses, are listed on my website under "properties for sale" (see my signature field for the link). Thank you.
- Professional · Jacksonville, FL · Member since 2015 · 397 posts · 34 votes11y
Originally posted by @Sabrina Brown:
@Account Closed The details of the properties, including addresses, are listed on my website under "properties for sale" (see my signature field for the link). Thank you.
What is the net income and/or current mortgage payment on each of the rentals? It only list the monthly rent amount and cash flow from each.
- Specialist · Essex Junction, VT · Member since 2015 · 279 posts · 67 votes11yHey there, what if you contacted Memphis invest. They seem to have their finger on the pulse and are connected with investors. A
- Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes10y
@Account Closed
Hi Greg, I just emailed you back. The cash flow is the net income on each of the properties. Hope this helps. Thank you.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes10y
Originally posted by @Ashley St. Gelais:
Hey there, what if you contacted Memphis invest. They seem to have their finger on the pulse and are connected with investors.
AAshley: I can only assume you didn't read the thread. Memphis Invest is WELL represented in the 7 pages of comments, including details from Chris Clothier about their involvement with the properties and the OP. The OP overpaid for the properties, at least she overpaid for her current exit plan. The properties did and could provide cash flow but will not likely sell for much over current loan value. For a VERY interesting and informative read, I suggest going back and reading the entire thread. Lots of very good info and thinking on TK expectations from everyone, but especially from two Memphis TK providers and PMs, both of whom are familiar with the properties. Destined to become a Best of BP Classic. :)
- Professional · Jacksonville, FL · Member since 2015 · 397 posts · 34 votes10y
Originally posted by @Sabrina Brown:
@Account Closed
Hi Greg, I just emailed you back. The cash flow is the net income on each of the properties. Hope this helps. Thank you.
To clarify, what is listed on the website defines cash flow (CF) as CF after mortgage payments, taxes insurance etc. The information that I need is/was the net before those expenses on each of the SFH. You may also email it for confidentiality reasons.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes10y
Originally posted by @Account Closed:
Originally posted by @Sabrina Brown:
@Account Closed
Hi Greg, I just emailed you back. The cash flow is the net income on each of the properties. Hope this helps. Thank you.
To clarify, what is listed on the website defines cash flow (CF) as CF after mortgage payments, taxes insurance etc. The information that I need is/was the net before those expenses on each of the SFH. You may also email it for confidentiality reasons.
Greg: if you read the thread from beginning to end, there is invaluable income and valuation information provided by those who know the properties and that managed them for the OP. If you are considering making an offer, definitely read the entire thread. It includes agent and TK provider opinions about the specific properties and their pros and cons. One of the properties is considered an untouchable, given location and tenant pool.
- Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes10y
@K. marie P. (not sure why your name doesn't pop up to tag you):
Thank you for "promoting" my thread - I appreciate it very much! :-)
The one property that was considered "untouchable" is actually not. It was outdated information when the property was still boarded up. Some people call the area a "war zone" but it is not, it is actually a newer developed area and now most properties in that area are fully rehabbed with tenants in place or with owner occupancy. My property has been made turn key again with a tenant in place who may be interested in a lease option.
Thank you.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes10y
Originally posted by @Sabrina Brown:
..... A "TK area" is definitely a higher challenge finding OO or getting closer to retail value. The comps just won't allow it.
Sabrina: This challenge is not specific to "TK areas". There are more non-TK rentals than TK in any neighborhood. TK has not taken over the US rental market, or even Memphis. It's a tiny niche thing comparatively speaking. It's the non-owner-occupied rental nature of a neighborhood that deters OO buyers. If the flavor of the neighborhood is mostly rentals, it doesn't matter who owns them, the lack of homeowners usually shows in and will deter OO home buyers. This is especially true in low income and working class neighborhoods.
Your issue in trying to sell these properties is price, plain and simple. At this point it doesn't matter what you paid, how much you spent on improvements or how much you owe. There is a buyer, likely an investor buyer, at a lower price than your current asking. I think you may be able to get out for loan value, but know that people bring cash to closing every day to get properties sold.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes10y
Originally posted by @Sabrina Brown:
@K. marie P. (not sure why your name doesn't pop up to tag you):
Thank you for "promoting" my thread - I appreciate it very much! :-)
The one property that was considered "untouchable" is actually not. It was outdated information when the property was still boarded up. Some people call the area a "war zone" but it is not, it is actually a newer developed area and now most properties in that area are fully rehabbed with tenants in place or with owner occupancy. My property has been made turn key again with a tenant in place who may be interested in a lease option.
Thank you.
If I were a potential out-of-area buyer, I'd take the comments on this thread about that property from local agents, PMs and TK people pretty seriously. Getting it rented does not change the fact that there are local TK providers and PMs who won't work that area or that property.
Even negative advertising is still advertising. IMO, the kind of exposure those properties have had on BP would have gotten you buyer already if there was not something wrong with price, income potential, area or all three.
- Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes10y
UPDATE:
I received an offer on one of my properties from my listings on postlets.com which then posts to numerous other sites. It is in escrow now and looks like it is going through. Coincidentally, I received a call this morning regarding an offer on another property of mine, also resulting from my postlets listings. Still early to say if it is going to be a sale.
In the meanwhile, I got the privilege of being referred to one of the best management companies in Memphis that usually only takes on management for their own properties. They take care of things immediately, are honest and responsive. I wish I had known them years ago and I wouldn't be at this stage.
Funny thing is that I received notification from the management company prior to hiring this new management company that McNutt is in jail now. McNutt was the management company before that. Here is the link:
http://wreg.com/2015/11/15/property-management-ceo-jailed-for-bad-rental-properties/McNutt had the guts to still contact one of my tenants to get into the property for showings to a potential buyer, which I am not aware of. I believe that he tried to scam this new buyer because the property couldn't be sold until I gave authorization. Because McNutt did not complete repairs as promised and after paying him, I had lost a potential lease purchase buyer. Furthermore, McNutt owes me several months of rental income for 2 properties that he never forwarded to me (tenants paid in cash).
Ironically, the management company that sent me the McNutt link is now eager to pay me past due rental income! Justice will prevail.
- NY · Member since 2015 · 101 posts · 43 votes10y
@Sabrina Brown, thanks for the update and glad to see that things look like they will worked out. I haven't been on BP that long but I still think this was one of the most followed posts and opened a few eyes regarding exit strategies.
- Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes10y
@Kevin Darrell It sure has been a "ride" and still is. The current management company I use also sells their own properties as turnkey but they are fair and unbelievably responsible! Let me know if you still look new TK properties and I will refer you.
- Investor · Alameda, CA · Member since 2012 · 47 posts · 10 votes10y
Sabrina, Can you share who was the TK operator who sold these properties to you? Was it McNutt or was he only the PM and could you share who is the new PM you found? Are you still happy with them?
- Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes10y
@Olga LevinThe properties were sold to me by Memphis Cash Flow. Later I was asking them to take them back from me and they were again trying to put a huge premium on top of the already overpriced properties that I bought from them. I am still struggling to get offers close to my current mortgage balances.
McNutt "managed" my properties for less than 2 months only to find out that he didn't make the necessary repairs that I paid him for but he also collected rent and never paid me. I filed a lawsuit against him as he also practices without a license. I have had to pay for the same repairs once again that weren't made by him.
My new management company is called MidSouth Best Rentals. They are awesome! They have high standards and are extremely reliable and honest. I can consider myself lucky to have been able to get them as they usually only handle a large portfolio. If you are looking for TK properties, they also offer them under their own name.
At this time, I have two of those properties rented with happy tenants and leases of another year each. My 3rd property has been vandalized for the 3rd time in 2 years and is once again boarded up. The tenant that McNutt "found" (if that tenant wasn't also in the game to screw me over as he stole utilities) abandoned the property upon which my property became another target for vandalism. I never saw rent from this tenant for the 6 months he lived there.
- Investor · Alameda, CA · Member since 2012 · 47 posts · 10 votes10y
@Sabrina BrownThank you so much for sharing this information. I am currently considering TK operators in Memphis and I read invaluable information in this thread. Is your problem property the one that is not in a great area?
Unfortunately I have experienced all of the property management issues you have had first hand. It is really crucial to find someone reliable. It sounds like you finally have!
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes10y
Originally posted by @Account Closed:
Even negative advertising is still advertising. IMO, the kind of exposure those properties have had on BP would have gotten you buyer already if there was not something wrong with price, income potential, area or all three.
So, it's many month later since you started this thread. You still own all three props. You still owe more than they are worth, or perhaps values are up to loan value on the two better ones. The one I called "untouchable" is again vacant, boarded up and vandalized in spite of your opinion that it is not in a bad area and that you had a viable tenant. I'm curious, what's your exit plan now, especially on the untouchable one?
- Memphis, TN · Member since 2015 · 43 posts · 27 votes10yI maybe interested. Can you pm me the addresses?
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes10y
Originally posted by @Account Closed:
I maybe interested. Can you pm me the addresses?
Read the thread. All the addresses, the condition, opinion of values, rental pool and neighborhoods are given by several agents and PMs. some of whom were involved with the property. This thread is a must for anyone considering these props.
- Memphis, TN · Member since 2015 · 43 posts · 27 votes10y
The thread is quite long and I didn't see specific addresses, only areas, zip codes and street names. I am local to Memphis and looking for a certain type of property, this I was trying but to determine if yours fit my niche market. Thanks anyway.
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....
Not sure at all these were Multis
- "I own 3 rental properties in Memphis and have been renting them out since I got them."
I would think the issue is specific to the original purchase and or current values in Memphis. I was very disappointed when we went on site in Nashville looking for rentals (too much week-week and paying by cash for me).
- Investor · San Diego, CA · Member since 2014 · 592 posts · 765 votes10y
Originally posted by @Account Closed:
The thread is quite long and I didn't see specific addresses, only areas, zip codes and street names. I am local to Memphis and looking for a certain type of property, this I was trying but to determine if yours fit my niche market. Thanks anyway.
3381 Kings Arms
3958 Chelsea Hill
9265 Lazzini Cv
- Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes10y
The Chelsea Hill property is vacant but needs repairs. The other two are rented with 1 year leases that just started. Please do not disturb occupants, neighbors, management company, etc. Thank you.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes10y
Originally posted by @Account Closed:
The thread is quite long and I didn't see specific addresses, only areas, zip codes and street names. I am local to Memphis and looking for a certain type of property, this I was trying but to determine if yours fit my niche market. Thanks anyway.
Indeed the thread is long. I'm going to again suggest that you read every word of it. This thread is a free, detailed analysis, with Memphis professionals weighing in. The thread provided the OP's 3 properties with more exposure and advertising than your average MLS listing. Yet she still owns them, she still can't sell them for loan value, and one of them is boarded up producing no income. If you are a Memphis local, even more reason to read the whole thread. Enjoy!
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