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
- 10yJames WachobBusiness MemberReal Estate Broker · Memphis, TN · Member since 2015 · 1k+ posts · 888 votes
Originally posted by @Frank Jiang:
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
want to sell these homes?
- Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes10y
@Sabrina Brown if you want to get the maximum price for these properties you will need to kick out the tenants, fix them up to sale (not rental) standards and put them on the MLS individually. Selling them as a package or to investors will get a lower price.
How much you owe on the loan is absolutely irrelevant to the price you can sell them for. The loan balance affects whether or not you'll bring cash to the table to sell, but it has no effect at all on the market value of a property.
You say you put them on the market at 25% below market and couldn't get an acceptable offer. That does not add up. If the were on the market at 25% below market given the condition of the property (both physical and occupancy), they would have sold. You write:
Sorry, but here again, I have to push back. If they are move in ready, NO repairs are needed. Not major, not cosmetic, nothing. Many buyers, especially at the low end, become very house poor after they buy a house. They put all their savings into the down payment and closing costs and have very little left even for cosmetic improvements. So, even something as simple as bad paint or stained carpets can significantly affect the value of your property.
Have you seen these properties in person? Have you looked at other properties in the area? If not, I think you need to buy a plane ticket and go have a look.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes10y
Originally posted by @Jon Holdman:
@Sabrina Brown if you want to get the maximum price for these properties you will need to kick out the tenants, fix them up to sale (not rental) standards and put them on the MLS individually. Selling them as a package or to investors will get a lower price.
How much you owe on the loan is absolutely irrelevant to the price you can sell them for. The loan balance affects whether or not you'll bring cash to the table to sell, but it has no effect at all on the market value of a property.
You say you put them on the market at 25% below market and couldn't get an acceptable offer. That does not add up. If the were on the market at 25% below market given the condition of the property (both physical and occupancy), they would have sold. You write:
Sorry, but here again, I have to push back. If they are move in ready, NO repairs are needed. Not major, not cosmetic, nothing. Many buyers, especially at the low end, become very house poor after they buy a house. They put all their savings into the down payment and closing costs and have very little left even for cosmetic improvements. So, even something as simple as bad paint or stained carpets can significantly affect the value of your property.
Have you seen these properties in person? Have you looked at other properties in the area? If not, I think you need to buy a plane ticket and go have a look.
This thread is chock full of things that don't add up. You would probably find most of it somewhat entertaining. The OP didn't offer the properties for sale at 25% of value. She's trying to get out for loan value and to recoup her costs. She bought these from a TK provider then refi-ed out for max value so she ended up in for essentially zero cash out of pocket. From the numbers provided by at least one of her PMs, she's still in the black.....but horribly upside down. And as she periodically reminds us, they are "cash flowing", even though one is boarded up and vacant (again). However, depending on when she's posting and which PM or TK company she is angry with, they are either POS props or really a-ok props. IMO this is where the rubber really meets the road on TK strategy. How do you get out if you got in for more than they are worth? How do you get out when no one wants them? Exit has to be a consideration on any rental purchase, not just TK.
- 9yMark S.Pro MemberRental Property Investor · KY · Member since 2013 · 1k+ posts · 537 votes
As an investor that's getting ready to buy TK in Memphis, this is a little scary. I'm planning long term buy-and-hold, but knowing that "selling" as an exit strategy could yield a disappointment like this isn't helping. I'm hoping this is an exception.
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes9y
@Mark S. if you buy turnkey you absolutely would sell at a loss in the first ten years. Not necessarily lower than loan value but quite likely if you get 80% lending.
- 9yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
I would say a lot of it depends on where you buy your homes at. Some neighborhoods appreciate more then others. Homes we were selling for $62,900 back in 2012 are now selling for $79,900 so there is appreciation happening.
Curt Davis - KAIZEN Realty538 Reviews - Investor · Gilroy, CA · Member since 2016 · 255 posts · 195 votes9y
One thing to ask when looking to buy, is if there is a retail market for the neighborhood. Ask for OO comps in the area, and not just one. @Ben Leybovich had previously stated to underwrite your buy using an IRR. When you do this, assume you sell for what you bought it and check the return.
- Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes9y
Originally posted by @Alexander Price:
One thing to ask when looking to buy, is if there is a retail market for the neighborhood. Ask for OO comps in the area, and not just one. @Ben Leybovich had previously stated to underwrite your buy using an IRR. When you do this, assume you sell for what you bought it and check the return.
Actually, you will not make any money if you sell for what you bought. There must be some projected appreciation one way or another. The IRR will never work without the back end, if you are honest about CF numbers :)
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Alexander Price I am in the middle of doing this right now. in the Nicest areas of Jackson MS Madison county and Rankin county.. golf course communities and other high end.. I bought 11 brand new homes for go zone tax bene's 10 years ago... the value play at the time @Ben Leybovich was 50% bonus depreciation.. so I put 10% down average of 20k per property. and I wrote off 100k per property the same year.. I bought 2.2 million worth over a 24 month period.. Now not only did uncle pay for my down payment in tax savings but I saved another 25k per transaction I would have sent uncle in those years.. ( pre 08 melt down and our lending and real estate business was smoking)
OK that's why I bought them... they were cash flow neutral all these years.. almost zero cap ex because they were brand new and I bought only once with stained concrete floors and they were brick homes.. Hail damage does not count as that can happen to anyone..
So here we are selling them.. for basically what I paid for them or a little less.. Market never fully rebounded past the peaks..
the issue though is these are all going owner occ... the homes to get full retail ( if your thinking an OO exit) I have been putting another 5 to 10k per property in them.. plus they go vacant for an average of 6 months during the sale cycle.. VERY difficult to sell a rental retail with a tenant in it.. unless its like SF bay area real estate.. that is in such a high demand.
YOur competing against new construction for just about the same price in those areas.. this will play out in all mid west markets the exact same way... the only areas I see were there is significant up side is were your buying in INFIL now that you would not really make sense of as a cash flow investment.. but houses are torn down new one's built or big pop tops are being done.. then there is some nice profit to be made so if the home just stays neutral and or a little negative the big money is in the exit.
This is what we are doing in Charleston SC right now and in Indy.. if you can find a rental in these areas that are CURRENTLY being gentrified in a big way.. you have some pretty good hope of big dollars down the road..
So bottom line Alexander thinking you have a OO exit for a used 40 year old rental.. is not reality in MOST instances... these are very long term play's .. and you need to be able to scale to make it work
- Investor · Gilroy, CA · Member since 2016 · 255 posts · 195 votes9y
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Alexander Price simply reality and exactly how it plays out.... 6 months of vacant homes is costing me another 8 to 9k on top of the rehab dough.. then you deduct sales commission and this is about 25k each property to exit.. So just to break even on these things you need substantial appreciation.. I choose to exit as I am retiring from the rental game. and well I can't really figure out if I am breaking even all these years losing my A@@@ or making a few bucks..
But at the end of the day.. I saved about 500 to 600k in CASH buying them that I would have sent to uncle sam that I would never have gotten back. ( Go Zone tax bene's that were only available to those who derived 80% of their income from those asset class's IE real estate professionals)
So Katrina givith and takith away.. depending on if you were flooded out or were a carpet bagger.
So with any rental to sell to a OO you can figure about 20 to 25k in added expense to do that.. no matter the price point. maybe a little less is they are 100k homes.. ( which not a lot of those go to OO in those areas)
- Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes9y
The IRR is just a formula. The output is a function of the in-puts. In-puts are the hardest thing you will do as an investor, specifically one without a lot of experience. I know how people behave and what that does to my cash flow. Otherwise it's just meaningless numbers...
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Ben Leybovich ergo I have no clue what I have made in the rental game .. LOL.. I know when I am in a new build for 350k and net on the hud 425k I made 75k... that I know.. just need to do a few a month and well who cares about cash flow.. LOL
- CA · Member since 2016 · 1k+ posts · 1k+ votes9y
Out-of-state investors routinely overpaid, that is no secret, because they don't understand the local market......
I am now in a situation where I tried to negotiate on a property asking $2M down to $1.2M... Out of state investor, from LA actually, bought in bay area back in 2015 for $1.5M... Wanting to unload at $2M now... Well, the purchase price of $1.5 was really a super stretch to begin with, but he probably thought he got a deal....Will see how this goes...
if you are not making money on those 11 property, I don't know who can.....
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Diane G. I made 600k when I bought them .. money was in the bank 10 years ago.. my point is I just don't follow this stuff much so I really don't know if they cost me anything to won or not.
too busy making money in my day job to worry about if I make 100 a month or lose 100 a month
- Real Estate Professional · San Francisco-East bay, CA · Member since 2013 · 340 posts · 50 votes9y
I would recommend few options, and it may be possible to do - but you may have to do some more research and decide if its for you.
Talk to an online auction company and list them there and see if it works out. The best part of auction is you can set the reserve price. I bought many auction properties between 2009 till 2013 and then stopped because the auction bids always crossed the zillow estimates. If that would hold true on any of your property, you would be in great luck.
The other option is to get creative. I am not sure if you want to sell them due to headache of finding tenants often or any other purpose. If it is infact the challenge of being a landlord, you can alleviate that by doing a lease option. In that case, you may have to find an investor-partner that will buy out from remaining part of your loan and then you both together do a lease option. Over a period of time you can actually get significant profits- and there is no property management/tax, maintenance etc to you.
Thanks.
Naveen.
- Real Estate Professional · San Francisco-East bay, CA · Member since 2013 · 340 posts · 50 votes9y
Like to talk to you. How & where do you find properties that you could bargain upto 30 % lower. My last CA purchase/sale was in 2014. Actively looking to get back into investments in bay area.
From 2013 I invested out of state in DFW region, FL and OH. The DFW properties have literally doubled and will cash out this summer. Want to bring that back to bay area, but need to know how to find good deals in this crowded &(crazy) market :). Pls advise.
Thanks.
Naveen.
- CA · Member since 2016 · 1k+ posts · 1k+ votes9y
Once I am in contract, I will post more details....Now is not the time.... Lol
- CA · Member since 2016 · 1k+ posts · 1k+ votes9y
By the way, let me clarify.... Don't think I am getting a 30% discount from market price... instead, I think the current owner (from LA) overpaid when he bought, and now he is trying to get out....What I offered is simply market price....
- Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes9y
Hello everyone again,
I have numerous updates:
1) Lazzini property - sold in June 2016 at breakeven to loan amount
2) Chelsea property - got vandalized again (3 times in 3 years) because boarding up apparently wasn't good enough and having this so-called "honest and reliable" management company that promised to drive by 1x/month and charged me for gardening 2x/month did NOT DO ANYTHING! I had a potential buyer who wanted to see the property and he was the one telling me that the property had been vandalized. I then contact my insurance company and they told me my insurance policy was cancelled about 6 months prior BECAUSE the property was vandalized. So basically, the management company did nothing and just ripped me off and the insurance agent forgot to inform me because she was busy planning a wedding. The claim has still not been resolved after 3 1/2 months because the management company dragged their feet in providing a police report filing (they said they were stood up by police 3x but then I insisted on them just simply going to the police station - duh! - and it still took them 3 weeks to do so) and they had no record whatsoever of going to my property. I found a great contractor now, who almost feels like a concierge service to me, who was referred by a great investor from Bigger Pockets. The contractor has removed the code violations due to the property not being boarded up and trash sitting outside, including a chair from the inside of the property that I had paid for the management to clean out and remove the debris, which they obviously didn't.
I still owe about $43,000 on this property and have now sold another out of state property that I owned outright (even though I lost another $20,000 due to that management company there letting the tenant move out during escrow and the first buyer pulled out), thus, I offered the property in as is condition at $29,500 but no matter what, every time I lowered the price, I got offered another $10,000 less.
Several investors in Memphis finally confirmed that there is a different market for out of state investors than local investors. We are being taken for a ride and pay about 30-50% more on every single transaction: purchase, rehab, repairs, etc. and we are being lied to that work had been done when it wasn't done. Most crooks in Memphis get away with it, even if you have a legal title against them.
Contractor is now helping me fix up the property for $10,000 in total while someone trusted will be living there for free and house sitting and reporting back to us so the property won't get vandalized again until we have found a rent to own tenant. Plan is to get $7,000 minimum down and then covering my PITI plus additional cushion, which will be around market rent in that area. There are 3 other properties nearby that are boarded up, too, but they will be fixed up within a year providing each other higher market value.
3) Kings Arms property - the tenants had paid rent before timely, even though they didn't seem the best candidate. They offered $100/month more but since they paid, I was okay with it, even though it was still below market and what this large property would go for. However, I asked the management company to do a full checkup of the property and provide pictures, which they didn't and I kept pulling teeth asking about the status. Supposedly, a person left and they fell behind on following up. Two months after lease expiration, they just sent me the lease renewal without pictures or information who actually lives at my property. Two months after that, the tenants fell behind on rent. I kept pulling more teeth to find out whether they had paid or not. Then tenants filed Chapter 13 (I am still waiting for any funds to come from the bankruptcy trustee) owing me 2 months rent but were given an automatic stay by the court as long as they paid timely starting the October 2016 rent again. Sure enough, the tenants ended up falling behind again (management company still didn't inform me and I only saw it a month later when I got their reports). Bankruptcy court issued another automatic stay extension due to a reorganization because tenant was supposedly very ill. One month got paid, then they fell behind again, which I found out again a month later from my rent reports instead of management informing me by the 5th of the month. Then I asked the same contractor I am now using to drive by. He found out that there are hood rats living at my property of at least 10 people. Again, when I confronted management, they didn't tell me that they had knowledge of the tenants living with many others and the tenants violate several codes. I was told by management that they "NEVER drive by a property once it is rented!" and "we have over 1,600 properties to manage so we don't have time to drive by each one of them!" What? Hello? I was shocked to hear this. So basically the plan now is to evict the tenants ASAP, if no other criminal/domestic issues happen to get them out immediately (they have stolen tools and almost a cell phone from the management company's plumber, which they also didn't tell me about when it happened). Management company personnel is lame - they don't want to do any work but if there are high repairs, they will do it without your permission and then just send you the bill a week or two later costing you several thousands. Management made over $13,000 on me last year and they made me feel like I had to beg them to do something that is standard!
Plan with this property is to get tenants out, fix up a bit to make it sell better. Hopefully, there is a bit of equity left to do so but again, there are two different markets and it all depends who might be making an offer.
It's all about not getting screwed over by your management company or contractors or even lawyers! Official market is online, which lenders use, but reality in Memphis is that one gets taken for a ride as soon as you know you are out of state! Please be careful!
- CA · Member since 2016 · 1k+ posts · 1k+ votes9y
Good God, who needs all these stress??
I am so sorry to hear your story... I hope you can get out of the remaining 2 properties asap, and put your life back on track again.... It will happen soon......
- Specialist · Grand Rapids, MI · Member since 2016 · 1k+ posts · 611 votes9ySabrina Brown Something does not sound right but if you list a house for a year and it does not sell then you generally are not listing it below market. If your property cashflows well then you should have no problem selling. Why are you selling if it cashflows so well?
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes9y
@Sabrina Brown there was a post on BP from an out-of-state investor last week who just purchased a duplex in Memphis and was having trouble renting it. I looked at it on Zillow and saw that someone was trying to rent the property for six months before he purchased it. He paid $20K less than what it sold for in 2013, which was $20K less than it was purchased for in 2001. He was insistent that he got a great deal and his rent level was fair, even though someone else couldn't rent it for months and dumped it for a big loss. Hopefully it works out for him, but your story should be a warning for others.
Part of the advantage that local investors have is knowing the good streets, schools and neighborhoods. They can meet a contractor face-to-face and they can drive by the property.
Sorry you are going through this.
- Investor · Memphis, TN · Member since 2016 · 279 posts · 257 votes9y
Absolutely sorry you are dealing with this. It may give you a bad taste for Memphis and out of state investing, but as a whole there are a lot of great people to work with here. May not be the least expensive on the front end, but in the long run would be well worth it. All the best! As @James Wachob said, let any of us know if we can help.
- Real Estate Broker · Memphis, TN · Member since 2015 · 95 posts · 77 votes9y
@Sabrina Brown what a nightmare! Sorry for all your headaches - Let me know if i can help as well.
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