Difficulty selling rental properties at loan amount

299 Replies

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.

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).

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

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.

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!

Originally posted by @Frank Jiang :
Originally posted by @Asiyah Kurtz:

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?

@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:

The condition of my properties are turn key/fully rehabbed/move in ready...no major repairs are needed, only cosmetic

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.

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:

The condition of my properties are turn key/fully rehabbed/move in ready...no major repairs are needed, only cosmetic

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.

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.  

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.

@Mark S.

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.

Originally posted by @Alexander Price :

@Mark S.

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 :)

@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

@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 [email protected]@@ 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)

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...

@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

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...

@Jay Hinrichs

if you are not making money on those 11 property, I don't know who can.....

@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

@Sabrina Brown

   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. 

@Diane G.

        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. 

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