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
- Investor · Lakeland, TN · Member since 2016 · 41 posts · 14 votes9yI would be interested in knowing more. We are looking for three or so properties in the Memphis area to total $375,00 or more for a 1031 exchange. They probably aren't in the area we are looking, but let's talk. Can you PM me some details?
- Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes9y
Originally posted by @Dean Letfus:
@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.
Is this true across the board.. With all Turnkey companies in all markets?
- Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes9y
@Andrey Y. I don't think it is true across the board by a long shot. @Dean Letfus was over stating the case. It is so dependent on where, when and what you buy. However, one shouldn't plan on buying turnkey properties unless you anticipate holding them at least 5-10 years IMHO.
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes9y
@Larry Fried, no I am talking only about Memphis, our appreciation rates are low and most turnkey's sell well above retail in areas with very few home owners.
- 9yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
I don't know how you can make a blanket statement that all turnkey companies sell above market value. There are at best 1 maybe 2 at best. Most investors on average use bank financing so the home has to appraise.
Curt Davis - KAIZEN Realty538 Reviews - Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes9y
Originally posted by @Curt Davis:
I don't know how you can make a blanket statement that all turnkey companies sell above market value. There are at best 1 maybe 2 at best. Most investors on average use bank financing so the home has to appraise.
What are the 1 or 2 companies that sell above market value?
- 9yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
Prefer to not say. Someone else may give you their thoughts on this one.
Curt Davis - KAIZEN Realty538 Reviews - Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes9y
@Curt Davis, I never said all, learn to read. I said most. And you know it's true.
- 9yAlex CraigBusiness MemberReal Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
@Dean Letfus selling above appraised value would mean on a conventional loan bringing in more cash than the required 20% down of the appraised value. Are you saying there are several doing this? I network with just about everybody in the market and I would disagree.
A turnkey transaction is simply a real estate transaction. Just like the homeowner whose home is in pristine condition he will sell it at top above market value. The homeowner who has deferred maintenance and home is outdated will sell at a discount. It is up to the buyer to determine what method will make them the most cash flow. In Memphis where there is a little appreciation I think without a doubt the home in pristine condition will cash flow far more than the home that has the deferred maintenance and is not updated. In Memphis real estate, money (cash flow) is made on condition of home, area of home and probably most important, property management.
- Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes9y
It's arguable that MANY homes would be unable to sell in a reasonable time at their (official) APPRAISED price. Sure, in hot markets there's the phenomenon of getting multiple offers ABOVE asking price, but what about cold/cool markets? Nada. This may be what @Dean Letfus is referring to by suggesting that "most turnkey's sell well above retail in areas with very few home owners" ie. They may APPRAISE at their "above retail" selling price, but, would not normally sell at that price if only marketed to the local owner-occupier market.
ie. Seller-Turnkey companies seem to be able to smell the money that out-of-state investors have, and know exactly how to extract much more of that money than if those investors were local!
So, does that mean that appraisals can be wrong? By definition: yes.
But so long the appraisals go in your favor to re-fi all your initial deposit/s back (as required for BRRRR), the ACTUAL market value is not too much of a concern. (But, don't OVER-leverage)!
On the other hand, if you RELY on appraisals being correct because of a need to sell, then you risk the very same thing happening to YOU as happened / is happening to the OP. All the best Sabrina!
- San Francisco, CA · Member since 2016 · 42 posts · 25 votes9y
Sorry if this is a dumb question or someone's already asked but - how useful has Roofstock been for offloading these types of properties?
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes9y
@Alex Craig, the question isn't cashflow but about value. How many houses have you ever seen in Memphis sell at appraised value when an investor is trying to sell? The Turnkeys have to sell high to create enough margin. So investors frequently, (in fact almost always), lose money if they have to sell in the first few years.
As my original mentor always said: "When you buy in Memphis it's like a tattoo, you have to keep it for life".
- 9yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
Since from the time we met you back in the middle of 2010 until now, home prices have been increasing every year. Homes we were selling for $49,900 that was a 3 bed 2 bath with rent of $850 are now selling for on average $75,000.
You are correct in that if an investor tried to sell their home for market value through the MLS it would not sell depending on the area of Memphis. You know as I do that we sell homes to investors either through a relationship like an affiliate or the investor finds us through word of mouth. We are selling a full service package. The investor who lists the home on the MLS will get lower offers from investors or if they do get a home owner to make an offer even close to what they paid, they will then have all the other fees that go along with selling retail.
We sold a home to one of our clients back in September of 2014. He recently asked me to help him sell it, not bc its a bad investment but bc he wants to invest in a larger project in California. The home is located in 38125. We sold it to him all cash with repairs for $92,000 and based on market comps we listed it for $114,900. Right next door at the same time we sold this home to our client another turnkey company in town sold the same type of home to their client for $114,900. I listed his home on the MLS about 7 days ago, it has had 9 showings with a verbal offer coming in from the other Realtor in the next day. Homes can bring good retail offers if its in the right area.
The "tattoo homes " most likely are homes under the $75k range.
Curt Davis - KAIZEN Realty538 Reviews - Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes9y
@Curt Davis, you're not one of the over priced ones :-).
- 9yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
hahah thx @Dean Letfus
Curt Davis - KAIZEN Realty538 Reviews - CA · Member since 2016 · 1k+ posts · 1k+ votes9y
@Dean Letfus Thank you for your complete honesty on this issue
@Curt Davis I understand the turkey business is a "full service package" and TK providers are charging $$ for that, which is all fair if done correctly...
My big question is that do you think the investors, especially the "IT people from Palo Alto", understand they are paying above market? I am of the impression that they are thinking they got "a good deal"....
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes9y
My big question is that do you think the investors, especially the "IT people from Palo Alto", understand they are paying above market? I am of the impression that they are thinking they got "a good deal"....
Generally they are blinded by the overall low price compared with their own market so they have no idea that they are paying too much........
- 9yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
If the investors you are referring to buy a home using bank financing and the home appraises for the sale price or greater then I do not think they are paying above market value. Above market value would be they are buying for $80k and the home appraises for $75k and then they have to bring an additional $5k to the table. That is over paying.
We have even had cash buyers in the past still get an appraisal just to verify they are not over paying.
Also buy and hold strategy through turnkey providers is that it is to be buy and hold with the mindset of keeping for at least 10yrs or longer. If something comes up and should an investor have to sell, there is a possibility of either breaking even or a possible loss. Unfortunately that is part of the risk in general when investing.
Curt Davis - KAIZEN Realty538 Reviews - Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes9y
What I learned throughout this process when I got financing for these properties is that one should NEVER use an appraiser that is recommended or linked to the lender. My appraisals were way too high, then I got the loan approved at a much higher value, then the lender goes out of business and Chase swoops up the loans with higher interests and one can not refinance because it won't appraise for as much. I believe that laws have changed since but these crooks got away with it. I am just saying it as it is and we must stand up not allowing crooks to get away from it anymore, especially in Memphis where sadly many take great advantage of out of state investors.
- Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes9y
Another thing that is hard for out of state investors to figure out: Zillow's values are completely wrong! If one doesn't live or know a particular street in Memphis, you would not know this piece of crucial information. As hard as it is for me to want to support larger banks, sometimes the positive side is that they will use "general comps", not the "real comps" among local investors. Memphis itself is probably the trickiest market I have come across and experienced personally. It is such a great city with its genuine people but there is also a very dark sad side to it with lots of crime and poverty.
- 9yAlex CraigBusiness MemberReal Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
@Dean Letfus agree, an investor will lose money if selling a few years after they buy a home that has been renovated to retail standards for the area, but so would a homeowner too in a linear market. The first few years on a 30 yr mortgage are virtually all interest payments. Realtor commissions and closing cost will eat up 8 to 10% of the sell. That is why I see more younger people renting instead of buying. The starter home really does not make sense. I fell into that trap as I thought that was what I was supposed to do; get married, buy a house and have a baby. We did that all within 4 years. Then in year 6, baby # 2 comes and all of a sudden we grew out of the house. I bought for $119,000, which was top of market because of the condition. The market went up to $125,000. My option was to sell at $125,000, but after Realtor fees and closing cost, I would have netted around $115,000. I think I owed more then that, so we kept it. Next month, that tenant will have been there for 8 years.
Like I said earlier, a TK transaction is no different then any other RE transaction. Whether your a home owner or investor, if you buy a home that is the nicest on the block, you will pay full retail value. If you get a discount on a home, whether or not your are an investor or home owner, you are likely getting a home not updated or partially updated and likely inheriting some deferred maintenance or large capital expenses within the first 5 years.
The mistake a lot of investor make is thinking they got a good deal on a discounted home because there are comps in the area that tell them they are getting a 30% equity position. Problem is, there home is really worth what they paid because the other homes in the area that command the high comps are fixed up all the way and CAPEX items are newer. If those investors want to sell, they either can sell to another investor, who will also expect a discount because of the condition or they can spend the money to get it to what the high comps in the area are selling for --- which is basically TK and homeowners with nice homes. Bottom line, you are going to pay the piper, on the front end if you go TK or the backend if you go the discounted property route. The argument we see all the time on BP is, which do you make more money doing? If you want consistent cash flow, I can't see an good argument for the discounted home with deferred maintenance and CAPEX expenses in the first 5 years.
- 9yHadar OrkibiPro MemberRental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
The Fact that if investor will sell within the next 5 year or even 2 years (unless there is a major downturn) and loose money is major mistake and doesn't make any financial sense.
if this is the case it means that the asset you buy is over capitalized. at the worse one wants to get his or hers money back.
I purchased a property in Christchurch NZ at the top of the 2007 market and thought im getting a good deal at the time. (about 15% under valuation). Later on, after the 2010 Earthquake I sold it and got my money back, do to having some buffer there.
In my view, not allowing for some upside or equity in any financial transaction is amateur and recipe for disaster, one should allways have at list 2 exit strategies while offloading under preforming asset should be one of them.
Saying that i purchased a Credit Agricole bond in 2009 for 100k. 3 years after it was worth 45k (its European french bank bond) I sold it 2 weeks ago and got about 94k back which im using as deposit to buy in the USA.
Moral of the story: Understand what you are investing in and getting in to, if you are not willing to learn and understand be prepare to get bellow average results and sometime loose money.
- Ozone Park, NY · Member since 2015 · 10 posts · 2 votes9ySabrina, Still having issues with your Memphis properties? Josh
- Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes9y
@Josue Garcia I am in good hands with my new and awesome contractor now and things are looking up. Thank you for asking!
- Investor · El Dorado Hills, CA · Member since 2017 · 2 posts · 0 votes9y
Wow! Crazy story Sabrina, so sorry to hear of your nightmare situation(s)! This story caught my eye because I as well am an out of state owner of multiple properties in the Memphis area for the last 4/5 years but have not shared the same experience at all. I'm not sure if I have just been lucky or the PM's are making the difference. I do have a couple properties managed by MidSouth, which I see at one time you had good things to say about but did that go sour for you as well? Also, do you mind sharing your contractor information? I'm always looking for a good trustworthy local contractor for CapEx maintenance. Also, were you able to get the thugs out of your Kings Arms property? That is one of my biggest nightmares, dealing with that type of situation. Best of luck on your future investing!!!
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