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
Most Popular Reply
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 · El Dorado Hills, CA · Member since 2017 · 2 posts · 0 votes9y
@Sabrina Brown Sorry, new here... forgot to tag you. Please see my previous post Sabrina. Thanks!
- Rental Property Investor · Phoenix, AZ · Member since 2013 · 919 posts · 911 votes9y
@Sabrina Brown. Wow! I have spent the last 30 minutes or so reading thru your posts and experiences. I am truly sorry for your horrifying experience. I have done a LOT of digging on TK providers, not just in Memphis, but elsewhere as well.
It appears to me that most of these TK operations do one thing: Make the TK provider rich. I have reviewed about 100 different properties via different providers and noted that most have some of the same traits. They are as follows:
1) Poor school system, numbers 3 or less. Why would anyone want to buy or rent when the schools are the worst in the city. I KNOW ppl have to live there, but it doesn't mean YOU have to own it.
2) Overpriced. If you look at what is on the MLS you can find the SAME thing, maybe even down the street, for $20k or more less.
3) Exit strategy? Rut row. Nope, I just got married to this house. I BETTER like it. LOL. It seems that in many cases the ONLY strategy is to find another real estate investor. After all, no one really wants to live there. See #1.
4) Preying on 'noobies'. And there are a TON out there since the downturn. And EVERYONE wants to be a real estate investor. That is, until they don't. LOL.
My business model REVOLVES around good school systems. I get cashflow and appreciation. I have looked at a number of the TK operations and although they tout 10%+ returns, it would appear to me that you can get your A$$ handed to you in a number of different ways. As a result, I have steered away. Would you mind sharing the name of your TK provider?
Thx.
AG
- Investor · Midlothian, VA · Member since 2014 · 38 posts · 11 votes9yOffer owner financing with a significant down payment . List them for sale with a agent that does a auction
- Rental Property Investor · Phoenix, AZ · Member since 2013 · 919 posts · 911 votes9y
@Account Closed. The reason I am interested is to see if I had previously analyzed any of their offerings. More of a curiosity. Like I said, I've probably looked at 100 of these in different markets and compared them to what you can buy on you own in the same area. It sounds, based on the problems, that the properties are not in 8-10 school district areas.
- 9yJames WachobBusiness MemberReal Estate Broker · Memphis, TN · Member since 2015 · 1k+ posts · 887 votes
@Alan Grobmeier The key is to find a great team! Ideally you would find a company that has everything under one roof. Acquisitions team, renovation crews (fully licensed and insured), Property Management, and a Real Estate Investment Brokerage in case you ever decide to sell.
By teaming up with a solid firm you can mitigate your risk and have some "boots on the ground" that have your best interest in mind.
Also, I see a lot of 1st time investors buying in C neighborhoods.... this can be very risky! Unless you have a strategy to own a lot of properties, because there can be strength in numbers.
Lets define A, B, and C
There are many definitions floating around attempting to define investment properties.
I like to start with the community in which the properties is located.
A neighborhood = 95% homeowner or better
B neighborhood = 65% homeowner or better
C neighborhood = All renters
These neighborhoods could also be defined by the land value, on which the subject property is located. In an A community the land value is high enough that if the subject property were to burn down, it would make sense to rebuild a bigger and better property.
In a B community the land value should be substantial enough to rebuild the same property, in square footage and included features.
In a C community the land does not support rebuilding, and the lot will remain vacant for years to come.
Then I look at the condition of the property
A = Brand new construction
B = 1975 and newer homes with a FULL renovation (Roof, HVAC, Appliances, All hard-surface floors, Exterior and Interior cosmetic repairs and paint, Hardware replaced, New light fixtures, Fenced in Backyard, and more!) my average FULL renovation cost between $25,000 - $35,000 in Memphis
C = Rent ready. Just livable
I'd also suggest that any new investor get on a plane and visit their provider!
- Rental Property Investor · Phoenix, AZ · Member since 2013 · 919 posts · 911 votes9y
@James Wachob I can honestly say I have NEVER seen a breakdown as to what constitutes an A, B, or C property. I always thought it was more 'subjective' than objective.
- Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes9y
UPDATE:
I moved to Memphis just a few weeks ago and after using a new and honest contractor, my properties turned from losers to winners. Too bad I already sold my Cordova property last year in June at a slight loss. My Chelsea property is under contract now and I am keeping my Kings Arms Street property.
The moral of this saga is that never ever buy from turnkey providers, hire an honest local contractor instead, make sure you get before and after pictures, and verify all transactions. Most management companies (I used 8 in the last 7 years) will be hands off and if disaster strikes due to their negligence, they will charge you 3-5 times more than what it would normally cost. On a preventative job that would normally cost $200 they will charge you $1,500. They will lie out of their teeth and if you never hear from your management company about updates, or get their drive by lists, etc. be assured that they are not doing anything to secure your property. They are not out for your best interest. This also means that you may not need a management company and pay them a fee for not doing anything. They will make money on screwing you over with outrageous repairs.
Thank you all for your support during this tough time I had.
- CA · Member since 2016 · 1k+ posts · 1k+ votes9y
@Sabrina Brown - did you move to Memphis just to manage the rental properties personally?
- 9yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
Sabrina, I think your assessment is way off. You had a bad experience, sadly this does happen. You think the average out of state investor is going to find a reliable and trustworthy contractor on their own without coming to visit? I use a property management company for my personal homes and I experience all the same issues that everyone else does but the difference is when I have issues I don't have anyone to blame or point a finger at, I have to suck it up and deal with issues and at times pay for repairs even expensive ones. That's part of being an investor. If I were going to buy a home in another state I would look for a turnkey provider as I don't have the time to do it on my own, that's why tk providers do serve a purpose for many out of state investors.
Curt Davis - KAIZEN Realty538 Reviews - Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes9y
I understand your point of view. However, I literally got screwed over with illegal activities performed by several of these companies. There is a large group of CA investors who went through the same thing, or even worse given that 3 had to file for bankruptcy. Yes, we are all responsible for our own actions but if we pay for what we think is a trusted company and all they do is neglect, steal, charge 3-5 times for services that were either never needed or were never performed, or they wait for an emergency situation rather than doing preventative work for which they were hired to check on, then I see a justification of the "blame". I have visited Memphis, I have done online research, I have spoken to more than enough bankers/lenders, local investors, realtors, etc and was given information to verify an investment making sense. However, the actual market with many TK providers taking over parts of the city skews the numbers but nobody will tell you about it until it's too late. My situation isn't the only one as I have mentioned above. Now that I am local, I hope I can help enough people, out of state or not, to have a positive experience where all transactions are fair. I now have a reliable and trustworthy team of contractors, handymen, closing agents, etc. that have helped me turn my properties from losers to winners.
- CA · Member since 2016 · 1k+ posts · 1k+ votes9y
My one friend in CA, who invested in TN, is now facing foreclosure too..... She bought a very upscale property, and then realized she can't rent it for enough to cover her expense, nor can she sell it quick enough.... AND she can't afford to hold it forever... So she is giving it back to the bank, walking away from her $140K down payment...
The saddest part of the story?
She has been a mortgage assistance, and does not really have any money saved on her own... This $140K is her entire inheritance from her deceased mom... Now wiped out, she is struggling to pay rent... She is moving out her 2/1 duplex and looking to find a 1/1 apartment....
- Investor · Denver, CO · Member since 2015 · 29 posts · 19 votes9y
Originally posted by @Curt Davis:
I dont think lenders let anyone " assume " loans anymore. The only people who will be able to turn this home for a close to full retail value will be a TK provider and you will have to pay the juice for this service.
I'm in the process of doing a Refi on my primary residence. I was looking at a 30-year fixed from Bethpage Fed Credit Union that was assumable. I was very surprised to see that option.
- Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes9y
Oh no, I am so sorry to hear about your friend, Diane. That is terrible! Did she buy it through a TK provider? If there is still time to save her, would you be able to pm me the details so I can take a look at it? We may be able to find other ways, especially if information given to her is not accurate like it was in my case in addition to all of the other factors, some I haven't even mentioned in this thread! Would love to help if I can and have all of my connections put their heads together to find a solution.
- CA · Member since 2016 · 1k+ posts · 1k+ votes9y
Got your pm..Thank you... I will forward onto her, and hopefully this is something that still can be saved, but I doubted it....
Even though she did not buy via a TK, she made the typical mistake that many CA investors made, myself included... When she saw this property at $685K for 6 bedroom/8 bathroom with over 6000 sq ft, she was blown away...Something like that would be $6M in Bay Area!!!!!!!!!
What is so sad about it is that this $140K is ALL she has....She is devastated.......Ugh...
It is just so dangerous for us CA people to go out of state and look at properties with a CA mindset...
- Investor · San Jose, CA · Member since 2017 · 343 posts · 102 votes9y
@Diane G. - Feel free to forward my contact details, we can certainly try to get her most of the money. I wish brave OOS and international investors are reading. @Sabrina Brown being local now we should be able to pull this one to your friends advantage.
Thanks
Vivek - Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes9y
Eric, CA became extremely difficult to live in for various reasons. Prices increased drastically, rents and home values almost doubled in the last 4 years. Real estate competition is high and due to the increase in home values, us regular investors don't get a chance to do reasonable business unless we put down a fortune before securing a property. And since I have known the Memphis market/area pretty well and have established many connections in the past 7 years (good and bad to stay away from), it made sense for me to be at the forefront rather than out of state. However, as I have moved here, facts are not what they seem online. Good thing is that now I can confirm any information at hand. Property purchases and maintenance is much less than what is quoted by TK Providers or others knowing that an out of state investor can easily be fooled. As you may know, Zillow values are not reliable either. If there is anything I can help verify for anyone out of state, please let me know. I am currently building a new team of reliable, honest and reasonable professionals. Prior teams did not prove to be as good as I thought, to say the least, and I don't want to have my name associated with any shady business practices that only serves one party of the business transaction. It has to be a win-win situation for all parties involved.
- Real Estate Consultant · Memphis, TN · Member since 2015 · 70 posts · 82 votes9y
Vivek, I have joined the Memphis Investor Group (MIG) and signed up for a bootcamp on foreclosures where we will be looking at actual and current properties, evaluate, and going to courthouse looking at title, liens, etc. This will give me a hands on and quick approach to verify real market values here. As you know, out of state investors have been quoted different values than what local investors would pay. Trying to be an advocate for other out of state investors so they won't run into the same issues and financial losses that I have gone through.
- Investor · Gilroy, CA · Member since 2016 · 255 posts · 195 votes9y
@Sabrina Brown Quite an admirable approach and nice to see you turn your situation into a positive. I am also interested in trying the non-TK method.
- Investor · San Jose, CA · Member since 2017 · 343 posts · 102 votes9y
@Sabrina Brown - Wishing you all the best for the next part of the journey. I request you to document your experience like a cheat sheet to help investors, I have often come across the questions from investors that which page of this link they should be reading.
Timing is just right when I read link on Memphis development plans.
https://www.biggerpockets.com/forums/99/topics/456...
Good Luck
Vivek
- CA · Member since 2016 · 1k+ posts · 1k+ votes9y@ Alexander price -I remember you were soooo sure that TK is the way to go only 6 months ago.... what changed?? To me, I always believe that for every 1 happy OOs investor, there are 3 angry and regretful investors.... the one that is happy is becasue he has not figured out that he got fooled by TK, by PM, by GC
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Sabrina Brown the 6000 sq ft 680k home in the mid west Is a classic boon doggle waiting to happen. I have been asked to fund so many of these its not funny.. they are not liquid as you state.
I love the investor that contacts me with the home that appraised in the mid west for 3 mil and we can pick it up for 1 mil and turn it quick RIGHT LOL...
You remind me of a lady from Aussie named Karina she did what U are doing.. she bought in Vegas and GA.. and had bad experiences moved here.. then set up shop helping other aussies .. I think she did pretty good... TK light as it were..
Although we must keep in mind that TK companies are nothing more than house flippers instead of selling to a home owner they are selling to an investor.. they earn their profit.. If you move there and do it yourself of course you are going to get a better deal..
Its just like when I build a new home and sell it to a new homeowner.. they could have bought a lot hired a builder and saved the 50 to 100k I make on each home I build and sell .. but they buy them retail.. or all the retail flips we do.. some we don't do so hot on break even lose a little some we make 20 to 100k on .... TK is more consistent with 5 to 20k profits per door usually...
Along with as you know the TK companies have highly evolved west coast sales channels.. I know you know those folks personally having lived and gone to the FIBI events and Linda's events etc.. I am sure you know Kathy F and many others... its what they do.. by the time the turn key company makes a profit pays the west coast marketer their 5k plus commish of course the house will be more than you can do it yourself ....
Will be interesting to see what road you go down..
I have clients of mine that I fund that do this in other markets and they do what you do but very transparent.. they source coordinate rehab like your talking about then set up with a PM and charge a flat fee to do it... this gets the west coast investor a better deal cash wise.. but they do need the cash no financing .. until they refi.. but one of my vendors has done over 60 of these for one of his LA clients in the last 5 to 6 years.. nice relationships are made this way.
Although you have to live there and that's another story... I suppose you will either really like it or decamp for someplace else in a few years...
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Diane G. High end homes in the mid west and deep south are LOSERS end of discusson.
600k 700k buyer in the mid west is buying new construction or only the absolute best neighborhood they are not buying size. size makes no difference in those areas like it does the bay area or even here in PDX.
- CA · Member since 2016 · 1k+ posts · 1k+ votes9y
@ Jay Hinrichs
I know and agree with you... Just feel really really sorry for my friend.. She is a mortgage associate and makes <100K a year, never really able to save much on her own...
Then her mom passed and left her the $140K and she blew it like this....I almost wanted to cry for her....
- Rental Property Investor · Miami, FL · Member since 2016 · 72 posts · 26 votes9y
@Sabrina Brown I've spent a couple of hours reading through the entire thread and can't thank you enough for being an unfortunate, but valuable example for investors looking to purchase OOS TKs. I'm glad to hear in the end you were able to come out of this situation.
@Jay Hinrichs has hit the nail with exactly what I've recently been looking for. I've already determined that profit is lost on TK purchase, but turnkey light helps an OOS in the same way a traditional TK would with a better cash deal.
Sabrina, if this is something you will be willing to consider in the future I believe it can turn out nicely for both parties.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.