Optimal way to sell a portfolio of SFR

Buying & Selling Real Estate
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Optimal way to sell a portfolio of SFR

Vlad Yunger
Cranford, NJ · Member since 2016 · 4 posts · 2 votes

I have decided to sell my portfolio of 4 SFR in NE Philadelphia. I am looking for some advice on the optimal way to sell these properties. Would I expect to get the highest price selling all 4 as a package or one at a time. Would an investor pay more for occupied properties? 3 of the 4 are occupied and I am not sure if I should lease up the 4th before starting the sales process.

Any insight you can share will be greatly appreciated.

Many thanks

Vlad                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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Brian Ploszay
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
7y

This is a good question. I found that selling rented single family houses on a local MLS does not gain that much traction. The reason is that market platform mostly has buyers who want to purchase houses.

My thinking is that I can get more money for some of the houses when I sell them vacant.  Then I paint / fix and market.  Hire a local realtor to sell them.

You may want to move the properties with the tenants still there.  There are a few platforms to sell rented single family portfolios.  You can try one of these.   

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  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    7y

    This is a good question. I found that selling rented single family houses on a local MLS does not gain that much traction. The reason is that market platform mostly has buyers who want to purchase houses.

    My thinking is that I can get more money for some of the houses when I sell them vacant.  Then I paint / fix and market.  Hire a local realtor to sell them.

    You may want to move the properties with the tenants still there.  There are a few platforms to sell rented single family portfolios.  You can try one of these.   

    3Reply
  • Dave G.
    Investor · Phoenix, AZ · Member since 2016 · 349 posts · 418 votes
    7y

    @Vlad Yunger - I agree with @Brian Ploszay

    When the time comes for me to disposition my properties, I will want them all vacant and looking good. 

    If you sell an SFR with a tenant in it, your buyers market will very likely only be investors. If you sell it when vacant, you will have the whole owner-occupant buyers market as well as investors.

    Maybe a deal could be structured that results in lower commissions and closing costs selling them as a package, but I don't think that savings would warrant limiting your market.

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    this is the nasty un thought of part of owning SFR rentals..

    HBU is always or almost always going to be to a home owner.. but you cant get traction with tenant in there at least for starter type housing. in high value areas you can like Palo Alto with 2 mil dollar homes wont matter.

    disposition of a rental usually means 5 to 10k of fix up to retail and 6 months of no income.. have to factor that all in.

    or they get sold for basically what an investor will pay for a certain cash flow 

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  • Michael Ablan
    Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Vlad Yunger  - One thing you could do is put together all of your numbers w/ photos on the properties and post them to the BP marketplace.  You could try and sell them to other investors as turn key.

    You could reach out to some of the big local brokers in your area and let them know what you have and ask if they can shoot it out to their network of investors and see if they can produce any leads.

    Odds are, selling one at a time is going to get you your highest price.  People expect a deal when buying in bulk.

    Hope this helps.  Good luck!

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  • Dave G.
    Investor · Phoenix, AZ · Member since 2016 · 349 posts · 418 votes
    7y

    @Jay Hinrichs

    Jay - that's a great point - cost to prepare and no rent/holding cost during preparation duration. That could start turning into some real money that changes the equation to where it might make sense to sell with a tenant in-place or as a package deal. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Dave G.:

    @Jay Hinrichs

    Jay - that's a great point - cost to prepare and no rent/holding cost during preparation duration. That could start turning into some real money that changes the equation to where it might make sense to sell with a tenant in-place or as a package deal. 

    I can pretty much assure you if you have a SFR rental that did not really appreciate and even if it could be sold to a home owner your cost to exit will be commission say 4 to 6% closings costs 2k or so... negative cash flow if you have a mortgage say another 3 to 4k. and tax's and insurance say anther 1,500 to 2k and utls lets say 1k.. then you need to refurbish it.. no owner occ is going to buy a beat up rental right to live in.. ( again unless your in super high demand areas).. so lets say 5 to 15k to get that done.

    lets say its a 150k rental house..  so that's 7500 + 2k + 7K refurb + 4k mort + 1500  so that's about 20 to 25k to exit a 150 house.

    and if you don't 1031 you will have recapture so for this exercise lets say you have 5k in recapture..  so your net on your 150k house will be 120k.. if you made 200 a month on it for say 5 years  actually net ( which is hard to do )  you brought in 12,500. so as long as you paid 132k or less you broke even for all this.. or if you paid more you actually lost capital.   I know its happened to me personally. 

    you need Appreciation in these assets to mitigate exit costs.. unless your goal is to do this for a lifetime like Most buy hold investors on BP talk about its forever just like marriage and you are married to these.. 

    But if you buy where your cash flow was say break even but the house went up 100k who comes out ahead ????  you trade 12k in cash flow for 70k in profit in this example.  

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  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    7y

    @Jay Hinrichs

    No guru ever explain the difficulties of exiting out of a high-cash-flowing SFR portfolio. Nobody, nowhere in the gurusphere. There's a similar silence about what happens when you're selling a portfolio of long-distance turnkey SFRs that have been run by a property manager and maintained by Bozo the Clown for twenty years, all those pesky little things obviously wrong with these places that slip the owner's notice year after year after year...

    I have four possible exit strategies and none of them looks particularly appealing.

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Jim K.:

    @Jay Hinrichs

    No guru ever explain the difficulties of exiting out of a high-cash-flowing SFR portfolio. Nobody, nowhere in the gurusphere. There's a similar silence about what happens when you're selling a portfolio of long-distance turnkey SFRs that have been run by a property manager and maintained by Bozo the Clown for twenty years, all those pesky little things obviously wrong with these places that slip the owner's notice year after year after year...

    I have four possible exit strategies and none of them looks particularly appealing.

    Yup.. landlording like I said is forever.. or your going to be giving back a good amount of your cash flow.. and we see many do this they keep rolling up into better class assets like solid B class MF that can be professionally managed nothing wrong with that. 

    most of the landlords I know that have significant lower end or low value SFR holdings.. the exit can be tough to very .. they basically need to rehab them to turn key standards to sell them without losing money.

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    7y

    Taxes need to be a cosideration when exiting for sure.

    I chose to sell off my 3 least fave sfrs one at a time as they became vacant 2017-18.  I got them mostly retail ready but didn't do large cap ex improvements like replacing roofs or HVAC.  The market was hot enough I had to discount less than if I had done it.  I was also able to sell 2 by owner to owner-occs.

    One sale I stretched into 2018 to minimize taxes.  I still wrote a healthy check to the IRS, but it would have been tons worse if I did all in the same calendar year.

    Do you plan on doing a 1031x?  Have you held these a long time? 2 of mine were 10yr holds. 1 had to recapture over $55k in depreciation.  Know what you face going into the sale.

    1Reply
  • Vlad Yunger
    OP
    Cranford, NJ · Member since 2016 · 4 posts · 2 votes
    7y

    Thanks everyone for the feedback it is very helpful. 

    I completely understand that upgrading the properties up to owner occupier standards will yield the highest prices. Even when comparing to the amount of capex needed the increase in exit price will make it worth while. The issue I have with this strategy is that in the area of Philadelphia that my portfolio is located the homes are ~80% investor owed as rentals and only a small minority owner occupied. For this reason I expect that a sale focusing on OO will take much longer than to an investor. I am less worried about the cost of carry during the sales period but mostly about keeping the properties vacant during the sales period. Would be a shame to have an updated property broken into and vandalized and keeping them vacant increases the chance of that drastically.

    For the reasons mentioned above I am focusing my sale efforts on other SFR investors. @Brian Ploszay you mentioned several platforms to sell portfolios of SFR, I know BP has a marketplace what are some others? When using these platforms how does one protect themselves? I am guessing unlike going through a realty these platforms don't do any kind of buyer vetting and so you really don't know if the people on these platforms are viable buyers.

    Many Thanks

    VY

    1Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    7y

    Roofstock is one platform.  They may have the highest marketshare.  There was a posting about this group recently.  I have no strong opinion of them.

    0Reply
  • Natalie Schanne
    Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Vlad Yunger I definitely think you can get more money selling individually vs in a portfolio. I’ll PM you.

    0Reply
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