What is your exit strategy?

50 Replies

Actually I am asking an even more basic question.  I have a portfolio of 57 homes in PA.  Other than vacating the tenants and doing the paint and carpet thing, I can’t see a way to exit this portfolio.   There isn’t a big market for tenant occupied properties  or a place where landlords can sell their turnkey properties in my market.  The other investors are looking to buy at pennies on the dollar and the real value is in selling them vacant.  The thought of vacating these homes in the current COVID environment is discouraging.  Thank you

@Anthony Cuiffo

Oh I see... Sounds like you've entertained other investors.. Maybe contact a local REIA if you think there are other ANY investors that would want to buy a rented property. I assume we are talking about single family homes. Too bad tenant occupied properties aren't in demand..

Hmmm....  Do you need all 57 properties liquidated?  Or, just looking to sell out at the height of the market?  Yes, it'd be tough to get them out since they have nowhere to go if your market is anything like mine.  I was just thinking maybe "ask nicely" and see if any of tenants would like to buy.  Maybe you could clear out 25% to 33% of your portfolio that way.

Otherwise, i'm in the same boat, but just in a much smaller scale.  I'm tired of being a landlord, and figure will sell as my tenants leave...  Actually, already have done it where the tenant just buys its off me --- no fuss, no muss...  :)

Sorry I couldn't be of additional help.

No worries. Appreciate the advice. I own single family homes in the Poconos. All the homes are rented with long term tenants. I have been managing them myself and rewarding good tenants by not raising rents. Some tenants have been paying the same rent since 2013. I have spoken to a few tenants and listed the houses on the MLS. We are getting showing requests, but potential buyers want to buy the homes without tenants. It gets complicated. Also, many of the other rentals have converted to Airbnb. In my community, the typical Airbnb grosses 50k a year and I gross 18-20k a year if I'm lucky. I can't complain, my rent roll approached 1mil and I net about 700k. My average cost per house is about 35k and now they are worth 160k. I just need to find a buyer who appreciates cash flow. I see all these courses on how to buy you first rental property on this site, but no courses on how to sell one. Or 57 for that matter

@Anthony Cuiffo

You might try listing on the BP marketplace...  Like I said, talk with your local reia...

Oh, I understand your complication.  I have one property that I want to sell, but the last of the two tenants is having pretty much legitamate issues finding a place to go.  The market is great for me to sell, but also makes it horrible for them to find a place to rent.

if your properties are cashflowing well, I don't understand why there aren't investors who want them.  That's why I am wondering if its a matter of finding them.  I don't work the PA market so I can't help you much with my contacts.

What about taking a chance on some "newer investors" (those without cash and/or ability to get a loan) and doing seller financing?

What about contacting some of those larger investment companies?  Ones who do airbnb?  Long shot that they would wait out or get the tenants out and convert to AirBnB since you say it works so well...

just brainstorming...  real estate is not a liquid asset so getting out is actually almost as hard as getting in !! 

I appreciate the advice and love to brainstorm.   As I have been renewing leases I have been putting in the clause that says either party may terminate with 30 days notice.  But, like you, my tenants have almost no other options.  I would really rather sell to an investor/manager.  Actually, one tenant is considering buying her house 

Put the package on LoopNet or get a commercial broker to sell it. You and your broker can take your NOI and the market cap rate to figure out a sales price. Determining the cap rate for a package of 57 individual properties will take some art and be heavily discounted relative to contiguous units but it can be done and that's been one of two possible exit options all along as you built the portfolio. Or, sell one-by-one as leases expire. Not sure what the issue is with COVID...are you concerned that residents will squat and not leave? That is happening but it's rare in most places.

Unfortunately that is the exact case in the Poconos.  The tenants dig in and keep paying rent but don’t leave.  Eviction has been the only option.  Evictions have been frozen and when they start again, I fear the courts will be clogged for years.  At least now my collections are at 98-100% once the eviction process starts they lose all motivation to pay.  And, as an aside, 26 of the 57 homes are Section 8.  Don’t get me wrong, the rents are food, and my tenants take good care of the homes, but they have zero motivation to be accommodating. 

What are the "covid market conditions"? You mean the skyrocketing values? That's just a reason to not sell. It's been easier and faster to sell houses for the last year than any time in history. Put it on the MLS today and if it's priced right you'll have 10-20 offers by Monday night.

@Anthony Cuiffo

Hi Anthony,

How quickly are you interested in liquidating? Would you be open to out of state investors and seller financing? Would properties still cashflow with the financing and property management fees?

I'm also interested in exploring the Air Bnb route, but totally a new investor in that area as well.

Thanks,

Shilpa

Originally posted by @Bill Brandt :

Roofstock or loopnet if you’re looking for convenience. Selling each one separately spaced otu and vacant if you’re looking for best price…


https://thinkrealty.com/a-5-st...

It takes Roofstock about a month to certify just one property. I know this from firsthand experience as I'm trying to liquidate my Toledo properties and each property takes them a very long time. It's possible there may be economies of scale involved where they will look at each customer's properties together.  It's been a while since I started the process for one of my duplexes and it still hasn't finished certification....not because there were issues. It just takes them a while to review all documentation I send them as I'm sure they're getting a lot of business.

I manage the properties myself.  I have quotes for property management averaging 7%.  

I wouldn’t consider financing.

I had a broker do CMAs (BOP) and the portfolio has a break up value approaching 8 million. We have 4 homes listed in the MLS for prices ranging from 150-240. Heavy traffic but no offers. Listings about a week old. There is literally zero inventory. The cap rate is approx 9%

How about.  

https://stratasfr.com/about/

https://stratasfr.com/existing...

You could also do the same thing with Zillow, open door, offerpad etc etc etc. All assuming you’re looking for easy rather than most money. Otherwise you’d sell them individually as the leases expire. You’d probably get 10-20% more vacant from the owner occupant buyers. But I assume you know that and we simply looking to trade profit for easy.

I have spoken to Adam Stern from Strata and had them listed on Renters Warehouse.  Adam spent our entire conversation telling me how little my properties were worth and Renters Warehouse isn’t licensed in PA so they couldn’t advertise.  I am not really looking to trade profits for easy.  I don’t mind the hard work, unfortunately I just don’t know what hard work I can do, other than disrupt a paying tenant base and hope that a buyer comes along.  My gross rents approach 80k a month.  At current market values I lose the value of a house every 2 months.  I am looking to reach the audience that has an appetite for $700k in free cash flow 

@Anthony Cuiffo My first thought is to check with all of your tenants and figure out which ones might want to buy the house they are currently renting. Then sell each house to the tenant on a note. You will lower your taxes you are facing from an all-out cash sale and convert your management into "mailbox money" where you have none of the management headaches, but still get monthly cash flow with a better interest rate than you can earn anywhere else right now with 0% interest.

If it were my portfolio and depending on the size of each individual note I might break the notes into pieces and create multiple notes on each property. For example, say you have a house that is worth $100K create 3 notes of $33K for your tenant, and then down the road if you want to raise some cash you can just sell one of these off. It would keep your tax bite down and give you a lot of flexibility in liquidating your portfolio in an orderly and systematic way over time.

I understand. I’m saying you sell each as they become vacant as you’ll earn 10-20% more, that’s probably more than a year’s rent. If you don’t want to take the hit all at a once as well as drive down your local market you do it 1-2 at a time. If they are month to month, raise everyone’s rent 5-10% and see who moves, everyone else is just paying you more to wait. If any of the properties are 2-4 units try to get one to move out and sell to a house hacker. You got lots of options. Heck, find the top 1 or 2 realtors in your area and ask what they would do, hopefully at least one of them is an investor or you may get bad advice. 

Strata must have changed their model. Last I talked to them (maybe a couple years ago?) I could fill in an excel spreadsheet with property info and my total price. Either they are having too much or too little success?

I have spoken to realtors.  While most of the decent ones own rental properties, they are by no means investors.  I have a NJ and PA real estate license and have listed 4 homes with the broker in PA where I hang my license.  He is trying, but he doesn’t have a machine behind him.  I am in a awkward position, since I have my license with him.  I really can’t list with another broker.  

@Anthony Cuiffo

Now you've got a lot of responses here...  :)

Yeah, its tough with gettnig them out, especially Section 8 since they will have a tough time finding a place to go.  And I doubt they could afford to buy.  So, scratch those ideas of mine.

The other interested investors and out of state ones maybe your best bet.  Good luck.

I'm not sure I'm clear on what "problem" you are trying to solve? ie, are you just tired of landlording? Management would be the answer to that. Are you needing some cash? Lower your price on the ones you have listed until they sell. Do you want out of the rental properties to invest elsewhere? In that case, you could likely find a buyer for a portfolio if it was appropriately priced. etc. If you put these all under management, it's likely that future rent increases would cover that amount and your "net" may remain the same.

There are two platforms that I know to sell portfolios.  One is a major brokerage who does single family rental portfolio brokerage.  The other is Roofstock.   That being said, I've always thought the best way to liquidate houses is to get them vacant, cleaned, painted, repaired and then sell.  Works well, expect perhaps for class C properties.

@John Teachout the problem I’m trying to solve is that I’m not experienced in liquidating properties, my experience lies in acquisition.  I’m not trying to reinvent the wheel, but rather to mirror someone who has done what I’m trying to do. I also do not want to give these properties away.