Bulk sale strategies?

Question

Hi folks,

Long time lurker, first time poster. Please forgive the rudeness.

Not sure if this is the best forum to post this question in, but could use your help. We’re thinking of selling a group of rental properties we rehabbed and rented out over the last few years and wondered if anyone had any advice on how to approach it; we’re not trying to pitch the deal here in this thread, but looking for anyone with experience with group sales and feedback on best strategies.

We have 14 units in SW Florida, spread among 10 buildings: 6 single family homes and 4 duplexes. We’re thinking of either selling the SFRs as a group, or the duplexes as a group, but probably not both. They are all rented out with annual leases, and the cap rates are fabulous.

Normally, we’d just turn them over to a real estate agent and sell them individually, but we thought that it might be more appealing and would expedite a transaction to find an investor who would want them as a group and turnkey like this.

These are older buildings (1960 – late 1980’s), but solid. At the average price point per unit we are considering, it’s likely this would be a cash sale. Does anyone have experience with deals like this? Suggestions on where or how to market? Warnings or advice on group sales?

Thanks in advance.

Dion DePaoli · Answer

I am going to disagree with the posts here.  Bulk sales does not definitely mean discount, that is simply not true.  'Bulk' only refers to more than one.  There is a layman inference that it refers to some substantial discount but it does not have to.

The key to your situation is putting a good sales package together and getting expose in the market for the package.  Because you are pooling or grouping up multiple properties into one transaction you are naturally filtering the potential counter-parties to the transaction with the amount of capital required to purchase said assets.

Finding the right counter-party or buyer for your pool is not easy and requires work and some know-how and if you have good contacts, that certainly helps.  If the homes are all tenant occupied and have cash flow, you will want to create a sales package that exemplifies that.  I see these packages all the time of varying quality and the better packages have more information rather than less and have an experienced agent who controls and solicits the asset pool.

I would look at putting together a property level cash flow alone with an aggregate.  Show last two years actual, which can be rounded for the presentation.  Additionally, the agent you engage should put together a BPO or CMA of each property, passing it all through you for approval, which illustrates the current market value and relative comps.  So you have a nice package when you are done that an investor with the capital you need to do a deal will stop and pay attention to your deal when it hits their desk.

The agent you work with should have an understanding of who to talk to and should have an ability and desire to make contact with parties he/she may not know in order to get the package exposed to qualified, competent and capable counter-parties.  This is not just a flick of a switch or an email blast.  Spend some time and plan this out.  Clearly you need a party that has some operation presence in the market place where the properties are located.  Sometimes a good contact is some of the larger property management companies in the area.

Sometimes a commercial real estate agent might be better equipped for a task such as this.  They are more familiar with soliciting properties with cash flow and multiple units.  What you want to do is sort of market the properties in a pool like an apartment complex would be marketed.  Even though it is a little different, that is the concept.

I would also spend some time with your agent and go through the properties and get a head of any deferred maintenance by either addressing it or taking note of it.  Qualified buyers are going to ding the purchase price for things of that nature.  Knowing what you actually have and an idea of costs will help you judge and negotiate better deals.

You will also need to make a determination, is it all or nothing or will you break it into pieces if offered.  Set those parameters up with your agent as well.

The key here, it is simpler to offer them out one at a time.  Agents are certainly more use to that and the audience is larger.  But as I make my case here, you do not have to do that but if you choose to put together a larger pool of assets for sale you do have to do it right and have the right support in terms of agents and title companies to get it all done.  A little bit of planning for the event will yield much better success.  Plenty of large PE firms are buying for cash flow right now and that includes paying fairly high prices in bulk for residential real estate almost banking on appreciation sooner or later.  Those are some of the folks you want your well prepared package to end up in front of, accenting the cash flow and quality of the portfolio.  At the end of the day, it is just a little Sales 101.

Uwe S. · Answer

Yes Osmund this can be very ironic for the seller but not funny. I know about some bulk sales with huge discounts on it. Only one for example there was 92 units in 35 properties for sale at bulk for arround $1,6 million if the seller had chosen to sell individual he had got $2,4 million for it.

If you have the time so send me some infos to my email please - thanks.

-Uwe

Joel Owens · Answer

In a package not all are CHERRY and you have the good with the bad.

This is why to take them all on especially with cash there will be a premium in a lower price.

Think about it as you are wanting CASH yourself. Cash is at a PREMIUM in the marketplace. Few have it and most want to leverage unless they know they can get their cash back fairly quickly after dumping it in.

There is just something about having large hoards of cash that appeals to people's security and liquidity.

I am the same way. I want to hold on and spend as little as possible.

Osmund Y. · Answer

Hi Jon,

In your experience is there any kind of average or range in the discount percentages you are referring to?

It's a bit ironic - when we acquired these properties, we would have paid extra for the convenience factor of a turnkey investment package; we had to locate the buildings, purchase, rehab, and establish tenants and a working management solution ourselves. Now that the shoe is on the other foot, we have to discount? Too funny.

Thanks,

OY

Jon Holdman · Answer

I think its entirely possible to do what you're wanting to do.  You just have to realize that you're going to have to give a discount for a cash buyer and another discount for taking them all in a bundle.

Osmund Y. · Answer

Thanks for the replies Uwe and Jon,

These properties are all relatively close together (few minutes between, for the most part).

We're considering selling to invest in a non-real estate related business (the rentals' CAP rates are fabulous, but this is a much larger opportunity). The bulk sale idea was to expedite/simplify the sales process, hopefully for both buyer and seller.

Inventory is extremely thin and sales have been on an uptrend here (well, things seized up right before the election, which happens every time).

We're looking to fully cash out for the other investment, so owner financing isn't an option.

Appreciate both of you taking the time to reply.

OY

Jon Holdman · Answer

Agree with Uwe that a buyer for a package is going to want a discount vs individual sales. Might be quicker and easier for but there will be a cost.

Are you willing to to offer owner financing?  Owner financing and individual sales will get you the highest price.

Uwe S. · Answer

Welcome Osmund Y. to our BP world,

if you sell in bulk the buyer want an huge price drop for all of the properties, if you sell it individual you will collect much more with this sale I guess.
Group/Bulk sales starts normal with mostly fair to poor houses and/or low occupancy or if the properties located in same block or street. Sometimes I know about bulk sales in same town but in this case it was a small town.
You said CAP rates are fabulous so why not hold these properties?

-Uwe