Finding the right buyer to target for 31 Student Rental Units?

Question

All:

I am considering selling a portion of my portfolio that consists of 31 total units that consists of 11 SFHs, 7 duplexes, and one 6 Unit property. Here's some background:

• They are located in Columbia, South Carolina and are all college student rentals.
• They are all on separate tax parcels but are all within ~2 miles of each other and to the University of South Carolina.
• I have owned many of them for 5+ years and have had zero vacancies with most of them.
• There are 84 BRs total and bring in 55k/month in gross rent.
• They are fully leased, stabilized, and generally speaking, in good condition.
• I believe the valuation to be ~5MM if I sold them individually.
• I want to sell them together for 1031 purposes.

My questions are these:

What kind of legitimate buyer should I expect to buy these if I wanted to sell them collectively? It seems to me that someone with 5MM to spend would want to buy a MFH all on one parcel. I've also noticed that there appears to be a lot of "funds" and "groups" out there who don't have the experience or ability to close on a large project.

Is this too "big" to sell together based on per unit asking price? ~161k per unit seems to be pretty high for someone that has that much money to spend.

How big of a deal is it to a buyer in that price range to have actual financials (Trailing P&L, actual maintenance expenses, etc)? I run all of these properties through my personal returns as I am the sole owner and I don't have the pretty financials that a lot of institutional buyers would like to see. I do, of course, have hard numbers on leases, insurance, taxes, etc.

I'm aware that I could probably sell them for more individually, but am unlikely to do so based on my current business structure.

Appreciate any advice you may have.

Will Gaston · Answer

Thanks @Mike Dymski. The SFH comparison is spot on. Selling them off individually and/or in smaller subsets would likely be more lucrative but trying to coordinate the 1031 of all that seems pretty daunting.

Marc Winter · Answer

Will,

I'm sure you have your reasons for selling.  I have a couple of thoughts for you to put into the mix:

Do you need all cash-out sale, or will you consider some form of short-term seller financing.

Have you contacted the schools/universities and/or faculties of same regarding this opportunity?  Have you secured a list of alumni to mail to?

We all love BP, however there are several large sites that deal exclusively with commercial-type property--have you investigated?

Since these are all in your own name, have you considered transferring ownership into a living, revocable trust or (not my first choice) an LLC?  Perhaps easier to sell one entity than a bunch of individual properties?

PLEASE stay in touch and let me know how things work out.

Best.

Andrew R. Lucas · Answer

@Will Gaston in general i think the 1% is about right.  But your properties are in better locations than most.  I'm seeing houses around your Shandon properties and go using .75%.  I think pricing at the 1% rule shows that you are serious about selling and willing to offer a good deal to an end buyer.

Andrew R. Lucas · Answer

@Will Gaston There has to be some group or fund that needs this asset class in their portfolio.  However, it sounds like a pretty unique buyer that would look at this as a total group.  I'm sure they are out there, and I wish I knew who they were.

With all of the knowledge and connections here on BP, Im excited to see what the community has to say.

Michael Lee · Answer

@Will Gaston I don't have much experience with larger institutional buyers and/or ones looking for a large portfolio like yours, but I'd imagine there is some hesitation to buy a package like that when it's spread out geographically. Maybe you'd have better luck selling them grouped into 5-6 properties, maybe depending on their proximity to each other, to a buyer.

Will Gaston · Answer

Thanks @Joe Splitrock. I like your suggestion of splitting them into two packages. The1% rule is the market rate for what investments properties sell for in my market so I think that's pretty reasonable.

Joe Splitrock · Answer

@Will Gaston I would try to sell them as a package. I can tell you from experience selling duplex individually that it is a big pain coordinating showings and not making tenants angry in the process. I can't imagine trying to coordinate that across 31 tenants with multiple buyers. I would list using the 1% rule and try to shop it out at local REI meetings. You could consider breaking it into two packages to make it more affordable for a medium size investor. I would not list the properties with a realtor, but let some realtors know you have the package available. Offer some set fee to any realtor that brings you a buyer.

Mike Dymski · Answer

Hey Will.  It takes a lot of guts and self-awareness to sell the cash flow monsters that you have.  Most people spend their lives (me included sometimes) knowing what their personal goals are and then making daily decisions that do not align with them.  Nice work on making the tough decisions...and reaching the point of financial success where that is an option.

You have the same challenge as retiring investors with SFR and small MF portfolios.  As you know, there is likely a narrow group of investors who purchase portfolios and that group may be even narrower for your niche.  You are doing all the right things to reach those investors (loopnet, BP, brokers, networking) and taking those actions will lead to a sale or to knowledge on what's next.

I don't have experience selling a portfolio; so, I don't have answers to your questions other than the 3rd one.  I don't think this is an institutional buyer and I am confident that you can provide financial information and comfort that will work for potential buyers.

Will Gaston · Answer

@Peter Faulkner also a good point.

Another part of my thinking has to do with market conditions. It seems now would be a good time to sell as interest rates are still low and there seems to be a pretty strong demand for larger portfolios.

I started investing in 2006 (aka the bottom of the 9th inning) so much of the market of the last 2-3 years is new to me.

Peter Faulkner · Answer

Thanks, @Will Gaston

If that's truly the goal, why not hire property management instead? Seems like you have plenty of margin in your properties to support one.

Finding the right buyer to target for 31 Student Rental Units?

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