3 Invaluable Lessons I Learned From Selling My First Rental Complex

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Hey there, BP! As the old saying, there is a time to buy and there is a time to sell.

Over the course of the last decade, we have only been buyers of rental properties. We actually have never sold one of our rental buildings. After thinking long and hard about it, we decided it was time to sell one of our larger assets — an apartment package that consists of 20 units (five 4-unit buildings) in Ewing, NJ.

Related: Think Like a Buyer: Foolproof Tips for Selling Your Next Property, Fast

I did not realize I would learn as much as I did during this process! I discovered very quickly that selling my rental properties is very different than selling a fix and flip. The buyers and their expectations are different, and the ways the properties are evaluated are different. As with any new experience, there have been some epiphanies that were revealed during the process.

I hope you find value from this video blog post!

Please share in the comments below – what have you learned when you have sold a rental property?

Thanks as always for watching!

About Author

Matt Faircloth

In 2005, Matt founded The DeRosa Group along with his wife, Elizabeth. At the time, the two person company owned and managed two assets – a single family home and a duplex. Over the last nine years, they have grown the company to a 12 person team owning and managing over five million dollars in residential and commercial assets throughout the central NJ and Philadelphia area. One of DeRosa’s mantras is “to make money while making a difference.”

15 Comments

  1. Terrence Arth

    Hello Matt, that was a great and timely post. I found the portion about investment perspective (buyer vs seller) to be especially interesting, i.e. what works OK for you by simply repackaging the information looks great to someone else using a different formula. Several times I have looked at properties, thought they would be nice rentals but had that thought… why is he/she REALLY selling? I was probably too cautious and realistically walked away from a couple of good deals because my financing arrangements would have allowed for a nice return when the seller or someone else only saw a mediocre racehorse based on their situation. I might have been overthinking the whole thing and talked my self out of a nice little property.

    • Matt Faircloth

      Hey Terrence,
      I’m glad you enjoyed. Asking the right questions of the seller / buyer and yourself is key. I call it getting to understand “the why”. Why are they doing what they are doing, and most importantly why am I buying / selling? Asking yourlself that regularly may prevent you from talking yourself out of deals in the future. 😉

      Take care,

      Matt

  2. Awesome video! Thanks for sharing your story of selling your first rental complex. It’s great to hear from the experts but also get a reminder than everyone started as a beginner – and what insight you got from your experiences.

    • Matt Faircloth

      Hey Jordan,
      I’m glad you enjoyed it! I love doing videos.

      We are all learning, the “experts” and the beginners. I’ve been in business for 10 years and learn something new every week! The key is remembering those lessons so we can apply them in the future!

      Take care,

      Matt

  3. Al Williamson

    Thanks for the vid Matt. Renter psychology is an amazing thing isn’t it?
    A little sizzle with appliances and custom shelves can easily boost rents by $50/month.

    Good call about utilities. Not having them and collecting the same rent is amazingly sweet.

    • Matt Faircloth

      Hey Al,

      Thanks for the comment. I didn’t say this in the video but the real lesson here is that my tenants don’t look at things the way I do. How often do we project our decision making factors on others and expect them to make the same choices we do? Budgeting and expense reduction are important to me, but it may not be important to them. Great lesson.
      Have a great week!
      Matt

  4. Pancham Gupta

    Nice video Matt. Thanks for the seller’s perspective. As a buyer, I would definitely pay attention to who is paying the utilities or whether the units are rehabbed. Interesting to find out that the tenants don’t care about that.

    It’s coincidence that we spoke about these units just yesterday and I see this post today. 🙂

    • Matt Faircloth

      Hey Pancham,

      Good to hear from you! Selling these buildings is a huge focus of mine right now so if I speak to anyone, it comes up. There are no coincidences!

      If you want to try and put something together on this let me know, I have some ideas.

      Take care,

      Matt

  5. Erik Nowacki

    Matt,

    Thanks for the video and blog post. I’ve done a few sales and 1031 exchanges and I want to reinforce what you stated about knowing why you are selling and why the buyer is buying.

    I’ve sold when I know either specifically what property I’m going into, or at least have a very narrow range of properties I’m considering. I don’t want to trigger a 1031 exchange deadline (45 days to identify) without having a clear goal for the upleg of the transaction. Without that clarity, you find yourself forced to buy any property just to avoid the tax consequences of violating the 1031. I get letters from brokers on a regular basis stating “I have a desperate 1031 buyer, do you want to sell your building?” While that can be a great opportunity to get a good price for your building, I am careful not to put myself in that situation as a buyer.

    When buying, it is very important to find out why the seller is selling, to enable you to structure the deal to suit both of you. It could be an opportunity for a seller carryback, if the seller wants the cashflow, or you could extend or shorten escrow periods or any of the other variables in the transaction. Once you know both your own situation as well as the buyer’s situation, you can get creative and it can turn into a win-win situation. Without knowledge of the other party’s particular situation, the negotiations become a zero sum game haggling over price.

    Now, my question back to you is: You know why you are selling, you need to pay your investors back and you decided to sell instead of refinance. Are you doing a 1031? If so, have you selected your upleg? Or a group of potential targets? Or a narrow criteria for your upleg?

    I’ll be following your journey.

    Erik

    • Matt Faircloth

      Hey Eric,

      Great thoughts on 1031 exchanges! I really appreciate it. You are correct, not having a target in place for a 1031 can put an investor into a bad situation. 45 days is a blink in this business and without viable targets for the roll over an investor can end up with no time and no good options.

      For my deal, it doesn’t make sense to do a 1031 because once my investors get paid there is not enough equity left to lay down 25% on the next deal with a 75% mortgage behind it. The investors don’t want to get rolled up into the next deal, which would be the other option.

      Keep in touch and your fingers crossed for a favorable sale for us!

      Take care,

      Matt

      • Erik Nowacki

        Matt,

        Since it sounds like you have some time before your sale closes, it may be an opportune time to look into a creative deal for a 1031 exchange. Remember, it doesn’t have to be a traditional bank financed purchase… The requirements are that the purchase price of the upleg has to be more than the property you just sold and that you have to roll all of your equity into the new property. One of the requirements is that you have to be on title, so you can’t do a lease purchase option, but seller financing and wraps (AITD) are options.

        My most recent deal was a distressed sale of a mid sized multi-unit in Memphis. It was mostly vacant and in need of repairs. Therefore, no bank will touch it. If a property can’t qualify for bank financing, the seller is looking for an all cash offer, or carry back a note. I got into this property with 10% down and a 90% seller note on fairly favorable terms. I am an opportunistic value add investor, so this fit very well in my plans. It is definitely not for everyone…

        I’m not sure if something like this fits into your strategies and plans, but I just wanted to make sure you had considered those options. Also, the 1031 is one of the greatest tools for delaying (skipping?) my contributions to the black hole of spending in Washington…

        Erik

    • Matt Faircloth

      Hi Chirag,
      I’m glad you enjoyed. That last point was a real eye opener for me. Not every deal is right for every owner. It depends on their equity position, debt service terms, and desire to be a hands on manager or not.
      Have a great week!
      Matt

  6. William Collins

    Well done video, I find the equity position ratio to be a key. All deals should cash flow with 100% equity. The question is what equity level will be the right level to get both a good return cash on cash, and also a comfortable margin- so the debt burden is not overwhelming if a catastrophe happens.

    • Matt Faircloth

      Hi William,
      I’m glad you enjoyed! Each buyer has a different level of risk tolerance. I know some buyers that want very little risk and are willing to buy all cash to create that much padding for potential incidents. Others are willing to leverage the deal and take more risk so that they can expand their portfolio and stretch their cash out further. That’s why I said that each deal has the right buyer with the right debt to equity blend.
      Take care,
      Matt

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