Portfolio: Keep or Sell

[Arron Paulino]

How long do you typically wait for a rental property to sit on the market before considering selling it? I have a property that has been on the market for over three months now without receiving a qualified tenant and I may want to sell it to get some liquidity.

It has also been hard to receive monthly profit for myself since my property management has a portfolio minimum of $2k until they allow me to take home proceeds at the end of the month. I get charged 10% on property management per rented property, lawn maintenance and service utility on the properties not rented, and miscellaneous expenses on little things that pop up for maintaining the properties. I currently have 4/7 properties rented out and 3/7 still on the rental market. One of those 3 I may be a little more patient with while the other 2/3 I am considering just liquidating.

I appreciate the thoughts on this!

[Brian S.]

First thing is the management company should be working for you. They shouldn’t “allow” you to do anything. I would get rid of them if they can’t rent the properties. They are profiting more by them not being rented than them being rented, based on what you’re saying. I don’t use management companies that charge me when it isn’t rented. I want them incentivized to rent it out, not to sit on it. I would also look at why they aren’t renting. There was just a bigger pockets podcast that came out yesterday (Friday) that talked about rents and the market. There is some analysis that needs done. See if you can run comps and narrow it down to the few that are in your neighborhood or as close as you can get to it. Once you have that, grab the mean and drop the price by $100 a month off it. I have been renting houses out for over a decade now and this has worked well for me. I have never had anything sit for more than a month. All that said, if these are D’s then you may be getting hit with supply issues, depending on your market. I would personally sell those now but I don’t like D’s so take it for what it’s worth. If it’s C or above, getting the new management company, doing any updates needed to be comparable to comps, and adjusting the price properly should correct this. That said, trading up is never bad but there isn’t enough information on what you have, your goals or you timelines for me to offer suggestions on whether or not you should sell. I would do the analysis first and based on what you find, see if the numbers make sense in your situation then make your decision based on those numbers. I hope that helps. 

[Drew Sygit]

@Arron Paulino what does your PMC say about the vacancies?

Days On Market for rentals has been rising, up 36% in the last 2 years.

Some markets are worse than others, due to a lot of new construction units recently hitting the market.

Other questions to ask your PMC:

1) How many websites are your properties posted to?
---Can you find them there to verify?

2) How often are they sending you updated rental comparables to discuss price adjustments vs making improvements to meet the competition? Are they including interior pics so you can easily compare fit & finish?

3) What feedback are they giving you about inquiries, showings, feedback & applications?
--This can help identify potential marketing challenges.

[Arron Paulino]

Quote from @Brian S.:

First thing is the management company should be working for you. They shouldn’t “allow” you to do anything. I would get rid of them if they can’t rent the properties. They are profiting more by them not being rented than them being rented, based on what you’re saying. I don’t use management companies that charge me when it isn’t rented. I want them incentivized to rent it out, not to sit on it. I would also look at why they aren’t renting. There was just a bigger pockets podcast that came out yesterday (Friday) that talked about rents and the market. There is some analysis that needs done. See if you can run comps and narrow it down to the few that are in your neighborhood or as close as you can get to it. Once you have that, grab the mean and drop the price by $100 a month off it. I have been renting houses out for over a decade now and this has worked well for me. I have never had anything sit for more than a month. All that said, if these are D’s then you may be getting hit with supply issues, depending on your market. I would personally sell those now but I don’t like D’s so take it for what it’s worth. If it’s C or above, getting the new management company, doing any updates needed to be comparable to comps, and adjusting the price properly should correct this. That said, trading up is never bad but there isn’t enough information on what you have, your goals or you timelines for me to offer suggestions on whether or not you should sell. I would do the analysis first and based on what you find, see if the numbers make sense in your situation then make your decision based on those numbers. I hope that helps. 

 I appreciate your response. I've noticed that is the case and they haven't really been making effective moves in getting the properties rented any time soon. I would've expected it to be a good time to rent due to the season. Do property management companies usually have high portfolio minimum balances and upkeep expenses for properties? That's a good tip. I am surprised it is still sitting on the market when the rental rate is on par with the market. I am leaning towards liquidating so I can go into other ventures. Thanks for your time and clarity.

[Arron Paulino]

Quote from @Drew Sygit:

@Arron Paulino what does your PMC say about the vacancies?

Days On Market for rentals has been rising, up 36% in the last 2 years.

Some markets are worse than others, due to a lot of new construction units recently hitting the market.

Other questions to ask your PMC:

1) How many websites are your properties posted to?
---Can you find them there to verify?

2) How often are they sending you updated rental comparables to discuss price adjustments vs making improvements to meet the competition? Are they including interior pics so you can easily compare fit & finish?

3) What feedback are they giving you about inquiries, showings, feedback & applications?
--This can help identify potential marketing challenges.

 Thank you for the reply. My PMC suggests lowering the rent but it will be below market and less than what it had rented for before the previous tenant had it rented.

That's a good stat to know.

They currently have them marketed on their website and on the MLS sites. I have seen them so it's legit.

Not as often as I'd like since I am always following up on my own. They just say something via email without much context.

That is a good point so I can better understand what will get the ball rolling. I will follow up with PMC to see what action steps we need to take to get these rented. Otherwise, I am going to really consider selling them off to do something else.

[Adam Bartomeo]

Time to rent has nothing to do with selling it. But, you can always list it for sale while listing it for lease.

[Arron Paulino]

Quote from @Adam Bartomeo:

Time to rent has nothing to do with selling it. But, you can always list it for sale while listing it for lease.

 Makes sense. Thanks for the reply!