Stupid question? Why do people sell good properties?

Question

This is going to sound dumb but I truely don't understand. Ive been searching properties and out of hundreds have found 4 in my area that are killer deals, meeting (and exceeding) the 2% rule, while not being in the ghetto or having a cracked foundation. My question is, why would someone sell these investment properties when they cash flow very positively? They already have renters (some of them) and the math shows the owners are collecting a nice check (a check that would definitely cover the mortgage of the property 2 to 3 times over)

Any feedback would be much appreciated, constructive criticism welcome!!

Chris Clothier · Answer

@Caleb Mclamb

Great question.  I have enjoyed reading the responses and voted for a few that I really liked and wanted to add one.  My family has bought over 600 properties in the first nine months this year in Memphis, Dallas and Houston.  We have kept about 8-10% of those and sold the rest even though they all had sound fundamentals.  They all had 1+% price/rent ratios and all were located in areas that we were willing to own ourselves.  The reason for selling is that we would have had to grow a significant credit line.  That would have increased our risk and required us to service the debt on those properties.  That would be a rather large nut to cover.  So we will end up adding a few more properties in the 4th quarter and continue to sell the rest.  It is our business model to sell good properties so that adds another reason to your list of why investors (or companies in our case) sell good properties that are cash flowing.

Clay Smith · Answer

I would offload a property that produces cash flow but I think might be a struggle to offload 5 years or more from now. Also, if a neighborhood is depreciating or I no longer liked the neighborhood.

Bottom line, these are not distressed sellers and you are paying near market rate. I would only buy if I was a first timer putting down 20% or less and wanted a turnkey property to ease me into managing a property.

Hattie Dizmond · Answer

Awesome!

Brian P. · Answer

Why do people sell good properties, easy they have good reasons. I for one have been asked why  I sold a property and the answer is always the same I sell or buy anytime I can improve my position.

Account Closed · Answer

Because the properties are in markets that are peaking!  Intelligent investors move money from one great market to another great market to capitalize on market movements (selling at peak in one market, buying at expansion in another).

Hattie Dizmond · Answer

I love making people cringe.

the 2% rule is just a guideline.  In some markets that's really hard to hit.  That's why I keep telling you that you need to determine what your goals are.  Who cares if it doesn't hit the 2% rule, if it meets your criteria...no one!  If I have a goal of a minimum cash flow of $200/mo, but that only nets out 1%, I'm still meeting my goals.

Ethan Atkinson · Answer

Interview and find a good agent that does lots of deals and represents lots of property owners as a property manager.  You might have to call and talk to a bunch of folks out there.  Go the the REIA meetings like Hattie said.  The flipper partnership will also be good too.  If you have time at all you can go and Birddog for them and learn that way.  Keep in mind the 2% rule doesnt work everywhere, but if you want to force it, then go ahead but you will have to make lots of low offers, or focus on multifamily which will often give you a better return and lower the risk. No reason you cant just start with multi-family.

Hattie Dizmond · Answer

Knowing how heavy the investor presence is in FL, I would have to first ask where you found these deals?  Because, if you tell me the MLS, I'm going to have to ask you to post your assumptions about the deal.  I just don't believe there are that kinds of deals on the MLS in a market like FL, unless there is something seriously distressed about the property.

If you're finding these properties off market, then...good for you...that's the whole idea!!  People have as many reasons for selling properties as there are investors ready to buy them.  Maybe they've had some unexpected expenses or a personal tragedy.  Maybe there is a divorce and forced liquidation of assets.  Maybe they are just tired of dealing with tenants.  You never know.  Figuring out what their problem is and how you can help solve it is 1/2 the fun!

Caleb Mclamb · Answer

I see many helpful posts on my question but the most "AH HAH" comment was that the investor is selling when the market is peaked. I have read this but it makes much more sense now. If he bought low he has much to gain by selling at a peak point if his mortgage is paid or not paid if he wants the cash to 1031 (or something) into another property.

thank you for the many helpful responses!

Caleb Mclamb · Answer

@Hattie DizmondI have been formulating goals and a long TO DO list for a few days, I posted my ideas in the Real Estate Goals and Currently seeking sections of my profile page, its not fully detailed out but this is my general game plan. My price points for the different sizes of homes are based off rent ranging from $500-$800.

Stupid question? Why do people sell good properties?

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