Minneapolis, MN · Member since 2015 · 30 posts · 19 votes
I'm looking at an apartment rental property. The numbers are great (19% cash on cash). This would be my first rental property. I still need to see it, walk through, and have an expert GC or inspector help me understand issues and years remaining on major components/mechanical.
The odd part is the owner-investor has a property management company manage it, owns a SFH rental next door (this one is a converted triplex), and has other rentals. I haven't seen a true Schedule C yet (requested), but my assumptions appear solid so far based on spreadsheets with revenue and costs.
What are the reasons investors sell properties? I'm try to figure out the catch: she is profitable and has zero involvement and is fully rented. What could be her motivation to sell? Obviously repairs could be one cause, but I expect I would discover that on walk through/inspection -- right?
Looking for caveats and reasons to walk away or reduce risk.
It is a business. Everything I own is for sale right now for the right price :)
The seller could be perfectly happy with the rental but the market is right for selling it. You still get a good property, she puts 10s of thousands of dollars in her pocket.
Minneapolis, MN · Member since 2015 · 30 posts · 19 votes
11y
Appreciate the responses already from experienced folks like yourselves. As a newbie, money/cash out seems unlikely -- based on list price and sales price, there's zero room for it. Diversification seems unlikely also -- she rents the SFH property across the street and has other properties in similar areas in the region.
Maybe I should phrase it differently. Suppose you have a portfolio of 10 properties of the same type in the same region. There's no real equity to get back from a sale -- you'll break even (edit: of course, I suppose some of the small down payment would of course be equity that is released). You cash flow and pay taxes each year on profit. What are the sorts of reasons that you have a property that works on paper, but you want to get rid of it anyway?
Investor · Seattle, WA · Member since 2015 · 67 posts · 37 votes
11y
You're right to be skeptical. After all, in theory they're trying to maximize profits just like you and from what you're describing this isn't a good move for him. That being said, there are also sorts of reasons one might sell, such as personal reasons, even with no profit.
Keep in mind that he may have an opportunity that is better for them, even with just a small amount back. Sometimes a double sale is forced to happen in a constrained time period, such as an acquisition being contingent on another sale; or in the case of 1031 exchanges where a time period expiration would possibly mean paying more in taxes than you would lose selling at a lower price. Some people also just get sick of the investing.
Investor · Hopkinton, MA · Member since 2015 · 53 posts · 28 votes
11y
Or maybe some impending or ongoing legal or personal issue(s) with one or more of the tenants. Get as much information as you can about the tenants before going forward with the deal. You'll be glad you did.
Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes
11y
Refining their investment portfolio of properties?
We just sold one of our rentals because we were tired of the issues it caused, we over developed the property by adding almost 1200 square feet in the basement with a basement finish we did when we first purchased it. The property simply was too large at 4/4, we could never keep the same renter in it for over a year, as people viewed it as a stepping stone to the next logical level which was buying their own home. Our average rental length is over 6 years, this property is was about 14 months. When the last tenant moved out we put it on the market to get rid of it and will replace it with a more typical unit such as another 3/2.