Difficulty selling rental properties at loan amount

[Sabrina Brown]

I own 3 rental properties in Memphis and have been renting them out since I got them.  However, last year I tried to sell them at 25% below market value and still only got offers for less than the loan amount.  I ended up having to put tenants in it again after not receiving any income for a year in addition to putting in another 20K to fix these properties up to make them turn key.  I can't refi because I am self employed and I can't do a short sale or approach the banks as to not to jeopardize my excellent credit rating.  

I would like to sell these properties as a package. They generate at least 1K/month in net profits (after PITI and management fees) and don't need any repairs.

Is there any other strategy I could use to offload these properties at a minimum of breaking even or just a tiny bit of a profit?  

I am currently looking for MFH's in CA and would also consider an exchange or other unique options.  Please advise!

[Chris Clothier]

I was not involved in the sale of these properties, but have sat back and watched this thread for the better part of a day and what fascinates me is how easy it is to get the result you want from other people.  The thing that makes BP so great is that you can get unfiltered advice and usually from people that, besides a picture, are anonymous strangers.   That is also the bad part.  Due to no filter and anonymity, sometimes the comments are just thrown out there without any real thought about facts and details. It is unfortunate, that after @K. Marie  Poe stopped asking questions, no one really picked up where she left off.  It was obvious that things did not add up from the original post to where the thread took off.  

This is not about should you buy Turnkey or not.  This is about the basics.  This is about buying smart and being honest here on BP with all of the details and sharing ALL of the pertinent data if you truly want the users to help you.  @Jay Hinrichs, you're getting a couple of votes or that last post, but as much as I like you, I'm not one of them.  You make a lot of assumptions in your response and you castigate @Curt Davis when he is the only poster on here actually trying to help Sabrina achieve her original question.  He is the only one being honest about her options and solutions and the realities of her situation.  Yet, you knock him for his honesty about what it would take to sell to a turnkey company and then you knock him for his honesty about the value of her properties and the fact that blaming will not get her closer to her goal.

I would think that many of the smart investors and commentators on here would really want all of the data and details before really coming to a conclusion.  Big props to @Michael Lauther for his straight forward and pragmatic comments about buying midwest turnkey properties and the way you have to be brutally honest with yourself if you are going to be successful.

As for Turnkey, who cares about that debate?  No one is going to change their minds on this and that is ok.  As for your comment @Cal C., I own a turnkey company and I will gladly share this thread.  For most of us running reputable companies, we love having these types of threads shared because they really help to define the good and the bad in both turnkey companies and investors.    

Here are a few facts that were left out that are easy to know if you are familiar with Memphis.  Why they were left out of the original post, I have no idea, but when put into context, a lot of commentators may feel differently.

1.  There was an AFFILIATE company out of Los Angeles who worked very hard to get Memphis companies to sell properties to their clients.  First red flag - They charged people money to be a part of their group and then those people would get access to their turnkey properties.  Second red flag - They pushed the no-money out of pocket investing, positive cash flow, sit on the couch and collect mentality so any investor coming through them was set up for failure from the beginning.  Jay, you have harped on this topic and here is a real life example of a buyer who bought through them and how their expectation was not met - but does that mean someone got screwed?  

2.  The company selling these properties is not a big company and they do virtually zero marketing.  They rely solely on affiliate relationships for sales.  The owner is a very good real estate investor and a fantastic business man with a great reputation.  He does not sell on customer service, he does not sell on great management - hell, he doesn't even sell on doing extensive rehabs.  He sells based on being a small company with low overhead a small management company and they do low-end rehabs to sell properties below market pricing to investors.

3.  @Alex Craig is spot on with his analysis of the renovations done to these properties.  They are not extensively renovated and still have deferred maintenance to this day.  I am quite sure the same holds true with Lazini and the poster already said that the Chelsea Hill property had to be boarded up because it was being vandalized.  

I was not there when these properties were sold.  But, I am familiar with what was going on at the time and how companies were selling including the Affiliate company in LA.  I am very confident that none of these were sold as short term investments.  I am quite sure they were absolutely sold as long-term buy and holds beyond a 10-year hold.  

Now lets look just real quickly at the houses themselves and the posters original post.

The outrage from BP posters came from this investor being taken advantage of by a Turnkey company who overpriced the properties, lied about value and did shoddy work.  This company does not have a reputation for those things...  

All three properties were purchased in early 2010 (this data comes from the assessors website so if it is wrong or Sabrina says she paid more....I'm just listing what is on the gov. site):

3381 Kings Arms purchased for $76k 

3958 Chelsea Hill purchased for $35k. 

9265 Lazzini Cv purchased for $70k. 

Again, that is from the property assessors website so perhaps they are wrong, but this is exactly the way the sales were recorded.  Perhaps the affiliate company and the turnkey company both mislead the buyer about the amount of work that was done or the amount of deferred maintenance needed, but I highly doubt these properties were sold at or above retail value.  Maybe Chelsea Hill was sold as a great area of town, which again, would be wrong, but like I said, they don't look overpriced to me based on what I know about Memphis.  And at $35,000 I have no idea how a buyer can think they are being over priced.  @Ben Leybovich, there is your under $50,000 pig property that is almost impossible to have success with as an out of state investor.

Are the properties any good?  Chelsea Hill is an area of town that we do not want to buy or manage.  Kings Arms is a nice area and a good property.  Lazzini is in a nice area and also a good property, but is an abnormal property at 2 bedrooms in a 3 bedroom area.

So I don't think any of these properties are sold too high.  Not for the area of town and not for the work or lack thereof that was done.  Only the OP knows what her expectations were for renovation.

What about the claim that they were listed at 25% below market value with no bites? I know other posters thought that was a little odd. Well, here is what the MLS shows:

3381 Kings Arms was listed at $109,900 that is 44% increase in 5 years!!!  No way that property is listed at 25% below market value.  IN fact, it was overpriced.  It has been dropped to $99,900 and as was pointed out by Alex, it may still be slightly over-priced considering the lack of retail updates.  But if it is sold at $89,000 based on lack of upgrades, that is still a capture of equity or appreciation, whatever you want to call it and would probably be slightly below retail value based on the lack of updates.

9265 Lazzini Cv. was listed on the MLS at $95,000. It is no longer listed, but again, at 95,000 that is not 25% below market value. That is at a whopping 34.7% mark-up and priced right at max value for that property in that area. It may be priced perfect or may need a little less to move to a retail buyer.

3958 Chelsea Hill does not show to have been listed on the MLS.

So were they ever listed at 25% below market value? Doesn't look like it, but that is the claim that sent BP into a frenzy. How can these properties not sell at 25% below retail value and not get a bite unless this buyer was screwed by a company? Or, they are not listed on the MLS.

OP claimed that selling all three as a package was preferable and that she just wanted to get out of them at break even or possibly a little profit.  It sounds like Chelsea Hill will be the challenge for a package.  Curt Davis has offered to help with that multiple times here on the thread and was even asked by Linda Pliagas to reach out and try to help you.  He has done that.  He has stated that he thinks he can help you break even at worst.  At least give him some props for trying to help and offering to help if he can based on the original post.

I get how BP works.  I have been posting and writing articles here for almost 6 years now and understand which comments to laugh at and which to really dig into.  The best way to make BP work is to be willing to be honest and ask for analysis and advice based on all the facts.  These properties were bought with no money down from an affiliate and from a  vendor who is usually pretty up front that he does not believe in over renovating and likes to keep prices low.

To me, it sounds like a bad deal all the way around, but not the way the OP has described and certainly not the way the thread took off.  It sounds like she wants to move on to other investments, but her long-term properties in Memphis are not going to let her realize a big profit. If she truly wants to sell, then with all the details on the table, there is bound to be a buyer on here and a solution that can help her get out of the properties at a break even if not a little profit.