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!

[James Martin]

I'm sure there's a solution to your problem.  One helpful key would be to find a company that's in touch with clients that buy for cash flow rather than immediate appreciation. If the acquisition cost is within reason of collected rents, you should be able to sell. Sometimes every delay is to your advantage! 

[Dennis Jayy]

Sounds like the market value is different than you think it is.     If you had one set for a year with no income and then did repairs and ect I would think you should figure out how much you are loosing or have lost , so far, if any.

This might make them look different to you. Perhaps it is time to think about really getting rid of them instead of  looking for a profit.  Perhaps  looking at the real value would be a better solution and then see how you can get out of them using those figures.  

It might be better and quicker to take a loss and get rid of them and save your credit for the next ones.

The TK man said you could expect a tk person to want to get 15k if they sell them for you or take them over so I would use that as a short guideline as to price possibility and look at trying to sell them 15k less than you are in them or something like that.  Using a Realtor will cost you around 10% and time and probly still have to sell at a lower price.

[Curt Davis]

I dont think lenders let anyone " assume " loans anymore.  The only people who will be able to turn this home for a close to full retail value will be a TK provider and you will have to pay the juice for this service.  

[Jay Hinrichs]

@Curt Davis not exactly a ringing endorsement of buying Memphis properties if you can only sell them by hiring a turn key company for 15k... are you saying no one can sell a rental on the MLS system with you as a broker charging a normal 5 to 6% commission.

If this was a refi then it was probably a 70 or 75% LTV refi so your saying properties are not worth what the appraisals from nationwide lenders say they are worth. or that in the last 3 years the values have dropped by 25 to 30% in Memphis .

I would be curious as to your take on how someone who buys a property with 20 or 30% down or pays cash then refis or puts a hML then refi's who think they have equity what your saying is they do not... Is that what your saying  and or you can only sell if your willing to pay a highly organized and financed TK company double what it would normally cost to sell them...

this has always left me kind of stumped how you have these two values one the banks give on a purchase then a reality check when you go to sell and the very people you bought them from tell you you can't sell them for anywhere near what you paid for them

[Curt Davis]

@Jay Hinrichs

In my experience the out of state buyer in most cases is looking for a turnkey property and or system. We can list these type of homes on the MLS and I have done this for investors in the past but the majority of offers coming in are from hedge funds making lower offers. I only charge 6% if I list it on the MLS. If the MLS doesnt help sell the home then it could be offered out to one of the company clients but understand that there is a possibility the buyer might come from an affiliate marketing company that demands a hefty fee and in order for us to use a buyer spot there is a cost involved. Why would we sell someone else's home and make less then by selling one of ours? Another issue is if we sell another investors home through out TK program then we have to stand behind the property as if we renovated it ourselves.

These homes do have an element of equity in them which is true equity.  

It just seems that out of state buyers, and I would guess this for most markets are looking for a turnkey program when buying and your not going to find that on the MLS. Even savvy investors who invest long distance themselves dont usually buy a home already renovated from the MLS.

Again, this is just some of my experiences.   

[Douglas Skipworth]

@Curt Davis, for what it's worth, I assumed 7 loans from a community bank in Memphis just six weeks ago.  It is alive and well!  

The main problem is that national lenders don't like that option. 

Throughout my career, I have found that community banks and private lenders are oftentimes open to let borrowers assume loans.  Of course, the buyer has to have a track record and be creditworthy.

Thanks,

[Curt Davis]

that's excellent!!  You rarely hear of it anymore.  Can you tell more about that process like any out of pocket expenses, appraisal, eye...?

[Michael Mcghee]

Are these properties on one loan or multiple? Is it a small bank or large lender? Send addresses and I will let you know what I can do. With everyone on here I'm sure a deal can be worked out soon. I have end buyers and if they are turnkey with good work that will save an investor time. 

Mike McGhee

[Douglas Skipworth]

@Curt Davis, 

Great question!

It depends on the bank, but usually there are two variations.

First is just the plain old assumption.  In that case, we usually have to pick up the closing costs since we are basically stepping in for the former borrower.

The other type is an assumption and modification.  Usually, the lender will roll the closing costs in since they are modifying the terms of the loan anyway (eg, a lower rate, a slightly larger amount, a longer amortization term, etc.).

Let's catch up more at MIG on Thu night.

Thanks,

[Jay Hinrichs]

@Curt Davis  this seller has put 20k into the homes they are probably better than turn key.

It just seems kind of weird  the buyer buys and the turn key company makes 15k or more.. on the sale to her Your words... then same turn key company who sold it to her.. wants another 15k to sell it and she is lucky to break even and really lost money since the property was vacant for a year and she had to put 20k into a house that was supposedly bought from you turn key already... so you make 30k and she makes nothing and she takes all the risk.. something just seems a little screwy there ..

the reality is if you buy a Memphis rental you better hold it for many years other wise your going to lose money and you better hope to hell you make some cash flow or your really in trouble... that's what I hear you saying.. am I wrong ?

[Curt Davis]

jay, 

For example if someone brings me a house to buy and the value and price I can sell it for is $100k and they are only wanting $75k and the home is in excellent condition then yes I could purchase it from them.    If the seller needs more or the home requires more repairs then I could not buy it from them.  

In most cases the seller either owes too much or the home needs more repairs then expected.  We try to help investors out as much as we can.  It all comes down to the numbers.  We have listed many homes for investors as realtors and we have purchased many homes from investors wanting to sell.  Thankfully we can offer them both services. 

This scenario is not just a Memphis situation as this would happen in any market.  

[Andreas W.]

To me it sounds like the houses were bought at a price significantly higher than market value. After a few years and 20 k additional expenses, there is not even a retail market for 25% below the "assumed" market value? Either the market value assumption is grossly over estimated or the "fee" for buying TK is higher than 25% of the market value. How can this be financed?

[Chris Clothier]

Originally posted by @Jay Hinrichs:

@Curt Davis not exactly a ringing endorsement of buying Memphis properties if you can only sell them by hiring a turn key company for 15k... are you saying no one can sell a rental on the MLS system with you as a broker charging a normal 5 to 6% commission.

If this was a refi then it was probably a 70 or 75% LTV refi so your saying properties are not worth what the appraisals from nationwide lenders say they are worth. or that in the last 3 years the values have dropped by 25 to 30% in Memphis .

I would be curious as to your take on how someone who buys a property with 20 or 30% down or pays cash then refis or puts a hML then refi's who think they have equity what your saying is they do not... Is that what your saying  and or you can only sell if your willing to pay a highly organized and financed TK company double what it would normally cost to sell them...

this has always left me kind of stumped how you have these two values one the banks give on a purchase then a reality check when you go to sell and the very people you bought them from tell you you can't sell them for anywhere near what you paid for them

 Hey Jay,

Unfortunately, this could be one of those old scenarios that you are very familiar with where a buyer borrows short term financing (Hard money) to purchase a property with no money out of pocket.  It is then rate/term refinanced - not at 70% of value, but at current amount with a new rate and a new term.  So the buyer is in the home at full purchase price with no money out of their pocket.  I think that is what Curt was alluding to about having to pay at some point if you happen to purchase the property with deferred maintenance and/or close to retail price.  You benefit from a  return which cannot be calculated if you have zero out of pocket.  If things go well, you are earning $$$ when you put nothing in.  Again, unfortunately, It looks like these properties were bought with deferred maintenance, which effects everything including the ability for them to stay occupied and possibly at a high value.

So I think it is less an issue for Memphis and much more an issue for the way some companies operate and attract buyers.  This is about as bad as it can get for an out of state buyer expecting one scenario and getting another.

[Jay Hinrichs]

@Chris Clothier  sadly aware of the rate and term refi  ... cost me millions  LOL.

as you expressed maybe I took Curts comments out of context... However I was curious why he thought he could not list them and sell them on the open market for at least what was owed... some refi lender had to appraise them for far more than the loan amount they were not doing 100% LTV refi loans in most instances.. I know mine were all at 70 to 75% but we know what happened in the GFC that equity went poof and then some.

[Chris Clothier]

Originally posted by @Jay Hinrichs:

@Chris Clothier  sadly aware of the rate and term refi  ... cost me millions  LOL.

as you expressed maybe I took Curts comments out of context... However I was curious why he thought he could not list them and sell them on the open market for at least what was owed... some refi lender had to appraise them for far more than the loan amount they were not doing 100% LTV refi loans in most instances.. I know mine were all at 70 to 75% but we know what happened in the GFC that equity went poof and then some.

 That was a quick reaction by Curt so maybe didn't come out exactly right on his part.  He is an agent and easily could list as he has done for other investors.  At the same time, no one knows the details yet as to what was done to sell the properties.  Now that the BP community is aware, I am sure these properties will get sold at what the owner needs fairly qucikly unless they are in really bad areas.  

[Jay Hinrichs]

@Chris Clothier yes his comments struck me as odd... and I am sure others ... it gives the impression if you buy a turn key and need to sell it only a TK company can sell it and your going to pay double what the going MLS rates are ...

from the sounds of the rehab etc these should be very good buys as I think they were rehabbed to retail standards not rental standards.. and I am sure she bought these through one of the top 3 turn key providers in Memphis  but who really knows right.

[Account Closed]

Originally posted by @Jay Hinrichs:

@Chris Clothier yes his comments struck me as odd... and I am sure others ... it gives the impression if you buy a turn key and need to sell it only a TK company can sell it and your going to pay double what the going MLS rates are ...

That was my take-away as well.  Buy retail turn-key in Memphis and you're forever in the TK system.  :)  Hopefully Curt meant something else.  But it did give the impression that there is a separate value and pricing system for TKs. 

Maybe the OP can post some details so we can understand what was going on with the props when she was receiving only offers for less than loan value.  Condition?  Location?  

[Curt Davis]

@Jay Hinrichs

I must not be stating my thoughts as well on this subject as I would like. Selling the home back to or through a TK provider is just one way someone might be able to try and sell it thought it might come at a little higher price then say normally listing it on the MLS where you only pay 6% commission to Realtors.

[Sabrina Brown]

Hello everyone:

I purchased these properties at zero down through a TK provider, which at that time were appraised and financed through a smaller lender at 75% LTV after rehab was completed. The loans were then sold to Chase. There is DEFINITELY a different price system through TK providers and it is NOT in the favor or in a fair consideration of the investor, even if the investor asks the properties to be taken back by the TK provider in better shape than it was taken over.

The reasons why I received less than loan value offers was because INVESTORS, not retail home owners, are making these offers.  They are mostly wholesalers or part of TK providers.  The properties are meant to be held for long term investment and are already fully rehabbed but these investors make offers as if they were distressed properties.  The condition of my properties are turn key/fully rehabbed/move in ready...no major repairs are needed, only cosmetic, if one chooses so, but they are in the standard of Memphis "styles".

These 3 properties are in 3 different locations: 1 in zip code 38128, which is a newly developed area, which used to be a challenge but has now been mostly fully occupied and either purchased by new home owners or rented.  The 2nd property is in zip code 38115, close to a golf course and well respected school around the corner, perfect for a larger family.  The 3rd on is in zip code 38016, a prime area and the property is on a cul-de-sac.

There is nothing wrong with the properties and they provide great returns but I would like to move on to buying commercial MFHs and get out of renting SFHs.

Any additional advise or information is greatly appreciated.

Thank you.

Sabrina

[Curt Davis]

@Sabrina Brown

Send me a PM and lets see if we can make something happen.  Linda P told me of your request to sell these homes a few weeks ago and she was to tell you to contact me. 

Let me know. 

[Account Closed]

Originally posted by @Sabrina Brown:

Hello everyone:

I purchased these properties at zero down through a TK provider, which at that time were appraised and financed through a smaller lender at 75% LTV after rehab was completed. The loans were then sold to Chase. There is DEFINITELY a different price system through TK providers and it is NOT in the favor or in a fair consideration of the investor, even if the investor asks the properties to be taken back by the TK provider in better shape than it was taken over.

The reasons why I received less than loan value offers was because INVESTORS, not retail home owners, are making these offers.  They are mostly wholesalers or part of TK providers.  The properties are meant to be held for long term investment and are already fully rehabbed but these investors make offers as if they were distressed properties.  The condition of my properties are turn key/fully rehabbed/move in ready...no major repairs are needed, only cosmetic, if one chooses so, but they are in the standard of Memphis "styles".

These 3 properties are in 3 different locations: 1 in zip code 38128, which is a newly developed area, which used to be a challenge but has now been mostly fully occupied and either purchased by new home owners or rented.  The 2nd property is in zip code 38115, close to a golf course and well respected school around the corner, perfect for a larger family.  The 3rd on is in zip code 38016, a prime area and the property is on a cul-de-sac.

There is nothing wrong with the properties and they provide great returns but I would like to move on to buying commercial MFHs and get out of renting SFHs.

Any additional advise or information is greatly appreciated.

Thank you.

Sabrina

Sabrina: something isn't adding up. If the properties are desirable to owner occupant buyers, that's always your best buyer. If you received no offers from OO buyers, then the properties are not in a good area or are not desirable to them. Or, they area not being marketed properly. Were these properties offered separately? You cannot sell a package to OO buyers. IMO you need the help and opinion of value and desirability from outside the TK world.

[Aaron Mazzrillo]

Originally posted by @Account Closed:

Sabrina: something isn't adding up. If the properties are desirable to owner occupant buyers, that's always your best buyer. If you received no offers from OO buyers, then the properties are not in a good area or are not desirable to them. Or, they area not being marketed properly. Were these properties offered separately? You cannot sell a package to OO buyers. IMO you need the help and opinion of value and desirability from outside the TK world.

Sounds to me like somebody drank the TK Kool-aid and now the reality of the situation is revealing itself. I think every person interested in buying turnkey houses should read this thread. It is the most honest and real information related to an exit strategy - extremely limited even at supposedly 75% of ARV - I've ever read on BP.

[Account Closed]

Originally posted by @Aaron Mazzrillo:

Originally posted by @Account Closed:

Sabrina: something isn't adding up. If the properties are desirable to owner occupant buyers, that's always your best buyer. If you received no offers from OO buyers, then the properties are not in a good area or are not desirable to them. Or, they area not being marketed properly. Were these properties offered separately? You cannot sell a package to OO buyers. IMO you need the help and opinion of value and desirability from outside the TK world.

Sounds to me like somebody drank the TK Kool-aid and now the reality of the situation is revealing itself. I think every person interested in buying turnkey houses should read this thread. It is the most honest and real information related to an exit strategy - extremely limited even at supposedly 75% of ARV - I've ever read on BP.

Yeah, we definitely need to hear more about TK exits. In an emergency can you get out for what you paid?  Can you get out for for loan amount? Will the TK provider buy you out? This isn't specific to TK of course. Everyone should be considering what the emergency exit might be.  But with TK there is an acknowledged mark-up or premium price that might make that more difficult or impossible. 

[Cal C.]

Wow!  Just wow!  I wish I could figure out a way to make this thread come up every time someone does a search on turnkey investing.  

[Account Closed]

Originally posted by @Sabrina Brown:

even if the investor asks the properties to be taken back by the TK provider in better shape than it was taken over.

Sabrina:  Did you ask the TK provider to buy back the properties and if so, for how much? It's an extreme solution and understandably not a precedent any seller wants to set.  But one that a TK provider with an unhappy customer should seriously consider.