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!

[Todd M.]

@Sabrina Brown Sorry, new here... forgot to tag you.  Please see my previous post Sabrina.  Thanks!

[Alan Grobmeier]

@Sabrina Brown.  Wow!  I have spent the last 30 minutes or so reading thru your posts and experiences.  I am truly sorry for your horrifying experience.  I have done a LOT of digging on TK providers, not just in Memphis, but elsewhere as well.  

It appears to me that most of these TK operations do one thing:  Make the TK provider rich.  I have reviewed about 100 different properties via different providers and noted that most have some of the same traits.  They are as follows:

1)  Poor school system, numbers 3 or less.  Why would anyone want to buy or rent when the schools are the worst in the city.  I KNOW ppl have to live there, but it doesn't mean YOU have to own it.

2) Overpriced. If you look at what is on the MLS you can find the SAME thing, maybe even down the street, for $20k or more less.

3)  Exit strategy?  Rut row.  Nope, I just got married to this house.  I BETTER like it.  LOL.  It seems that in many cases the ONLY strategy is to find another real estate investor.  After all, no one really wants to live there.  See #1. 

4)  Preying on 'noobies'.  And there are a TON out there since the downturn.  And EVERYONE wants to be a real estate investor.  That is, until they don't.  LOL.

My business model REVOLVES around good school systems.  I get cashflow and appreciation.  I have looked at a number of the TK operations and although they tout 10%+ returns, it would appear to me that you can get your A$$ handed to you in a number of different ways.  As a result, I have steered away.  Would you mind sharing the name of your TK provider?

Thx.

AG

[Marion Nicholson]

Offer owner financing with a significant down payment . List them for sale with a agent that does a auction

[Alan Grobmeier]

@Account Closed.  The reason I am interested is to see if I had previously analyzed any of their offerings.  More of a curiosity.  Like I said, I've probably looked at 100 of these in different markets and compared them to what you can buy on you own in the same area.  It sounds, based on the problems, that the properties are not in 8-10 school district areas.    

[James Wachob]

@Alan Grobmeier The key is to find a great team! Ideally you would find a company that has everything under one roof. Acquisitions team, renovation crews (fully licensed and insured), Property Management, and a Real Estate Investment Brokerage in case you ever decide to sell.

By teaming up with a solid firm you can mitigate your risk and have some "boots on the ground" that have your best interest in mind.

Also, I see a lot of 1st time investors buying in C neighborhoods.... this can be very risky! Unless you have a strategy to own a lot of properties, because there can be strength in numbers. 

Lets define A, B, and C

There are many definitions floating around attempting to define investment properties.

I like to start with the community in which the properties is located.

A neighborhood = 95% homeowner or better

B neighborhood = 65% homeowner or better

C neighborhood = All renters

These neighborhoods could also be defined by the land value, on which the subject property is located. In an A community the land value is high enough that if the subject property were to burn down, it would make sense to rebuild a bigger and better property.

In a B community the land value should be substantial enough to rebuild the same property, in square footage and included features.

In a C community the land does not support rebuilding, and the lot will remain vacant for years to come.

Then I look at the condition of the property

A = Brand new construction

B = 1975 and newer homes with a FULL renovation (Roof, HVAC, Appliances, All hard-surface floors, Exterior and Interior cosmetic repairs and paint, Hardware replaced, New light fixtures, Fenced in Backyard, and more!) my average FULL renovation cost between $25,000 - $35,000 in Memphis

C = Rent ready. Just livable

I'd also suggest that any new investor get on a plane and visit their provider! 

[Alan Grobmeier]

@James Wachob  I can honestly say I have NEVER seen a breakdown as to what constitutes an A, B, or C property.  I always thought it was more 'subjective' than objective.

[Sabrina Brown]

UPDATE:

I moved to Memphis just a few weeks ago and after using a new and honest contractor, my properties turned from losers to winners.  Too bad I already sold my Cordova property last year in June at a slight loss.  My Chelsea property is under contract now and I am keeping my Kings Arms Street property.

The moral of this saga is that never ever buy from turnkey providers, hire an honest local contractor instead, make sure you get before and after pictures, and verify all transactions. Most management companies (I used 8 in the last 7 years) will be hands off and if disaster strikes due to their negligence, they will charge you 3-5 times more than what it would normally cost.  On a preventative job that would normally cost $200 they will charge you $1,500.  They will lie out of their teeth and if you never hear from your management company about updates, or get their drive by lists, etc. be assured that they are not doing anything to secure your property.  They are not out for your best interest.  This also means that you may not need a management company and pay them a fee for not doing anything.  They will make money on screwing you over with outrageous repairs.  

Thank you all for your support during this tough time I had.

[Diane G.]

@Sabrina Brown - did you move to Memphis just to manage the rental properties personally?

[Curt Davis]

Sabrina, I think your assessment is way off. You had a bad experience, sadly this does happen. You think the average out of state investor is going to find a reliable and trustworthy contractor on their own without coming to visit? I use a property management company for my personal homes and I experience all the same issues that everyone else does but the difference is when I have issues I don't have anyone to blame or point a finger at, I have to suck it up and deal with issues and at times pay for repairs even expensive ones. That's part of being an investor.  If I were going to buy a home in another state I would look for a turnkey provider as I don't have the time to do it on my own, that's why tk providers do serve a purpose for many out of state investors. 

[Sabrina Brown]

@Curt Davis

I understand your point of view.  However, I literally got screwed over with illegal activities performed by several of these companies.  There is a large group of CA investors who went through the same thing, or even worse given that 3 had to file for bankruptcy.  Yes, we are all responsible for our own actions but if we pay for what we think is a trusted company and all they do is neglect, steal, charge 3-5 times for services that were either never needed or were never performed, or they wait for an emergency situation rather than doing preventative work for which they were hired to check on, then I see a justification of the "blame".  I have visited Memphis, I have done online research, I have spoken to more than enough bankers/lenders, local investors, realtors, etc and was given information to verify an investment making sense.  However, the actual market with many TK providers taking over parts of the city skews the numbers but nobody will tell you about it until it's too late.  My situation isn't the only one as I have mentioned above. Now that I am local, I hope I can help enough people, out of state or not, to have a positive experience where all transactions are fair.  I now have a reliable and trustworthy team of contractors, handymen, closing agents, etc. that have helped me turn my properties from losers to winners.

[Diane G.]

@Sabrina Brown

My one friend in CA, who invested in TN, is now facing foreclosure too..... She bought a very upscale property, and then realized she can't rent it for enough to cover her expense, nor can she sell it quick enough.... AND she can't afford to hold it forever... So she is giving it back to the bank, walking away from her $140K down payment...

The saddest part of the story?

She has been a mortgage assistance, and does not really have any money saved on her own... This $140K is her entire inheritance from her deceased mom... Now wiped out, she is struggling to pay rent... She is moving out her 2/1 duplex and looking to find a 1/1 apartment....

[Jennifer C.]

Originally posted by @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.  

 I'm in the process of doing a Refi on my primary residence. I was looking at a 30-year fixed from Bethpage Fed Credit Union that was assumable. I was very surprised to see that option.

[Sabrina Brown]

@Diane G.

Oh no, I am so sorry to hear about your friend, Diane.  That is terrible!  Did she buy it through a TK provider?  If there is still time to save her, would you be able to pm me the details so I can take a look at it?  We may be able to find other ways, especially if information given to her is not accurate like it was in my case in addition to all of the other factors, some I haven't even mentioned in this thread!  Would love to help if I can and have all of my connections put their heads together to find a solution.  

[Diane G.]

@Sabrina Brown

Got your pm..Thank you... I will forward onto her, and hopefully this is something that still can be saved, but I doubted it....

Even though she did not buy via a TK, she made the typical mistake that many CA investors made, myself included... When she saw this property at $685K for 6 bedroom/8 bathroom with over 6000 sq ft, she was blown away...Something like that would be $6M in Bay Area!!!!!!!!!

What is so sad about it is that this $140K is ALL she has....She is devastated.......Ugh...

It is just so dangerous for us CA people to go out of state and look at properties with a CA mindset... 

[Vivek Khoche]

@Diane G. - Feel free to forward my contact details, we  can certainly try to get her most of  the money. I wish brave OOS and international investors are reading. @Sabrina Brown being local now we should be able to pull this one to your friends advantage.

Thanks
Vivek 

[Eric C.]

Sabrina, why did you move to Memphis?

[Sabrina Brown]

@Eric C.

Eric, CA became extremely difficult to live in for various reasons.  Prices increased drastically, rents and home values almost doubled in the last 4 years.  Real estate competition is high and due to the increase in home values, us regular investors don't get a chance to do reasonable business unless we put down a fortune before securing a property.  And since I have known the Memphis market/area pretty well and have established many connections in the past 7 years (good and bad to stay away from), it made sense for me to be at the forefront rather than out of state.  However, as I have moved here, facts are not what they seem online.  Good thing is that now I can confirm any information at hand.  Property purchases and maintenance is much less than what is quoted by TK Providers or others knowing that an out of state investor can easily be fooled.  As you may know, Zillow values are not reliable either.  If there is anything I can help verify for anyone out of state, please let me know.  I am currently building a new team of reliable, honest and reasonable professionals.  Prior teams did not prove to be as good as I thought, to say the least, and I don't want to have my name associated with any shady business practices that only serves one party of the business transaction.  It has to be a win-win situation for all parties involved.

[Sabrina Brown]

@Vivek Khoche

Vivek, I have joined the Memphis Investor Group (MIG) and signed up for a bootcamp on foreclosures where we will be looking at actual and current properties, evaluate, and going to courthouse looking at title, liens, etc.  This will give me a hands on and quick approach to verify real market values here.  As you know, out of state investors have been quoted different values than what local investors would pay.  Trying to be an advocate for other out of state investors so they won't run into the same issues and financial losses that I have gone through.

[Alexander Price]

@Sabrina Brown Quite an admirable approach and nice to see you turn your situation into a positive. I am also interested in trying the non-TK method. 

[Vivek Khoche]

@Sabrina Brown - Wishing you all the best for the next part of the journey. I request you to document your experience like a cheat sheet to help investors, I have often come across the questions from investors that which page of this link they should be reading.

Timing is just right when I read link on Memphis development plans.

https://www.biggerpockets.com/forums/99/topics/456...

Good Luck

Vivek

[Diane G.]

@ Alexander price -I remember you were soooo sure that TK is the way to go only 6 months ago.... what changed??

To me, I always believe that for every 1 happy OOs investor, there are 3 angry and regretful investors.... the one that is happy is becasue he has not figured out that he got fooled by TK, by PM, by GC

[Jay Hinrichs]

@Sabrina Brown  the 6000 sq ft 680k home in the mid west Is a classic boon doggle waiting to happen.  I have been asked to fund so many of these its not funny.. they are not liquid as you state.

I love the investor that contacts me with the home that appraised in the mid west for 3 mil and we can pick it up for 1 mil and turn it quick   RIGHT LOL...

You remind me of a lady from Aussie  named Karina  she did what U are doing.. she bought in Vegas and GA.. and had bad experiences moved here.. then set up shop helping other aussies .. I think she did pretty good... TK light as it were..

Although we must keep in mind that TK companies are nothing more than house flippers instead of selling to a home owner they are selling to an investor.. they earn their profit.. If you move there and do it yourself of course you are going to get  a better deal..

Its just like when I build a new home and sell it to a new homeowner.. they could have bought a lot hired a builder and saved the 50 to 100k I make on each home I build and sell .. but they buy them retail.. or all the retail flips we do.. some we don't do so hot on break even lose a little some we make 20 to 100k on .... TK is more consistent with 5 to 20k profits per door usually...

Along with as you know the TK companies have highly evolved west coast sales channels.. I know you know those folks personally  having lived and gone to the FIBI events and Linda's events etc.. I am sure you know Kathy F  and many others... its what they do.. by the time the turn key company makes a profit pays the west coast marketer their 5k plus commish of course the house will be more than you can do it yourself ....

Will be interesting to see what road you go down..

I have clients of mine that I fund that do this in other markets and they do what you do but very transparent.. they source  coordinate rehab like your talking about then set up with a PM and charge a flat fee to do it... this gets the west coast investor a better deal cash wise.. but they do need the cash no financing .. until they refi.. but one of my vendors has done over 60 of these for one of his LA clients in the last 5 to 6 years.. nice relationships are made this way.

Although you have to live there and that's another story... I suppose you will either really like it or decamp for someplace else in a few years...

[Jay Hinrichs]

@Diane G.  High end homes in the mid west and deep south are LOSERS end of discusson.

600k 700k buyer in the mid west is buying new construction or only the absolute best neighborhood they are not buying size. size makes no difference in those areas like it does the bay area or even here in PDX.

[Diane G.]

@ Jay Hinrichs

I know and agree with you... Just feel really really sorry for my friend.. She is a mortgage associate and makes <100K a year, never really able to save much on her own...

Then her mom passed and left her the $140K and she blew it like this....I almost wanted to cry for her....

[Account Closed]

@Sabrina Brown I've spent a couple of hours reading through the entire thread and can't thank you enough for being an unfortunate, but valuable example for investors looking to purchase OOS TKs. I'm glad to hear in the end you were able to come out of this situation.

@Jay Hinrichs has hit the nail with exactly what I've recently been looking for. I've already determined that profit is lost on TK purchase, but turnkey light helps an OOS in the same way a traditional TK would with a better cash deal.

Sabrina, if this is something you will be willing to consider in the future I believe it can turn out nicely for both parties.