How to market my single family portfolio for sale

Question

I am currently preparing to sell off my portfolio of single family homes and assembling an offering memorandum / marketing package.  As an investor who might be interested in purchasing a portfolio, what would you expect/want to see highlighted?

One key question I was wondering about was whether to include the cash flows.  Cash flows and ROI's are very relative.  For example, all of my properties are financed with specific rates/terms.  My buyer may get better or worse terms, making the cash flow much different.  Also, I have actuals on my P&L vs. projections based on deductions for vacancy, maintenance, etc.  These figures can vary of course, so not sure the best way to present the profitability.

Lastly, I realize a serious buyer will go through due diligence and I'm happy to provide sufficient details.  What is the right level of detail to include on the initial pitch?

Tony Castronovo · Answer

Interesting site @John Warren.  Thanks for sharing.

@Michael Anderson there are two main drivers.  1) Selling them individually would likely take much more time, and 2) tax implications (I would like to 1031 exchange into a MF property).

John Warren · Answer

@Tony Castronovo you might check out ownamerica.com. They specialize in selling sfr portfolios. I have no affiliation with this company, but I like what they are trying to do. They treat portfolios of sfrs much like a commercial apartment complex as far as valuation.

Jay Hinrichs · Answer

call Roofstock they are doing a nice job for the portfolio seller.

Dave Foster · Answer

@Tony Castronovo, You're on the right track with potential issues in getting your portfolio sold to complete a 1031.  And if you're able to complete the sale to one buyer on one contract then it can be structured and priced as just one exchange which saves you some money as well.

My guess is that the sale of the properties is probably easier than locating the perfect replacement.  If so then you may want to look into a reverse exchange.  This would allow you to lock up your replacement first and then you would have 6 months to sell your old properties.  They can be a little more expensive but well worth the cost int he right situation.

Tony Castronovo · Answer

Thanks @Joe Splitrock...makes good sense.

@Dave Foster Thanks for explaining the reverse exchange.  I am curious where the "truck load of taxes" comes from.  Not to be naïve, but isn't that one of the reasons to use a 1031 (I know it only "defers" not "eliminates" the tax).

Joe Splitrock · Answer

@Tony Castronovo when you put together the numbers, you don't include your financing as an expense. Generally investments are compared using cap rate. It assumes the return based on a cash purchase purchase.

Provide a detail of 1-2 years worth of income and expenses, then the investor can run their own numbers using their financing terms.

Dave Foster · Answer

@Tony Castronovo, In a reverse exchange the seller isn't affected at all.

The statutory order of a 1031 is that you cannot take title to your new property before you sell  your old property.  The reverse exchange adheres to that but still lets you control the new property.

Your QI actually takes title to the new property (why the seller isn't impacted) in a single purpose holding entity called the Exchange Accommodating Titleholder (eat).  You provide the funds with either cash or a loan (easily doable through a portfolio bank or private lender).  When you sell your old properties you then "purchase" the new property from the eat.

Financing and the cost of the reverse are the main drawbacks.  While a regular exchange might cost you $1000 or so, a Reverse exchange can add $4k - $5k to that.

It's also not an unlimited window.  You have 180 days from the day the eat takes title to complete your sales.  But in the right circumstance a reverse can alleviate a lot of angst and save a truck load of taxes.

Tony Castronovo · Answer

@Dave Foster I haven't heard of a "reverse exchange".  This would certainly be in my best interest....but I could see it slowing down the purchase and not sure how a seller would react.  Would seem I would lose some negotiating power.

@Yonah Weiss Cap rates make sense to show rather than cash flow.  Thanks for your input.

@Mark Allen All sounds good. Thanks for the great info.  Question for you....what financial info do you itemize at the property level on your Offering Memorandums?

@Steve Vaughan It's a small portfolio of 8 SFR's.

Yonah Weiss · Answer

@Tony Castronovo I agree with you that cash flow can be relative and sometimes misleading. It may be more advantageous to specify CAP Rate which doesn't take into account mortgage. This way whether or not a potential buyer comes in as a 1031 or all cash or wants to finance, that's up to them.

I agree with @Dave Foster about the reverse 1031

How to market my single family portfolio for sale

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