Finding the right buyer to target for 31 Student Rental Units?

Finding the right buyer to target for 31 Student Rental Units?

Will GastonPro Member
Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes

All:

I am considering selling a portion of my portfolio that consists of 31 total units that consists of 11 SFHs, 7 duplexes, and one 6 Unit property. Here's some background:

  • They are located in Columbia, South Carolina and are all college student rentals.
  • They are all on separate tax parcels but are all within ~2 miles of each other and to the University of South Carolina.
  • I have owned many of them for 5+ years and have had zero vacancies with most of them.
  • There are 84 BRs total and bring in 55k/month in gross rent.
  • They are fully leased, stabilized, and generally speaking, in good condition.
  • I believe the valuation to be ~5MM if I sold them individually.
  • I want to sell them together for 1031 purposes.

My questions are these:

What kind of legitimate buyer should I expect to buy these if I wanted to sell them collectively? It seems to me that someone with 5MM to spend would want to buy a MFH all on one parcel. I've also noticed that there appears to be a lot of "funds" and "groups" out there who don't have the experience or ability to close on a large project.

Is this too "big" to sell together based on per unit asking price? ~161k per unit seems to be pretty high for someone that has that much money to spend.

How big of a deal is it to a buyer in that price range to have actual financials (Trailing P&L, actual maintenance expenses, etc)? I run all of these properties through my personal returns as I am the sole owner and I don't have the pretty financials that a lot of institutional buyers would like to see. I do, of course, have hard numbers on leases, insurance, taxes, etc. 

I'm aware that I could probably sell them for more individually, but am unlikely to do so based on my current business structure.

Appreciate any advice you may have.

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Columbia, SC · Member since 2015 · 88 posts · 55 votes
8y

@Will Gaston I don't have much experience with larger institutional buyers and/or ones looking for a large portfolio like yours, but I'd imagine there is some hesitation to buy a package like that when it's spread out geographically. Maybe you'd have better luck selling them grouped into 5-6 properties, maybe depending on their proximity to each other, to a buyer.

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  • Columbia, SC · Member since 2015 · 88 posts · 55 votes
    8y

    @Will Gaston I don't have much experience with larger institutional buyers and/or ones looking for a large portfolio like yours, but I'd imagine there is some hesitation to buy a package like that when it's spread out geographically. Maybe you'd have better luck selling them grouped into 5-6 properties, maybe depending on their proximity to each other, to a buyer.

  • Will GastonPro Member
    OP
    Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
    8y

    @Michael Lee yep, definitely thought about that too. It would be difficult to manage the scalability of my business if I sold in slower, smaller increments like that.

    @Andrew R. Lucas any thoughts?

  • Andrew R. LucasBusiness Member
    Investor · Columbia, SC · Member since 2016 · 675 posts · 320 votes
    8y

    @Will Gaston There has to be some group or fund that needs this asset class in their portfolio.  However, it sounds like a pretty unique buyer that would look at this as a total group.  I'm sure they are out there, and I wish I knew who they were.  

    With all of the knowledge and connections here on BP, Im excited to see what the community has to say. 

  • Will GastonPro Member
    OP
    Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
    8y

    Thanks @Andrew R. Lucas. Do you think the 1% rule (i.e. $1000/month in rent for $100,000 property) seems to be the market rate for USC area properties now?

  • Andrew R. LucasBusiness Member
    Investor · Columbia, SC · Member since 2016 · 675 posts · 320 votes
    8y

    @Will Gaston in general i think the 1% is about right.  But your properties are in better locations than most.  I'm seeing houses around your Shandon properties and go using .75%.  I think pricing at the 1% rule shows that you are serious about selling and willing to offer a good deal to an end buyer. 

  • Rental Property Investor · New York City, NY · Member since 2017 · 38 posts · 22 votes
    8y

    @Will Gaston what asset class are you looking at that is better than what you have going on now? I read another one of your threads and it seems like you’re killing it - you’ve cornered a very niche market and are seeing cash flows most people don’t. What could possibly be more appealing?

  • Will GastonPro Member
    OP
    Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
    8y

    @Peter Faulkner that's a fair question. It's one that I've been asked a variation of this many times (CC: @Mike Dymski) and one that I've spent a lot of time considering.

    It is true that the student rental niche is a highly profitable one. But it's been my RE experience that high profits are correlated with higher management. I'm at a point in my career that I'll consider lower returns in exchange for lower management (i.e. money is not everything). 

    I do, however, feel very strongly that student rentals are a fantastic way to build a portfolio quickly. The financials of the niche are solid: the cash flow is great, tenant base is constant, and students always pay their rent, almost without exception.

  • Rental Property Investor · New York City, NY · Member since 2017 · 38 posts · 22 votes
    8y

    Thanks, @Will Gaston

    If that's truly the goal, why not hire property management instead? Seems like you have plenty of margin in your properties to support one.

  • Will GastonPro Member
    OP
    Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
    8y

    @Peter Faulkner also a good point.

    Another part of my thinking has to do with market conditions. It seems now would be a good time to sell as interest rates are still low and there seems to be a pretty strong demand for larger portfolios. 

    I started investing in 2006 (aka the bottom of the 9th inning) so much of the market of the last 2-3 years is new to me.

  • Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    8y

    Hey Will.  It takes a lot of guts and self-awareness to sell the cash flow monsters that you have.  Most people spend their lives (me included sometimes) knowing what their personal goals are and then making daily decisions that do not align with them.  Nice work on making the tough decisions...and reaching the point of financial success where that is an option.

    You have the same challenge as retiring investors with SFR and small MF portfolios. As you know, there is likely a narrow group of investors who purchase portfolios and that group may be even narrower for your niche. You are doing all the right things to reach those investors (loopnet, BP, brokers, networking) and taking those actions will lead to a sale or to knowledge on what's next.

    I don't have experience selling a portfolio; so, I don't have answers to your questions other than the 3rd one.  I don't think this is an institutional buyer and I am confident that you can provide financial information and comfort that will work for potential buyers.

  • Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes
    8y

    Will,

    I'm sure you have your reasons for selling.  I have a couple of thoughts for you to put into the mix:  

    Do you need all cash-out sale, or will you consider some form of short-term seller financing.  

    Have you contacted the schools/universities and/or faculties of same regarding this opportunity?  Have you secured a list of alumni to mail to?

    We all love BP, however there are several large sites that deal exclusively with commercial-type property--have you investigated?

    Since these are all in your own name, have you considered transferring ownership into a living, revocable trust or (not my first choice) an LLC? Perhaps easier to sell one entity than a bunch of individual properties?

    PLEASE stay in touch and let me know how things work out.

    Best.

  • Will GastonPro Member
    OP
    Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
    8y

    Thanks @Mike Dymski. The SFH comparison is spot on. Selling them off individually and/or in smaller subsets would likely be more lucrative but trying to coordinate the 1031 of all that seems pretty daunting.

  • Will GastonPro Member
    OP
    Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
    8y
    Originally posted by @Marc Winter:

    Will,

    I'm sure you have your reasons for selling.  I have a couple of thoughts for you to put into the mix:  

    Do you need all cash-out sale, or will you consider some form of short-term seller financing.  

    Have you contacted the schools/universities and/or faculties of same regarding this opportunity?  Have you secured a list of alumni to mail to?

    We all love BP, however there are several large sites that deal exclusively with commercial-type property--have you investigated?

    Since these are all in your own name, have you considered transferring ownership into a living, revocable trust or (not my first choice) an LLC? Perhaps easier to sell one entity than a bunch of individual properties?

    PLEASE stay in touch and let me know how things work out.

    Best.

    Hey Mark, 

    I think I could consider some quasi-creative short term situation for a highly qualified purchaser, but would prefer to cash out. The problem is the "highly qualified" part. I work with a great/experienced broker who has sold MF for 25+ years and we've been discussing the options. He thinks selling them individually would yield the highest amount. 

    These properties are close to the University but not on the edge of campus and unlikely the school would want to purchase. I like that suggestion, though. All of these units are in LLC (single member) so they are a pass through on my returns. Will definitely keep you posted. Thanks for the input.

  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    8y

    @Will Gaston I would try to sell them as a package. I can tell you from experience selling duplex individually that it is a big pain coordinating showings and not making tenants angry in the process. I can't imagine trying to coordinate that across 31 tenants with multiple buyers. I would list using the 1% rule and try to shop it out at local REI meetings. You could consider breaking it into two packages to make it more affordable for a medium size investor. I would not list the properties with a realtor, but let some realtors know you have the package available. Offer some set fee to any realtor that brings you a buyer.

  • Will GastonPro Member
    OP
    Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
    8y

    Thanks @Joe Splitrock. I like your suggestion of splitting them into two packages. The1% rule is the market rate for what investments properties sell for in my market so I think that's pretty reasonable.

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