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Updated over 5 years ago, 09/02/2019

User Stats

66
Posts
43
Votes
Austen Carroll
  • Rental Property Investor
  • Raleigh, NC
43
Votes |
66
Posts

Getting offers to buy my cash flow rental

Austen Carroll
  • Rental Property Investor
  • Raleigh, NC
Posted

I have a small 2 BR rental in a great location in Salem ,OR. It's been producing a decent amount of passive income for the last few years which we've been very pleased with. We've received numerous inquiries from interested buyers about if we would want to sell. Up until now we just said no not interested mainly because we wanted to stick with our investment to see how it panned out. Now however, we're starting discuss ( my wife and I) how high an offer is high enough to make us let go of our little cash cow?

Property data:

2 BR 2 bath single family

Bought it in 2016 for $168K.

Over the last three years we profited after mortgage, management, tax, and maintainence approx $400.00

The market for downtown Salem is only going to get more aggressive so I don't foresee ever having a problem finding tenants.....

Your thoughts and experiences?

Also, I'm dislocated from the unit. I live in NC. So the idea would be IF we sold the house. Wed invest it in a prop closer to us (east coast)

User Stats

66
Posts
43
Votes
Austen Carroll
  • Rental Property Investor
  • Raleigh, NC
43
Votes |
66
Posts
Austen Carroll
  • Rental Property Investor
  • Raleigh, NC
Replied

@Steve B. No not postcards. Actual people get my number somehow and ask if I want to sell my rental.

User Stats

2,834
Posts
3,901
Votes
Anthony Wick
  • Rental Property Investor
  • Ankeny, IA
3,901
Votes |
2,834
Posts
Anthony Wick
  • Rental Property Investor
  • Ankeny, IA
Replied

@Austen Carroll

Set a price that would make sense, and tell the buyers what said price is. Everything has a price. Literally everything I own is always for sale! Shirt off my back? Sure. That’ll be $100 to get me to go home shirtless. Car? Sure. Pay $10k over blue book and I’ll walk home. You get the idea. I’m still in the buy and hold phase, but if somebody wants to pay way over property value, I’ll sell everything.

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User Stats

66
Posts
43
Votes
Austen Carroll
  • Rental Property Investor
  • Raleigh, NC
43
Votes |
66
Posts
Austen Carroll
  • Rental Property Investor
  • Raleigh, NC
Replied

@Anthony Wick thanks Anthony. That's how I feel. Do you realistically come up with numbers for your assets? How is that process?

User Stats

2,834
Posts
3,901
Votes
Anthony Wick
  • Rental Property Investor
  • Ankeny, IA
3,901
Votes |
2,834
Posts
Anthony Wick
  • Rental Property Investor
  • Ankeny, IA
Replied

@Austen Carroll

You easily could do an analysis for what market rate is. Check out recent surrounding home sales (comps), property tax value, Zillow estimates, etc. But I don’t do any of that. I get a few inquiries now and again. I ask what they’re offering. I set my price above that. Realistically, if you’re not looking to sell, they have to come up with a nice high price. Not likely, but that’s fine too.

User Stats

9
Posts
26
Votes
Carl Stratton
  • Real Estate Broker
  • Tampa, FL
26
Votes |
9
Posts
Carl Stratton
  • Real Estate Broker
  • Tampa, FL
Replied

@Austen Carroll

These buyers are looking to buy under market generally. I get many calls for my properties mostly they are telemarketers or sending out mass mailings. I don’t think you will get a fair market offer from these investors.

User Stats

1,545
Posts
1,286
Votes
Steve B.
  • Engineer
  • Portland, OR
1,286
Votes |
1,545
Posts
Steve B.
  • Engineer
  • Portland, OR
Replied

I defiantly receive less unsolicited “we buy houses” letters on my Portland properties than I did three years ago.  These unsolicited buyers must have realized diminishing returns with yellow letter market saturation.  I never minded the letters as most where direct and honest.  I didn’t like the “I’m looking for a place for mom” BS letters.  I’ve only been called by these buyers a few times over the years but the callers have been universally unprofessional, boarding on clownish.

User Stats

385
Posts
274
Votes
Jon A.
  • Asheville, NC
274
Votes |
385
Posts
Jon A.
  • Asheville, NC
Replied

I am in a similar situation with both of my rental properties. We don't know whether to sell and buy again or just hold. I guess the real question is could you put that equity to work to make more return on your investment? That is how we are looking at it. I would start looking at properties in your target areas and see how that pans out. Short term rentals seem like a better ROI for us so we are examining that potential. It's a tough decision for us with lots of options and variables in the mix.

User Stats

183
Posts
264
Votes
Joel Fine
  • Rental Property Investor
  • Leander, TX
264
Votes |
183
Posts
Joel Fine
  • Rental Property Investor
  • Leander, TX
Replied

I'd suggest thinking about what you would do with the money if you sold. Suppose someone offered $200k. Calculate what you would net from a sale (after all expenses), then determine what you might invest in with that money and what kind of cash flow you could get from that. If it's less than $400/month, it's probably not worth it. Rerun the analysis at $220k, then $240k, etc. Eventually you'll get to a number that gets you a better return than you are getting now. That's your minimum sale price. 

User Stats

481
Posts
313
Votes
Matt R.
  • Blue Springs, MO
313
Votes |
481
Posts
Matt R.
  • Blue Springs, MO
Replied

Another piece of the puzzle - if you did sell the house, what would that do to your taxes?

If you do your own taxes, you could re-run your 2018 taxes, assuming that you sold the house sometime that year, and see what happens.  Or, come up with reasonable guesstimates for the rest of 2019 and do your 2019 taxes now, assuming that you sell the house in the next couple of months.

There is also a thing called a "1031 exchange".  I've never done one, but I think it basically lets you sell one investment property, and buy another "similar" one, and not have to pay some of the taxes on the sale of the first property that you otherwise would have had to pay.  You might find out more about how that would work, if you decided to sell.

User Stats

439
Posts
578
Votes
Tanner Marsey
  • Rental Property Investor
  • San Diego, CA
578
Votes |
439
Posts
Tanner Marsey
  • Rental Property Investor
  • San Diego, CA
Replied

Start talking numbers with them. My guess is they’re gonna low ball you and you’ll keep turning them away. buyers finding off market properties aren’t gonna be looking to pay full retail.

User Stats

1,916
Posts
2,231
Votes
Ola Dantis
  • Multifamily Syndicator
  • Houston, TX
2,231
Votes |
1,916
Posts
Ola Dantis
  • Multifamily Syndicator
  • Houston, TX
Replied

@Austen Carroll This is an interesting dilemma. 

What came to my mind as I read your question was: ROOF

Look, if you think the roof is still in good shape, and the current tenant you have in it is good for the most part. I'll say keep it, while you still entertain the offers. 

I'm not sure what the offer #s are, but when you start to receive ridiculous offers such as $250-350k, then you definitely want to cash out and take the cash and place it in an investment closer as you mentioned. 

Remember, the wisdom of Real Estate Investing is understanding the balance between when to ride out a great asset or when to cash out

User Stats

345
Posts
170
Votes
Carlos Gonzalez
  • Investor
  • Phoenix, AZ
170
Votes |
345
Posts
Carlos Gonzalez
  • Investor
  • Phoenix, AZ
Replied

@Monjur Quayyum

Why cash out refinance and not just straight out selling it?

I’m curious to know.

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User Stats

3,143
Posts
1,065
Votes
Jeff S.
  • Specialist
  • Portland, OR
1,065
Votes |
3,143
Posts
Jeff S.
  • Specialist
  • Portland, OR
Replied

@Austen Carroll why would you sell a good little cash cow?

My friend has a rental close to I-5 and is getting many yellow letters because   people who can’t afford Portland are buying in Salem and commuting.     

Rents are cheap in Salem so they like Salem and can also commute.

Are you close to I-5? 

User Stats

66
Posts
43
Votes
Austen Carroll
  • Rental Property Investor
  • Raleigh, NC
43
Votes |
66
Posts
Austen Carroll
  • Rental Property Investor
  • Raleigh, NC
Replied

@Steve B. Yeah I received a BS moving into the area cuz my friends mom's dad's cousin has cancer and my four kids are all autistic letter ... Wasn't even close considering that one lol

User Stats

66
Posts
43
Votes
Austen Carroll
  • Rental Property Investor
  • Raleigh, NC
43
Votes |
66
Posts
Austen Carroll
  • Rental Property Investor
  • Raleigh, NC
Replied

@Jon Arsenault I'd put the money towards another cash flow asset. I'm considering the Virginia Beach market. Just moved to NC so I'm still getting a grasp for the place. I could try to enter Raleigh but honestly I'm thinking more short term rental in VB..

Or maybe both

User Stats

225
Posts
180
Votes
Bryan S.
  • Rental Property Investor
  • California
180
Votes |
225
Posts
Bryan S.
  • Rental Property Investor
  • California
Replied

@Austen Carroll bird in the hand is better than 2 in the Bush.

User Stats

384
Posts
260
Votes
Angelo Mart
  • Professional
  • Parsippany, NJ
260
Votes |
384
Posts
Angelo Mart
  • Professional
  • Parsippany, NJ
Replied

Tough decision as many investors are selling out in the event of a Recession. Sell NOW at height of market, leave liquid in bank and buy back in when market crashes (if it does) Who knows what will happen tho

User Stats

479
Posts
316
Votes
Steve Milford
  • Realtor
  • Vancouver, WA
316
Votes |
479
Posts
Steve Milford
  • Realtor
  • Vancouver, WA
Replied

@Austen Carroll I look at this a little differently. First, let me say, I only go into Salem on the Buyer side. But if I was evaluating for myself, I would look at cash flow based on what I have invested with, and if I can get that amount with better features I like then sell, otherwise hold onto. If you bought with 25% down, or $41,500, you are receiving $4,800 cash flow from that investment. Now compare it with what you could do with money.

This property has 2 bathrooms, a lot of nearby recent similar kind solds are not. From what I see, algorythm retail comps of that address are $221k +/- $5-$10k. Realtor fees average 5-6% there and with other fees, you lose $15k +/-, not including capital gains tax. Once considering this, that's another hit of $20k. +/-. Retail prices are on a downward trend right now, so even if you received, $225k, your true net is only $190-remaining payoff of mortgage. With possible "return after selling" maybe this allows you to buy 2 houses, cash flowing more than $4,800 annually, then it is worth selling. To me, appreciation only really matters when it allows me to increase my cash flow or for other features I want, otherwise moot.

Account Closed
  • Real Estate Investor
  • Marysville, OH
196
Votes |
242
Posts
Account Closed
  • Real Estate Investor
  • Marysville, OH
Replied

@Jay Hinrichs Almost like 70% x ARV huh? :)

User Stats

42,098
Posts
61,927
Votes
Jay Hinrichs
Professional Services
Pro Member
#3 All Forums Contributor
  • Lender
  • Lake Oswego OR Summerlin, NV
61,927
Votes |
42,098
Posts
Jay Hinrichs
Professional Services
Pro Member
#3 All Forums Contributor
  • Lender
  • Lake Oswego OR Summerlin, NV
Replied
Originally posted by @Austen Carroll:

@Steve B. Yeah I received a BS moving into the area cuz my friends mom's dad's cousin has cancer and my four kids are all autistic letter ... Wasn't even close considering that one lol

its is quite amazing that most people looking to buy your home.. were either broke 10 years ago and let you know it.. or some other bad situation but now hey I am a CASH buyer LOL

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User Stats

4,884
Posts
12,934
Votes
Mike Dymski
Pro Member
#5 Investor Mindset Contributor
  • Investor
  • Greenville, SC
12,934
Votes |
4,884
Posts
Mike Dymski
Pro Member
#5 Investor Mindset Contributor
  • Investor
  • Greenville, SC
Replied
Originally posted by @Austen Carroll:

@Mike Dymski

I bought the house for $168 K in 2016.

Zillow estimates value is $218K right now.

My mortgage ( including tax and insurance) is $831.00

I had tenants in from Jan 2016- July 2019 with a steady rent of $1245.00.

They just moved out. Gonna clean up the house, repaint, and upgrade a couple appliances

I'm going to increase rent to 1450.00 which is what my manager recommends.

Also, my manager takes $125.00 from rent.

Newish roof, no crazy repairs or maintenance forecasted.

The address is 760 E st NE Salem, OR 97301

That's pretty much all the numbers I have for the property.

I suspect that the profit on this home is not $400/mth (rent less mortgage and management). That number excludes future cap ex, vacancy, turn over costs, and upcoming maintenance.

I'd recommend looking at comparable sales rather than the Zestimate to asses value.

It's a math exercise to determine whether to keep (or purchase) properties or invest the funds elsewhere. Calculate future returns including all the items above and future appreciation and compare it to alternatives. The numbers will speak for themselves. Good luck.

User Stats

5,682
Posts
3,424
Votes
Chris Martin
  • Investor
  • Willow Spring, NC
3,424
Votes |
5,682
Posts
Chris Martin
  • Investor
  • Willow Spring, NC
Replied

Regarding "Over the last three years we profited after mortgage, management, tax, and maintainence approx $400.00" This is a $168K property. I assume 75% is improvement, so $126K depreciable asset. Depreciation expense would be $4,582 per year or $382 per month, almost $400.

Your claim is "profiting" $400 per month. In later posts, you state $1245 rents, $831 motrgage, $125 management. Sounds like 1245-~800-125 = 320 not inluding vacancy, appliances, cleanup, repaint, etc. Sounds to me that you have about (average) $300 free cash flow per month with approximately $400 depreciation which is tax-wise a small loss. In other words, 100% tax deferred free cash flow. Nothing wrong with that... and with a rent increase you'll be about break even. I like to be break even or above after depreciation and all operating expenses. 

Update: looks like Mike beat me to it.  

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User Stats

2
Posts
1
Votes
Replied

@Austen Carroll after repair value

User Stats

11
Posts
9
Votes
Monjur Quayyum
  • Canyon Country, CA
9
Votes |
11
Posts
Monjur Quayyum
  • Canyon Country, CA
Replied

Hi @Carlos Gonzalez,

Since they purchase this property a while back and managing themselves, so why lose the opportunity of future equity by selling it. So cashout will give them the cash/downpayment on the new property and grow their portfolio. Of course, time will come they can sell all acquired properties and move towards a 10 unit or 50 unit or more. I hope this clarifies my thinking about cashout VS selling.