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Jeff

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O.K., I have got a lot of information from this board over the years...I am coming back hoping for one more bucketful.

I thought I would never sell any of my houses.  It just didn't seem worth the trouble (kick out all the tenants, fix up the place, find a relator) or the expense (carry the mortgages while it sells, pay the realtor, pay the taxes)...

...but now my wife says she wants to sell and she seems pretty serious.

So here is my question.  Is it possible to market to just investors that will buy the whole shebang at once with the tenants in place, even if the houses are all over the country?

If it possible...is it smart?  (Will such a sale cost me profit?) 

If it is smart, where do I start!?


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larrywww

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Jeff, one of the reasons why small (and/or large) multifamilies and other commercial properties have a clear advantage in terms of selling is that you can sell without kicking out the tenants.  In a seller's market like this, you will generally have an "as is, whereas" sale---so you won't have to rehab it either (generally)---especially if you are in a reasonably hot area.  Many invest ors wish they had skipped the SFR market and graduated directly into this market for precisely this reason.

Much easier than selling a house--and you don't miss a beat in terms of receiving income.

But I'm not sure how high a return you can offer with multiple houses---that would tend to be one major issue.   I think you will have to test the magic of the marketplace---you might want to get estoppels from your tenants first---but you could always put it on the market, say to make an offer subject to interior inspection, and then see how high the offers are.  Also, I think a group of houses (assuming they aren't too high end) might be very attractive---but if they are high end houses, could be a more complicated story.

Some investors---those who already have full time jobs and/or businesses---might find the scattered houses easier to manage---so it might be a fit for at least that part of the market.  Given that they already have a full time job, even the lower return might be attractive.  Alternatively, there may be some investors out there who still see some appreciation left in this market---no one really knows what the impact of Trump putting over a trillion dollars into the market will be.  Does it mean there will be a 2nd dip price rally?----no one can predict that.

The other thing is that if you let your tenants know you tried to sell the houses with them in place---they might be a bit more cooperative since it will permit them to stay---which can be healthy incentive to power the sale forward.  If you can get them to sign the estoppels, then even if it doesn't work out, at least they will know you tried.


Let us know how it works out.

kaihacker

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Reply with quote  #3 
I think it is easy to say that most investors would be looking for a discount if buying a portfolio of properties.  

In most cases, single family home brings the best prices when fixed up and sold to an owner occupant buyer that "falls in love" with it.



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larrywww

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Reply with quote  #4 
Gene is probably right----I mean, if these were houses selling for 100K to 150K, then an investor might be OK with that.

But my guess is that your houses are much more upscale---and the rental ratio to purchase price is going to suffer.




Jeff

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Any opinions on OwnAmerica.com or RoofStock.com?

They seem to specialize in selling portfolios with tenants and management in place.  


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larrywww

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Reply with quote  #6 
Or home Vestors (if that applies)---my guess is that you will field  super lowball offers---even worse than what you would receive on this board.

The truth is that your plan would be hopeless in a regular market---but with the super low inventory---who knows?  This market is weird and unrepresentative.

No, the only kind of investor who would likely consider your offer is probably an amateur----bigger pockets has collected (pretty much) all of them in one place for you.

But Gene is probably right---probably won't work.

But I'm not saying you can't try it.  The # of amateur investors on bigger pockets is simply breathtaking.  (It's an enforced amateurism code---they remove you if you try to market yourself too aggressively.)

Or maybe you try seller financing with a substantial down payment----it's going to be hard to find something to 1031 into, in any case.  At least, this way you pay less in taxes.


SFL

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Reply with quote  #7 
Quote:
Originally Posted by Jeff

Is it possible to market to just investors that will buy the whole shebang at once with the tenants in place, even if the houses are all over the country?



This is not a realistic plan.

- The costs in time and money to a prospective buyer of doing the due diligence to figure out the value of a handful of homes spread all out all over the country is extremely high compared to if they were concentrated in a single area.  

- The costs of dealing with the ownership and management of these homes, post-purchase, would similarly be disproportionately high compared to if they were concentrated in a single area.

- Practically all successful RE investors have concentrated in a single area which they know well.  Very large investors (think Sam Zell) may have properties in multiple areas, but they also have the scale to justify hiring local expertise in each area.  

Put yourself in the shoes of a prospective buyer.  Under what circumstances would your RE portfolio be more attractive to a prospective buyer than all other options?  To a person with cash, there is an infinite number of investment options.  I can't think of any rational person who would be interested in this, other than perhaps at an extraordinarily steep discount.


Quote:


If it possible...is it smart?  (Will such a sale cost me profit?) 


Even if possible without a huge haircut, I doubt it would be smart.

The best way to assemble a RE empire is usually a bit at a time, as opportunities present themselves at attractive prices.

The best way to sell a RE empire is usually also bit by bit, when there are opportunities to sell at attractive prices.

For us uninvolved observers, the most interesting part of this "sudden sale" exercise would be to see if you ever made that first million that you hope you made.  

But suppose you did; and now you're cashing in on your profits all at once, in a single year.  And you're in California, I presume?

Before making a rash decision, please find out what your tax will be on $1M suddenly obtained in a single year, versus what the tax would be on that $1M spread out over a number of years.  If this shoves you into the very top tax bracket, your $1M could quickly turn into $500K or less post-tax.  It's generally easier to turn $1M into $2M, than to turn $500K into $2M.  

If you plan to cash out, then it will probably make the most sense for you to do so gradually, by first selling the assets that have the least prospects of future profits (adjusted for net holding costs), while holding on to the more promising assets and letting them continue to appreciate.

I also strongly suggest that you consider what your plan is for that second million you're hoping for.  What is your plan?  More real estate?  Something else?  

Generally, the best time to sell an asset is when you have a better place to put the net proceeds.  If you don't know what you want to do with the money, then it often makes sense to stay put until you do. 

When you have a meaningful portfolio, just impulsively liquidating everything is usually a terrible idea, especially if it is followed by equally impulsively investing the total net proceeds in whatever seems to be the hot investment of the day.

If I were in your shoes, I'd go looking for a good CPA.  I would look for one with decades of experience who is able to serve as a competent and impartial advisor in all matters financial.  Not one who only knows about real estate, and not one who is selling crappy annuities or steering you to a friend who does.  A good CPA with an understanding of all major asset classes who isn't beholden to anyone's interests other than to those of you and your family.  Since finding a good person is really important, I would speak to a number of CPAs.  And it would probably make good sense to have your wife along for the search.  With two persons, it is more likely that at least one of you would be able to detect if something isn't quite right with the person you're interviewing.  

I wish you all the best, and hope you will find a good and safe path forward to making that second million.  After all your trials and tribulations, you've paid your dues and you deserve it.  And, many thanks for sharing your experiences over the past decade plus.  It is the selfless sharing of experiences, good and bad, that makes message boards like this one so valuable.  







larrywww

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Reply with quote  #8 
I think both Gene and SFL are right----it's not going to work.

Even if you find something who will take your deal, the big advantage to the owner-occupier is much easier financing  You won't get an apartment loan (or other type of commercial loan) on scattered houses----I've never heard of such financing.

The clueless guys on bigger pockets, by and large, don't have the funds to make an all cash offer.  Most of these wannabes are (basically) broke.

I don't see an option there.  Most investors will give the investment a pass, unless the rent to purchase fits the 1% rule (If you are asking 180,000, then the rent is $1800).  (And maybe even if it qualifies under the 1%, it won't attract investors since that isn't the only question).

For me, the smaller the better---but then you are probably talking about seriously ghetto (or, more likely, non-existent houses) in the current San Diego market).  So, in this market, it just won't work out for most investors.

If you want maximum return, the owner-occupier is probably the best bet.

You could do a seller carry, maybe, but that is probably entitled to its own thread.

Or you just bite the bullet and pay the taxes.

(I am not a special fan of 1031 in this inflated market, but if you can find something worthwhile (rare), that may also be an option.
Homeloanwisdom

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Reply with quote  #9 
Those in the same market place might be of interest to one buyer/investor.  The idea of a big capital gain and losing a significant portion of your net worth in taxes is disheartening after all those years of persevering. For all or some of sales you might consider a 103 exchange into entities structured as Delaware Statutory Trusts:

Delaware Statutory Trust (DST) and Tenant in Common (TIC) investments allow the smaller investor to access larger institutional-grade properties with the tremendous advantage of tax deferral via a 1031 exchange. These 1031 replacement properties for investment property exchange require no active participation on the part of the investor, are professionally managed, provide monthly cash distributions and have potential appreciation. "

I'm entertaining the idea of of maybe doing this in the future. The returns are modest, 4.50 to 5.5%, ties up your capital for 7 to 10 years (hard to exist) but there is no toilets & tenants. I haven't done too much exploration on these since I'm still a few years away from considering but I like to idea of preserving my assets.


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larrywww

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Reply with quote  #10 
I posted a thread on the subject (DSTs and TICs).  The person who might know most about the subject would be Bill Exeter of Exeter 1031, who is working on book on subject (not published yet).  Before taking the plunge, I would talk with Exeter, although technically they can't recommend anyone.  There are some articles on their website by Exeter about the subject.

But, as you noted, the return is modest and you are trusting alot in whoever manages the entity. 

At the time I posted the thread, I asked if ANYONE had EVER had a good experience with such entities.

Crickets, silence, mainly.


Jeff

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Reply with quote  #11 

Wow...you guys have been really helpful.  I feel enlightened, if a little discouraged. 

 

A special thanks to SFL and Larrywww for your particularly articulate and cogent responses.


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taddyangle

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Reply with quote  #12 
Hi Jeff,


Where did you end up on this? 

Why sell the whole portfolio at once?  You have owned these 10+ years, right?  I think you would have to also consider tax implications, as you will have to "pay back" depreciation on these properties, so depending on your situation it may make more sense to sell over a period of time and/or also look for some ways to defer tax liabilities (ie 1031).

We sold a property 2 years ago, first one it many years.  We got hit on taxes, so I am feeling like it does not make sense to sell, only 1031.  And while I still manage all the properties, all out of area, it is getting old dealing with tenants, especially in the units we would never live in.  Much easier to manage units we would live in.

We also got hit hard with the cat 5 hurricanes in Texas, and the US Virgin Islands, so I am hoping that there is some type of tax benefit we can use to help offset income.  

We should get together for lunch (or coffee). 

Bernard

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Jeff

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Reply with quote  #13 

Quote:
Originally Posted by taddyangle
Hi Jeff,


We should get together for lunch (or coffee). 

Bernard

 

Pretty much any time, pretty much any place.   I would love to see you and get your advice.


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