Why Selling Single Family Rentals in Bulk is the Best Answer
A blog from Mark Allen:
With the current seller’s market across the U.S., it is extremely tempting for many property owners to cash in, sell their single-family homes, and use that capital gain to purchase other assets. As other investors enter the market, buying a portfolio makes sense rather than having to build one. Institutional investors are also buying portfolios, and they buy them based on their evaluation of cash flow like buying any other business.
Common Objections to Selling as a Portfolio:
Why not sell the homes individually when you could get much higher value for each property?
There’s a common misconception that you can sell your homes for higher than the individual appraised value if you sell one at a time on the MLS – NOT TRUE! We sold a portfolio of 53 homes in Dallas for higher than the individual homes appraised values because we sold on The Income approach which exceed the sales comparable approach (this works well in areas where home ownership is out of reach for the general population in the immediate area).
Friction Costs: Preparing a home for sale in the retail market requires the home to be vacant and ready for a new homeowner. That would mean, the investor would have to remove the tenant, repair the house, paint, replace carpet, flooring, etc. Then the investor has to wait for the house to be marketed and close (approximately 90 days). That’s 3 months with no cash flow! The investor is still responsible for taxes, insurance, and mortgage costs during this time. This friction cost has been estimated to be as high as 13-18% of the market value of the home.
1031 Exchange: You could try to 1031-exchange each home you own, but managing that many transactions is difficult and it’s likely you could only exchange into another SFR. If you exit as a portfolio, it is much easier to exchange and it opens the Seller to enter other commercial real estate products that are easier to manage. Think about how much this can save you in capital gains taxes and depreciation recapture.
Plus, don’t forget the discounts! Closing costs and brokerage fees are reduced when sold as a portfolio because of the volume.
Mark Allen (BIO) is an advisor with Greystone Investment Sales Group in Dallas, TX. If you want to learn more about our Multi-Family Listings, Single-Family Rental Portfolios, Land Sale Listings, or Property Valuations with Greystone Investment Sales Group, contact our office:
Mark Allen | Advisor
Greystone Investment Sales Group
6320 LBJ Frwy Suite 228
Dallas, Texas 75240
P | 972-865-6328
C | 214-945-1929
email@example.com | www.greystoneisg.com