Selling A Portfolio Of Inherited Properties

Selling A Portfolio Of Inherited Properties

Hey everyone, this is Brad from ProbateResource.com. I’m the founder of Probate Resource, which I created as a one-stop shop for anyone navigating the probate process. We aim to provide assistance with all the questions you might have. Additionally, we are a real estate solutions company that buys properties for cash and boasts an extensive network of real estate agents across the U.S. who specialize in probate inheritances. If you’re interested in working with us, please visit ProbateResource.com or click on the link below in the description to fill out the form on our site.

Now, let’s dive into today’s topic. If you’ve inherited a portfolio of rental properties from a loved one or acquaintance, you may be wondering what to do next. Should you keep the properties, sell them all together, or sell them individually? What is the best approach?

• Planning Ahead
• Maintenance And Other Costs
• DIY Landlord or Hire Help?
• Smart Choices for Landlords
• Selling To Investors
• Headache or High Returns?
• Selling The Property Individually
• Agent or Investor
• Consider Seller-Financing
• Let’s Connect

Managing Rental Properties

First, if you decide to keep the properties, consider whether there is a property management company already in place. Managing rental properties can be challenging. I’ve owned many rental properties myself and understand the complexities involved. If you’ve never managed a rental property before, it’s important to know that they can be high maintenance, though this varies depending on the condition of the portfolio you’ve inherited.

Some properties may require significant repairs or “deferred maintenance,” while others may be well-maintained, with the previous owner having taken excellent care of them. In such cases, you might not need to worry about major expenses like replacing roofs or HVAC units that fall under capital expenditures.

Planning Ahead

It’s important to set aside money each month for big-ticket items and upcoming expenses. Not all of the cash flow you receive each month is yours to keep. A certain percentage should be reserved for maintenance, repairs, and capital expenditures. Ideally, you might find that you don’t need any major capital expenditures for five to 15 years, which is great. However, if this isn’t the case, it’s crucial to plan for those costs. For example, if you have a standard asphalt shingle roof, depending on your location, it may last anywhere from 15 to 25 years. You should be prepared for the possibility of having to replace it.

It’s important to note that inflation and rising construction costs could significantly impact your budget. In the last few years, roofing replacement costs have nearly doubled. Just recently, I received a quote for a full tear-off and replacement on a double-wide mobile home, which was priced at $5,000. About a year ago, we replaced the roof on one of our flip properties. Thankfully, we haven’t had to replace any roofs over the past year, but the one we did replace was on a relatively small house. It’s essential to remain proactive about these potential costs.

It costs around $6,000 to perform a tear-off and replacement of HVAC units for that house. Currently, our average HVAC unit replacement is approximately $7,000, which is a significant increase from about $4,000 just a few years ago. This trend highlights how much overall costs have risen. In addition to HVAC issues, there are always other potential problems in a house such as plumbing, electrical, and repainting.

Maintenance And Other Costs

Maintenance is a constant concern for rental properties.

If you manage a portfolio of properties, it’s important to have someone in charge of maintenance. This could be you, or you might hire a management company to handle it. However, be aware that many management companies tend to mark up maintenance costs. For example, their preferred contractors may quote a repair at $100, but the management company could charge you $120 to $130 for that same service, marking it up by 20% to 30%.

Additionally, it’s common for tenants—especially those new to a management company—to test their limits. They may submit numerous requests for repairs, some of which may not be necessary. For instance, a tenant might claim their stove is broken when it is actually functioning well, merely because they don’t like how it cooks or its appearance. Ultimately, some tenants will try to get things replaced or repaired unnecessarily by pushing for maintenance requests.

When considering property ownership, it’s important to approach it from a maintenance perspective, especially if you plan to keep the properties long-term.

DIY Landlord or Hire Help?

Additionally, think about how you want to manage them. Are you willing to handle all the phone calls yourself? If not, hiring a property management company might be a better choice. However, you’ll need to decide which company to hire. It’s worth noting that many people start property management businesses only to realize that it can be quite challenging. The workload can be substantial, yet the financial rewards are often minimal since most property management companies charge similar rates—typically between 8% and 12% of the monthly rent for their services. Depending on your location, owning a property management company may require you to be a licensed broker. The market is filled with various companies, but they are not all equal in quality. This similarity in pricing can make it difficult for a high-quality management company to justify charging more, especially when landlords can find cheaper options elsewhere. This can lead to a lot of burnout among property managers or, conversely, attract skilled operators who have well-defined processes in place.

Smart Choices for Landlords

If you are someone who appreciates having streamlined systems for managing properties, then you may want to consider partnering with a company that excels in this area.

If you are unfamiliar with the topic, distinguishing between good and bad companies can be challenging. Unfortunately, there are many more bad companies than good ones in the market.

If you know someone in the real estate management business, consider asking for their recommendation for a reliable property manager. I would advise against asking real estate agents for referrals unless the agent has owned rental properties or has clients and investors who do. The reality is that many real estate agents have never owned an investment property and may not have the necessary insight to provide a valuable referral.

In fact, it’s surprising how many real estate agents don’t even own their own homes; they rent instead. This situation can seem quite illogical, considering they sell houses for a living.

Now, let’s move on to the next point. Do you sell these properties as a package or individually? If you are considering selling them as a package, it’s essential to work with a real estate agent who has extensive experience in investment real estate. If the properties are primarily single-family homes, you need an agent who understands how to market these properties specifically to landlords and investors, not just to those looking to flip homes.

Selling To Investors

When selling a portfolio of properties, it’s important to remember that you are primarily selling to investors. The average person typically does not buy a portfolio of rental properties; they usually purchase just one property. While some may buy a single property as a rental investment, most individuals lack the financial resources and experience to acquire a whole portfolio.

Investors interested in buying an entire portfolio of rental properties are usually quite knowledgeable and have their financial calculations well-prepared. Therefore, it’s not uncommon to receive lowball offers from investors if your agent does not know how to price the properties correctly, market them to the appropriate audience (which consists of investors), or accurately assess their value.

Rental properties are valued based on the income they generate. If you’re working with an agent to list a portfolio of rental properties, you might come across listings with a capitalization rate, or “cap rate,” of around 6%. This means that, in an ideal scenario, you would earn a 6% return on your investment. However, you could also opt for a high-yield savings account, which currently offers over 5% interest. As an investor, you face a choice: manage a portfolio of rental properties, dealing with the various challenges and headaches that come with property management, or simply invest your money in a high-yield savings account and earn a stable return with less effort. Which option would you choose?

Headache or High Returns?

You’re probably considering taking the easy route by putting your money into a high-yield savings account. But let’s think about this for a moment. If your agent is trying to sell a portfolio of single-family residences at a six-cap rate, people are likely to think you’re unrealistic, and investors may laugh it off. You’ll receive low-ball offers because investors assess the value based on what makes sense to them, and managing single-family homes can be quite challenging.

I’ve managed properties before, both through property management companies and in-house. It’s important to recognize that managing single-family homes is not a passive investment by any means. While these properties can generate significant income, and property appreciation may be great depending on the location, the reality is that managing them can be a headache. An investor looking at these properties will evaluate the return on investment (ROI) to decide if it’s worth their time. Typically, they might expect an ROI of around 8% to 12%. If they’re not seeing that return, it won’t be appealing to them, so, consider that when pricing your properties.

Avoid setting an unrealistic price. If you’re serious about maximizing the returns from your single-family homes, you should sell them individually rather than as a package. To do that, it’s crucial to remove the tenants from the properties, regardless of whether they are on a lease, and carry out necessary repairs and upgrades—such as painting or replacing carpets. In today’s market, where inventory is very low in 2024, you need to find a way to get those tenants out so you can prepare the homes for sale.

I’m not sure how you’re going to approach this; that’s something for you to figure out. I’ve created other videos about evicting tenants from rental properties which you can check out. First, you need to get the property vacant. After that, make sure to spruce it up a little. You don’t have to do a lot, just a bit of improvement will suffice.

Selling The Property Individually

It’s important to sell the property individually. When you do, you’ll attract first-time homebuyers like Johnny and Susie, who are likely to pay much more than an investor like Steve down the street, who is primarily looking for a return on investment (ROI). So, consider this carefully. If you have a portfolio of rental properties, I believe it’s best to sell them off individually rather than as a package.

Selling them as a package is certainly more convenient. You can sell all the properties together to an investor who will take on all the associated headaches at once. If the investor offers a price you’re happy with, then go for it. Just keep in mind that selling to an investor usually means you’ll have to sell them at a discount. However, this route eliminates the hassles of managing multiple sales. On the other hand, if you choose to sell each property individually, it will require more time, money, and effort. But in most cases, this approach will yield you more money in the end than selling the entire portfolio at once.

Only you can determine what is worth more to you: taking the easy route or opting for the harder path to potentially earn more money.

Consider what your time is worth, and remember, only you can make that decision.

Agent or Investor

Regarding selling your properties, I mentioned the importance of working with a good agent or possibly reaching out to an investor. As an experienced investor myself, I’ve been in the real estate business for a long time. I have owned, bought, and sold rental properties, and I currently own several as well. At Probate Resource, we buy real estate, including portfolios and commercial properties.

It’s important to note that some individuals, known as wholesalers, will advertise that they will buy your properties. They may make offers that sound too good to be true and could end up wasting your time. When you mention that you have a whole package of rental properties to sell, they may show great interest, but be cautious.

People often think, “Oh, cool! I make $15,000 per deal wholesaling times 10 houses. That’s $150,000 in wholesaling fees! I can hang out at the beach, buy a new car, and enjoy life!” The reality is that many wholesalers end up blowing all their money on frivolous expenses. Two years later, they find themselves trading crypto or chasing the next big investment opportunity, ultimately pursuing money for the rest of their lives without becoming real, experienced investors.

If you’re dealing with these wholesalers, make sure you’re working with a reputable company. Many of them act as brokers without a license, trying to sell your deal at a 6% commission. When they pitch your deal to other investors, those investors might look at the numbers and laugh, thinking, “Why would I buy this property at a 6% cap rate when I could just invest my money in a high-yield savings account and earn nearly the same—with none of the headaches? No tenant phone calls, no roofs to replace, no toilets to fix—zero stress.” That’s something to keep in mind.

Consider Seller-Financing

Before I wrap up, I want to share one more strategy that’s quite advanced: consider seller financing for a portfolio. If you want to attract serious investors and sell a whole package at once, seller financing could expedite the deal. The investor won’t have to go through the lengthy process of securing financing, which is beneficial because most investors are buying with cash and refinancing immediately afterward—or sometimes on the day of closing. I do this too; I buy properties and quickly refinance with our private lenders. This gives us the speed and flexibility we need before transitioning to long-term institutional debt.

If you have an investor looking to secure long-term institutional debt right from the start, they will need to get appraisals done on all the properties involved and navigate the entire approval process to purchase a package of loans. While it’s easier to get approved for a commercial loan compared to a single-family residential property, the process can still be somewhat complex.

When you sell or finance a property, your estate can continue to receive cash flow from these assets over time, in addition to interest. This means you can benefit from ongoing cash flow and interest payments. It’s worth considering how this could work for you.

If you’re interested in learning more about the mechanics of this process, I would be happy to discuss it over the phone and provide some ideas.

A few months ago, a man reached out to me after watching one of our YouTube videos. He mentioned that he had inherited several rental properties from his father and wanted to understand how seller financing could be structured. I shared a few strategies with him and mentioned that he could consider different options. He was surprised and intrigued, saying he had never realized that was possible. I then connected him with my attorney in that area, advising him to call if he wanted to proceed. At that time, he didn’t seem interested in selling the portfolio to me; he simply wanted to explore financing options. However, I assured him that my attorney could take everything we discussed conceptually and draft a solid contract to ensure both he and any potential buyer would be protected.

Let’s Connect

If you’ve inherited a portfolio of rental properties and are interested in either selling the entire portfolio or selling the properties individually, we at Probate Resource are here to assist you.

I’m a real estate investor with extensive experience, and I would love to take a look at your portfolio and make you an offer. Alternatively, we can connect you with one of our local agents in your area. We have agents all over the U.S. who can help you list the properties on the market. Thank you for watching this video. Have a great day!