SS90: Why We Sold a Portfolio of Small Multifamily Properties

SS90: Why We Sold a Portfolio of Small Multifamily Properties

Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing why we sold the portfolio of small multi-family properties.

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Talking Points:

  • We recently sold a portfolio of small multifamily properties that we started purchasing in 2006. These properties were located in Central Connecticut and over the years we had performed a number of renovations and updates. In 2012, I moved to Florida and since then they have been managed by a professional 3rd party property manager.
  • We had fixed-rate debt on these properties and the first manager we hired was very good. They were able to maintain the properties and manage the tenants with minimal issues. The properties were semi-passive investments for us.
  • Over the years, a recurring issue we had however was that we did not have contacts with good contractors or handymen in this area anymore. A good one we had moved to Florida and that made it a hassle when we had a project that was too large for our manager and his team to handle. It would take hours of time trying to find a contractor or handyman to perform certain jobs. The other problem was that most jobs were one-off; there was no value in doing a one-off job for an out-of-state investor whom they might not work again.
  • The second issue was that our manager announced at the end of last year that he was retiring. We decided to hire a new manager and list the properties for sale.
  • The decision to sell was mainly based on the premise that we were never going to move back to this area and if we kept the properties, we would need to rebuild our list of contractors and handymen; much more difficult from afar and our new manager turned out to require a lot more hand-holding than our last manager. Every time a tenant reached out with any type of issue; they asked us what we wanted to do. The manager also had very expensive contractors that would be called when there was an issue; a plumber that cost $250 an hour.
  • The third issue was that there were no economies of scale. Enough units to get a slight deal on management but no real economies of scale. We couldn’t hire a full-time or part-time handyman to reduce costs so we had to rely on the manager’s handyman and contractors.
  • The fourth issue was that the city these were located in, in Connecticut was consistently losing population; year after year. It was a slight decline but it was still a decline. Connecticut as a whole over the past 10 years has also been declining in population; not really the place you want to be buying rentals in.
  • We were willing to hold the properties we owned there if they continued to operate smoothly but were not willing to purchase additional units. Once it became more time-consuming to manage the units; we decided to sell them and focus more on our syndication business and buying properties in the Southeast US; in landlord-friendly states that were growing.
  • If we didn’t sell; it would have required us to find new management and change. Find new handymen and contractors for future projects and most likely require multiple trips to meet and vet them. If the market was better in Connecticut and Connecticut was more landlord-friendly, we probably would have done this along with purchasing more units but that was not the case.
  • Selling the properties also allowed us to capture our equity and reinvest into less time-consuming assets in growing areas of the country.
  • Let me know in the comments if you have ever been in a similar situation and what you did.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing why we sold the portfolio of small multi-family properties. Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals. Couldn’t get the funding and didn’t want tenants calling you since 2006. I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase, check out and invest with harborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at an invest with harborside.com, that’s invest with harborside.com. We recently sold the portfolio of small multifamily properties that we started purchasing in 2006.

Charles:
Now these properties were located in central Connecticut. In over the years, we performed a number of renovations and updates on them. However, in 2012, I moved to Florida and since then they have been managed by a professional third party property managers. We had fixed rate debt on the properties and our first manager we hired was very good. They were able to maintain the properties and manage tenants with minimal issues. The properties for us were semi passive investments. Over the years of recurring issue we had was that we did not have contacts, the good contractors or handyman in this area anymore. A good one. We had moved to Florida and that made it a hassle. When we had a project that was too large for our manager and his team to handle, it would take hours of trying to find a contractor or handyman to perform certain jobs.

Charles:
The other problem was that most jobs were one off. So there’s no value for a contractor or handyman to do a one off job for an outstate investor that they might not even work for again. And the second issue was that our manager announced at the end of last year that he was retiring. So we decided to hire a new manager, enlist the properties for sale. Now, the decision to sell was mainly based around the premise that we were never gonna move back to this area again. And if we kept the properties, we would need to rebuild our list of contractors in handyman, much more difficult from afar. And our new manager turned out to require a lot more handholding than our last one. You know, every time a tenant reached out with any type of problem, they would reach back out to us and asked us what we wanted to do.

Charles:
The manager also had very expensive contractors that would be called in when there was an issue like a plumber that cost $250 an hour. The third issue was that there was no economies to scale enough units to get a slight deal on management, but we didn’t really have any real economy to scale. We couldn’t hire a full-time part-time handyman to reduce costs. We had to rely on the managers, handyman and contractors for the most part. The fourth issue was that the city that they were located in Connecticut was consistently losing population year after year. It was a slight decline, but it was still a decline and Connecticut as a whole over the past 10 years has been declining in population. So it’s really not the place that you wanna be buying rentals in because there’s no job growth. There’s no population growth. Now we were willing to hold the properties we own there if they continue to operate smoothly, but not willing to purchase additional units, which means we would never get those economies a scale.

Charles:
Now, once it became more time consuming than men’s units, we already had, we decided to sell ’em and focus more on our syndication business and buying properties in the Southeast United States in landlord friendly states that were actually growing. Now, if we didn’t sell it, it would have required us to find new management and change, which is a hassle, and then find new handymen and contractors for future problems and projects, and most likely require multiple trips to meet and vet them. If the market was better in Connecticut and Connecticut was a more landlord friendly state, we probably wouldn’t have done this and along with purchasing more units, but that was not the case. You know, selling the properties also allowed us to capture our equity and reinvest into less time consuming assets in growing areas of the country. So let me know in the comments, if you’ve ever had a similar situation where you could buy, you could sell or you could just hold on in what you did. So thank you for listening. Please remember rate, review, subscribe, submit comments, and potential show topics. Global podcast look,

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Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

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