Sell rental to an investor group?

[MyCircus, MyMonkeys]

Hello,
I'm very new to the forum, but am taking everyone's advice (from my case study in the ask a mustachian subforum) to sell my rental house ASAP.  I'm hoping for some advice regarding how to sell.

The rental (a single family home located in Security, Colorado) is currently tenant-occupied, through August 2016.  It looks like it would be easiest to sell to an investor, and save the real estate fees (currently estimating a total of $13,500 in fees related to selling:  6% for realtors, 3% for closing, 1% for repairs/concessions). 

Assuming I sell at $135k, if I sell through a realtor, I would net $12k (before taxes; no idea what that is after taxes).  Assuming I sell to an investor, I'm hoping I would get an offer at $120k; which would still net $9k (before taxes). 

Question #1:  What are realistic offers I can expect from investors?  I remember calling a random investor about four years ago; and he said he wouldn't spend more than $110k (at the time).   I've put in contact requests to 7 different companies; 4 national and 3 local. 

Questions #2:  Is selling to an investor a good idea?  I'm leaning towards it because the property is tenant-occupied.  If I didn't have a tenant for the next two years, I would consider selling on the market, as I think it would do well (as in, I think $135k is pretty reasonable, from the condition of houses I've seen online).

No matter what, getting between $9k-$12k would drastically improve my situation.  I can pay off that amount in credit cards, which is about half what we owe; also, I wouldn't be losing an additional $200-$300 per month. 

Market Value: $135,000 (mu current estimate, based on recent sales)
Original Purchase price: $141,800 (in 2007)
Original Mortgage Amount: $131,000 (refi'ed into a 15 yr in 12/2011)
Interest Rate: 3.75
Mortgage Term: 15 years
Term remaining: 13
Amount remaining on mortgage:$111,000
Gross Rents: $895
Principal and Interest (the P&I of your PITI - should match with the above info): $936.50
Taxes and Insurance (the T&I of your PITI): $122.92
HOA costs: $0.00
Deferred maintenance notes: will need siding or painting within next 3-5 years, rough estimate of $5,000
Anything else special or unique in regards to the numbers of the property (not the property itself; things such as city assessments, back taxes, special costs due to unique features of the property, etc. etc.): Currently rented through August 2016; located in Security, Colorado (south Colorado springs) close to military bases, so always rents quickly.

Thanks so much for any insight!

[waltworks]

You are going to have to find a serious sucker of an investor to buy it for anything approaching your $120k. I'd expect most will offer $60-80k, tops, unless you are charging way below market rent.

If you really want to be done with it, you may want to just pay your tenants to leave and put it on the open market.

FWIW, assuming you haven't lived in the property for 2 out of the last 5 years, you will pay 15% capital gains on any profits (so,  if you bought for $100k, sold for net $120k, you'd pay $3k in taxes). Any depreciation you claimed in previous years will also be recaptured.

-W

[Another Reader]

Making guesstimates could cost you a lot of money.  Talk to a couple of real estate agents in that neighborhood, preferably ones that have experience selling rentals.  Once you have a feel for what the property would really bring, you can make a better decision.

My guess is you will maximize your net proceeds by listing the property and selling to a local investor that takes a long term view and is less interested in a bottom feeder price.  The house buyer groups are going to low ball you, and I'm pretty sure you will do better on the open market.

[Darrell]

I agree that making assumptions about the value could cost you a lot of money! If I was in your position in addition to talking to some of the local investors directly I would also talk with a couple of local real estate agents to get a good feel for what it could realistically sell for on the market to a traditional buyer. I would also talk with the current renters to see if they would be willing to terminate the lease early if they were financially compensated. If they are willing to terminate the lease early that could give you the ability to market the home with them in place with the understanding that if interested buyers do not want it as a rental the renters are willing to move. It would also give the home more value to direct investors as it would give them more options. Situations like this work best if the renters have enough incentive that they would be happy to move on. Otherwise they can make the showings difficult by refusing to approve showings and by leaving the place a mess when it is being shown. The metro Denver area has very low inventory in that price range so it is not much of a deterrent for many buyers if the seller needs time to give the renters the agreed upon notice to move. I don't know what the market is like in your area so you would obviously need to get the opinion of some local agents. If you are on a very tight schedule to get it sold then selling directly to an investor might be your only option. If you are in that situation you will usually get less for the home, but a quick close has some value when it is needed.

[iamlindoro]

You are going to have to find a serious sucker of an investor to buy it for anything approaching your $120k. I'd expect most will offer $60-80k, tops, unless you are charging way below market rent.

+1.  If your numbers are even close to correct, investors are the last people who would want this place.

[Fishingmn]

Agree with the others - you maximize your sale price by exposing it to more potential buyers on MLS vs. an investor who is going to want to purchase for as little as possible. The advice on dealing with your tenant is good.

One way you can save money - shop around for a less expensive Realtor. Not all charge 6% - I have a plan that sells homes for just 4.7% full service. You could also go with a low service Realtor who would probably be even less. In MN closing charges for a seller are much less than 3% so that is probably high too. I'd say more like 1% here.

[Nords]

Nessie, a friend of mine lives near Colorado Springs and is sending you an e-mail through the site.  You might have to check your spam folder.

They're an experienced landlord so they're happy to buy a property which already has tenants... but they're also a value shopper.

[MyCircus, MyMonkeys]

Thanks everybody for all the replies.  As usual, you all are correct.  Most of the investors are telling me a range from $80k-$99k; which is woefully short of my goal to reduce credit card debt.  Sadly, there is no "get out of jail for free" card in real life.

Fishingmn, I didn't realize there were differences in fee structure.  I'm making lots of assumptions that will cost me more than I need to pay.  When the time comes, I will definitely shop around.

Nords, I've been emailing with your friend, and he has been very helpful.  I don't have any problems with the tenants, and maybe the best cost savings will be to cancel with our management company.  That would change the out of pocket loss from approximately $150 per month to $50 per month.  I know that calculation doesn't include holding costs, interest, taxes, repairs, etc.

I've  decided to keep the house for the next 1.5 years.  At that time, we will re-evaluate as I hope many things will change (as in, no more credit card debt bleeding me dry!).   

[Nords]

Nords, I've been emailing with your friend, and he has been very helpful.  I don't have any problems with the tenants, and maybe the best cost savings will be to cancel with our management company.  That would change the out of pocket loss from approximately $150 per month to $50 per month.  I know that calculation doesn't include holding costs, interest, taxes, repairs, etc.

I've  decided to keep the house for the next 1.5 years.  At that time, we will re-evaluate as I hope many things will change (as in, no more credit card debt bleeding me dry!).

Glad to help.  It's a tough situation with limited upside and lots of downside...