3) This report teaches you all about selling your portfolio via a "Business Broker" and how business brokers can advertise residential property portfolios for sale - - - - -
Residential Property Portfolios for sale
Business brokers will advertise residential property portfolios for sale as a part and parcel of their normal business. So you may be wondering if it’s possible for you to sell your ENTIRE property portfolio via a business broker?
We'll examine this question in depth in the detailed report below - where you’ll also learn:
5 minute read
Can a business broker sell your entire property portfolio?
You may be thinking that business brokers only sell commercial asset types such as office blocks, factories, warehouses, shops, public houses, hotels etc.
However it's quite normal that business brokers will also advertise residential property portfolios for sale. That's because a portfolio of houses is a commercial entity in its own right - with the ability to generate income - just like any other commercial business.
And it probably won't be so easy for you to sell your portfolio as individual houses anymore to owner occupiers. Not without a lot of hard work splitting the portfolio up and selling each property individually.
There are many business broker companies who sell established property businesses including property portfolios. The good news is that they can all be found online via their comprehensive websites.
The role of a business broker
Business brokers are skilled professionals who are there to help people buy and sell businesses. Because your property portfolio generates an income (from rent) you can think of it as a "business" and not just a collection of houses anymore.
You've possibly worked with local estate agents in the past when buying or selling a residential property. So you can think of a business broker as an "estate agent for businesses" rather than for homes.
Selling a property portfolio business is a far more complicated transaction than selling a single residential property - because "money" is the key driver rather than "emotion".
Potential buyers will almost certainly buy a business based on "Return On Investment" (ROI). Ie how much interest do I get for my money?
And potential buyers will also be looking at "Capital Appreciation" ie what's the likelihood of property prices increasing over the period of time they own the investment.
Return on investment (ROI) example
Say you buy a property portfolio for £1 million. And say that portfolio pays you £50K a year profit a year before any taxes. That represents a 5% return on investment because £50K is 5% of £1 million.
To think of it another way. If you put £1 Million into the bank and the interest rate was 5% - then you'd get £50K a year interest.
Capital appreciation example
Capital appreciation of your property business is another factor that any potential buyer will look at. You can think of capital appreciation as simply how much property prices increase over time.
So say you had a portfolio that cost £1 Million to buy. Then 10 years later you sold it for £1.8 Million - you'd have made an £800K profit before any taxes.
Portfolio 1 // Durham
Portfolio 2 // London
The 2 portfolio examples above are rather simplistic and are merely meant to illustrate the differences between "Return On Investment" and "Capital Appreciation."
The perfect scenario is a strong combination of both.
Any potential buyer will be looking at the potential for "Return On Investment Income" and "Capital Appreciation Income" in order to evaluate whether your portfolio represents a good investment opportunity for them - or not.
And the results will be bench-marked against other property portfolios and indeed any other type of investment - to help the buyer decide whether to purchase or not.
How much is my property portfolio worth?
Business brokers will estimate the value of your property portfolio as a “business” and look for buyers on your behalf. This will involve advertising your portfolio on their company website which will already have a great deal of traffic – so lots of potential buyers.
And they’ll probably have routes to selling that you haven’t even thought of – such as selling to pension providers and other big property buying companies.
Once potential buyers come forward, they will sound out these potential buyers to ensure proper due diligence on their ability to purchase (be that cash in the bank or routes to finance).
And then they'll conduct viewings on your behalf with potential buyers.
You'll need the best finance professionals, accountants, solicitors etc. So your broker will be able to put you in front of all the contacts you'll need.
And whilst your business broker is doing all of the above activities to "sell your property portfolio business" that leaves you free to concentrate on actually running your business. And leave the selling part to the experts.
Costs of selling via a business broker
We've looked at what exactly a business broker does and how they can facilitate the sale of your property business. So we should now take a look at how much all of that service is likely to cost you.
It's impossible to give an accurate figure here as it will be on a case-by-case basis.
However as a ball park figure you'll be looking at around 10% of the actual sale price as the business broker's commission.
Which is a lot of money when you consider that the average property portfolio will have financing (mortgages) to pay off. So not all the proceeds of the sale price are profit - as lenders are paid back their money.
And you'll have to pay for all of the business professionals such as solicitors, accountants etc.
And the tax man will undoubtedly want their share of any profits.
How to select your business broker
As with everything else in life, you'll need to do some research to select which business broker you want to work with. You'll be looking for a broker who has successfully advertised residential property portfolios for sale for other people and can demonstrate (and prove) success.
And like any profession, there are good brokers and "not so good" brokers. So here's some guidelines to follow:
Talk to at least 4 brokers and ask each of them the same 10 questions below about selling your property portfolio:
- Have you had any residential property portfolios for sale for other clients recently?
- Did it result in a sale? And at a price the owner was happy with?
- Am I able to speak to any of your past clients about their experiences?
- What marketing will you do for me?
- Which details of the sale will you handle?
- Which bits won't you handle?
- What do you think will happen with my portfolio sale? And what makes you think this?
- How much will you charge me for a successful sale?
- Will you charge me if it doesn't sell?
- How long have you been a business broker for?
Advantages of using a business broker
- Business Brokers understand selling residential property portfolios and are experienced at selling businesses - day in, day out.
- They can help you to value your business and balance the need for a fast sale with achieving the best possible price.
- Business brokers have all the professional contacts you'll need to make your sale run smoothly eg solicitors, accountants, brokers etc.
- They may already have the perfect buyer for you on their books. To get your sale completed quickly.
- They can handle enquiries and conduct viewings etc.
- You can leave it to them - and just get on with your life.
Disadvantages of using a business broker
- You may need to do a lot of research to find a broker who understands residential property portfolio sales sufficiently.
- Business brokers will put their efforts into businesses that sell quickly and makes them the most profit. So unless yours sells quickly - they may become disinterested.
- In theory a business broker will run everything to do with your sale. But in reality you'll have to keep an eye on them to ensure they're doing a good job.
- Selling via a business broker won't work for lots of portfolios where there just isn't enough profit after all costs (paying back mortgages etc) to pay their fees.
- And this certainly won't work for any portfolios that are in negative equity - so no profit. Even if the portfolio generates good cashflow (so is highly attractive).
- Selling fees may well be EYE-WATERING
Conclusion - Residential Property Portfolios For Sale
You should definitely look at business brokers when you decide to sell your buy to let property portfolio. Business brokers should already be experienced at selling residential property portfolios – so can handle the entire process for you.
However do your due diligence and talk to several brokers and don’t just go with the first one you talk to.
They'll all tell you how wonderful they are! So ask them to prove this by showing you evidence of past sales. And ask if you can talk to former clients.
Selling via a business broker WON'T BE CHEAP. Their service will come at a premium price and based on a % of sale price. We'd suggest around 10% of sale price, but please do your own research.
So this won't be feasible for all but very profitable portfolios that aren't heavily financed. Because this finance has to be repaid as part of any sale.
And any portfolios in negative equity - and there's hundreds of portfolios in negative equity - won't qualify as there just isn't the profit to pay for the service.
Phil Calladine - portfolio consultant