Woodbridge, VA · Member since 2016 · 45 posts · 6 votes
Is this a good deal or not?
Memphis, TN 39118
3:2 SFH
Built 1970s but full renovation to include roof, HVAC, floors and more costing about $35k in 2015.
Currently rented for $915. Market rent is around $950 to $995. Long tern tenant since 2016.
Listed for $95k
I Offered $78k
Countered at $82k today.
County website appraisal is $89k
Comps are from $69k to $100k
Rental income:
$915
Vacancy: $70
Cap ex: $70
Repairs:$70
Prop management: $75
Mortgage PiTI: $525 if accepted at $80k with 20% downpayment
Cash flow $100
Is this worth it?? First property btw
Rental Property Investor · Edmond, OK · Member since 2017 · 1k+ posts · 1k+ votes
7y
Overall it doesn't seem like a terrible deal from just the numbers assuming the rehab was done well and you don't have to do any work on it. The cashflow isn't spectacular, but if you are budgeting $210/month towards reserves and still coming out with $100/month cashflow it may work for you.
I don't know much about Memphis as a rental market, so definitely do your diligence there.
@Ricardo Navarro gave you some solid information on the Memphis area.
Investor · Cleveland, OH · Member since 2017 · 60 posts · 23 votes
7y
I try to aim for a 100 per door and a 10-12% Cash on cash return. is it worth it? just depends on how much time that 100$ is going to be spread out over if something needs your direct attention or if you think 100 is enough.
Woodbridge, VA · Member since 2016 · 45 posts · 6 votes
7y
@Ricardo Navarro not really sure right now if it’s worth it or not since this Is my first one. So with your criteria this would pass since it’s about $100 cash flow after all expenses right? The cash on cash here is a little low, 6% only, cause if closing costs and all. But cap rate is not that bad at about 9%. Did I miss anything in my calculation?
Investor · Cleveland, OH · Member since 2017 · 60 posts · 23 votes
7y
Its the rehab that concerns me. at 82k with 35k in repairs (assuming thats all there is) puts you at 117 not factoring closing costs and anything else you may come across. if you're gonna sit on it for some time, it will matter less but I'd run this through the BP calculators to get some long term numbers as well.
a couple of other considerations. The population growth in Memphis has been pretty stagnant over that 6-7 years. Its up .01% since 2010. I'd typically like to see growth of 3-6% (the national average) to feel good about the future. Also the average income in Memphis is a lower than I'd like to see. Actually it depends on which stat you like to use, (per capita or per household). If you use the per household average, then you shouldn't have any problem with finding a qualified renter should the one you have leave. But if the per capita rate stands to be more accurate, then you may struggle meet the $950 to $995 rents. If the market is sustaining that rent then maybe it won't matter but its something to consider in a worst case scenario. I'd look at all that in addition to the cashflow.
What are the comps for the area? You might consider doing it as a flip if the numbers make sense. That way you can get all your money back and some profit and then go into the next deal with some better margins.
Rental Property Investor · Edmond, OK · Member since 2017 · 1k+ posts · 1k+ votes
7y
Overall it doesn't seem like a terrible deal from just the numbers assuming the rehab was done well and you don't have to do any work on it. The cashflow isn't spectacular, but if you are budgeting $210/month towards reserves and still coming out with $100/month cashflow it may work for you.
I don't know much about Memphis as a rental market, so definitely do your diligence there.
@Ricardo Navarro gave you some solid information on the Memphis area.
I ran these numbers through our calculator and the numbers are pretty thin... I would definitely take that into consideration especially if there is only a $100 cash flow with 20% down payment!
Woodbridge, VA · Member since 2016 · 45 posts · 6 votes
7y
@Subbie Kaur yes that’s how I feel too. What’s making me think twice is the fact that it was fully renovated in 2015 so my cap ex shouldn’t be too much. The big things were already replaced like the roof, hvac and electric/plumbing. The downside is that it’s only $100 cash flow. Can’t seem to make up my mind on it, being its my first property too, maybe it’s not a bad idea just to learn more.
@Jack B. Yes I agree. But isn’t this the numbers with Turnkeys too anyway? I feel like I’m buying a TK but for cheaper
You really have to be careful about judging an investment purely by a percentage return. 7.5% may seem great, but $1,200 a year is what it is, not counting PPD. I make 10-12K a year from rents a year per rental. I also make anywhere from 30-100K a year in appreciation per rental. Yet my % of return on paper is lower than yours factoring only rents. But again, while my % is lower, I'm making 12 times what you would from this deal, with only a little bit more, maybe 3-5 times more down payment. I'm also making my DP back in a year or two from appreciation alone.
Woodbridge, VA · Member since 2016 · 45 posts · 6 votes
7y
@Jack B. I totally agree and will definitely consider that when looking to buy this. I was also thinking about what you said and say I put in 4 times more than what I am putting in a DP, I would also be netting about 8 to 9k a year in profit. So it’s almost the same, just in a smaller scale cause I don’t have the money to buy it cash yet.
got it! I read your post as if the renovations weren't completed. That is a plus for sure if the roof, electrical/ plumbing were replaced. Considering that you won't be able to see much of the rent increase because the rents are already close to market rent..... Just familiarize yourself with the market and the potential of it, and then decide. A $100.00 cash flow can be a big risk because you may or not have other expenses along the way.