A second set of eyes on a duplex in Memphis

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A second set of eyes on a duplex in Memphis

Ben Roberts
Rental Property Investor · Memphis, TN · Member since 2015 · 203 posts · 135 votes

I am considering a duplex in Memphis, this would be my first flip/buy and hold. Would someone mind taking a quick look and offering their opinion on the deal?

The property is $89k, the repair estimate is $12k. The expected ARV is $140k. Ideally, I would fix it, get it rented out, and then flip it. The worst case scenario is me buying it, fixing it, and holding it as a rental. I have some cash to put in the deal from my HELOC and I already have 1 hard money lender ready to finance the purchase, but his interest rate, 11%, makes the absolute worst case scenario a little thin. My cashflow would be about $90/mo. I've already reached out to a few different lenders and will continue to over the next couple of days.

Just a gut check, do these numbers seem reasonable? Does this seem like a good deal to anyone else?

Thanks in advance for your help/opinion/advice.

Ben 

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Ryan BlakePro Member
Lender · TX · Member since 2018 · 936 posts · 713 votes
6y

@Ben Roberts if your numbers are all accurate as far as rents, repairs and ARV are concerned, I think it could be a good deal. What you need to look at is if you end up holding it, how quick could you get a rate and term refi to put you on a 30 year note with about half as much interest. @Dennis M.'s comment of not liking the $90/month is because that is a very thin margin but if you are cash following almost $100 at an 11% interest only payment, you are going to be golden when you get that on a 30 year amortized payment schedule. Just make sure you have that opportunity to refinance before committing. This property is ripe for BRRRR.

[email protected]214-420-7324
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  • James Martin
    Property Management · Memphis, TN · Member since 2009 · 667 posts · 362 votes
    6y

    Do you mind sharing the property zip code?

    0Reply
  • Derrick Craig
    Memphis, TN · Member since 2013 · 969 posts · 524 votes
    6y

    Address would help a lot?

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    6y

    Cash flow at 90$ ?..... no 

    2Reply
  • Ryan BlakePro Member
    Lender · TX · Member since 2018 · 936 posts · 713 votes
    6y

    @Ben Roberts if your numbers are all accurate as far as rents, repairs and ARV are concerned, I think it could be a good deal. What you need to look at is if you end up holding it, how quick could you get a rate and term refi to put you on a 30 year note with about half as much interest. @Dennis M.'s comment of not liking the $90/month is because that is a very thin margin but if you are cash following almost $100 at an 11% interest only payment, you are going to be golden when you get that on a 30 year amortized payment schedule. Just make sure you have that opportunity to refinance before committing. This property is ripe for BRRRR.

    [email protected]214-420-7324
    4Reply
  • Ben Roberts
    OP
    Rental Property Investor · Memphis, TN · Member since 2015 · 203 posts · 135 votes
    6y

    @James Martin 38115

    0Reply
  • Ben Roberts
    OP
    Rental Property Investor · Memphis, TN · Member since 2015 · 203 posts · 135 votes
    6y

    @Derrick Craig

    5718 Myers

    Memphis TN 38115

    0Reply
  • Ben Roberts
    OP
    Rental Property Investor · Memphis, TN · Member since 2015 · 203 posts · 135 votes
    6y

    @Dennis M.

    That would be absolute worst case. I don’t believe it’s very likely but I am trying to run through every possible scenario.

    0Reply
  • Ben Roberts
    OP
    Rental Property Investor · Memphis, TN · Member since 2015 · 203 posts · 135 votes
    6y

    @Ryan Blake

    Yes, the property would cash flow like crazy, even after mgmt, repairs, capex, Vacancy, AFTER refinancing. I am moderately worried that my ARV is off meaning I may not be able to refinance.

    Is that a reasonable concern?

    It's a duplex with few comps, so ARV of $140 is based on avg sales price per sq ft. I had a realtor tell me that the property is worth $125k in its current state but that feels a bit high. I should probably reach out to a few local folks for a second opinion on the ARV.

    0Reply
  • Ryan BlakePro Member
    Lender · TX · Member since 2018 · 936 posts · 713 votes
    6y

    @Ben Roberts You should be able to get a refi even if the ARV is lower. I am not sure of the guidelines in TN but in Texas rate and term refinances are available up to 85% of the value of the property (1 - 4 units). All that being said, if your loan (purchase + repairs) are $101k then you should be able to refi with a value of $118,823 or higher. Just note that if you refinance at a higher LTV than 80% you will have PMI which will add to your monthly payment until you get it to the 80% LTV from payments. Just start speaking with a local lender and they will be able to give you all the rules and regulations they have around a rate and term refi. If you want to do a cash out refinance you will have seasoning period that may force you to keep it in hard money for 6 months, 12 months, or maybe even longer.

    [email protected]214-420-7324
    1Reply
  • Ola Dantis
    Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
    6y

    @Ben Roberts 

    First, I think you need to flip your scenarios around, lol.

    BEST CASE SCENARIO: You buying it, fixing it, and holding it as a rental.

    Remember, holding is how you build long term wealth in REI.

    🤗🤗🤗

    As for the HML, you can always BRRRR the deal after some seasoning.

    2Reply
  • Ben Roberts
    OP
    Rental Property Investor · Memphis, TN · Member since 2015 · 203 posts · 135 votes
    6y

    @Ola Dantis

    In this case, I'm using a HELOC to help fund the deal and I want to pay the HELOC back. So, from my perspective, a buy and hold with the worst case financing, pays the HELOC back over the course of 20yrs and leaves me $90/mo. That leaves me exposed to credit risk. I'd MUCH rather sell the asset, pay back the HELOC, put a few grand in my pocket and look for the next deal.

    1Reply
  • Ben Roberts
    OP
    Rental Property Investor · Memphis, TN · Member since 2015 · 203 posts · 135 votes
    6y

    @Ryan Blake

    Thanks. That all makes sense. I think my best case scenario is buying, repairing, renting, and then selling.

    $140k for a rehabbed property renting for $1,800 seems like a pretty solid deal for another investor. It's $140k ARV that has me nervous.

    0Reply
  • Ryan BlakePro Member
    Lender · TX · Member since 2018 · 936 posts · 713 votes
    6y

    @Ben Roberts That is something I can't really speak to not know the Memphis area. Hopefully @James Martin and @Derrick Craig can help more with a look at the area vs the ARV you are looking at.

    [email protected]214-420-7324
    1Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Ben Roberts:

    @Ryan Blake

    Thanks. That all makes sense. I think my best case scenario is buying, repairing, renting, and then selling.

    $140k for a rehabbed property renting for $1,800 seems like a pretty solid deal for another investor. It's $140k ARV that has me nervous.

    $140k does look a little aggressive. i've briefly checked the comps and this was the highest property sold in the last 2 years in that particular area (everything else was sub $100k):

    https://www.redfin.com/TN/Memp...

    However. Even if your arv is $120k or so. 75% cash out, will have you a little over than $10k in the property. you should make that back with that kind of cash flow (if your rents are correct) in no time.

    1Reply
  • James Martin
    Property Management · Memphis, TN · Member since 2009 · 667 posts · 362 votes
    6y
    Originally posted by @Ben Roberts:

    @James Martin 38115

    I really don’t like that area especially at that price point. 

    1Reply
  • Ben Roberts
    OP
    Rental Property Investor · Memphis, TN · Member since 2015 · 203 posts · 135 votes
    6y

    @James Martin Can you tell me a little more about why?  This house is just a few blocks south of Winchester, between Ridgeway/Hickory Hill and Mendenhall.  From what I understand it's a pretty solid rental neighborhood.  Looking at other rentals within a few blocks, I think $850-900 per unit is a fair price. Especially once we do a little updating.  

    0Reply
  • Derrick Craig
    Memphis, TN · Member since 2013 · 969 posts · 524 votes
    6y

    @Ben Roberts

    The area where this duplex is located is really rough, lots of gangs and break ins abandoned properties. I owned a property in the area on Winter tree Drive it was very hard to keep a tenant in the property. The property is definitely over priced if you are buying it for $89k and it needs $12k of work??? Also I am sorry to inform you that property will not appraise for $140k ARV EVER!! Nothing in the area has sold for that amount from what I can tell.

    1Reply
  • Ben Roberts
    OP
    Rental Property Investor · Memphis, TN · Member since 2015 · 203 posts · 135 votes
    6y

    @Derrick Craig, Thanks.  I'll go take another look at everything.  

    0Reply
  • Raymond Mathews
    Real Estate Agent · Houston, TX · Member since 2019 · 11 posts · 2 votes
    6y

    @Ben Roberts sounds like a good deal to me.

    1Reply
  • Nathan Hall
    Rental Property Investor · Martinsburg, WV · Member since 2017 · 111 posts · 81 votes
    6y

    @Ben Roberts if it's a deal I'd imagine the refi would pay back the HELOC as well as the HML, right? In any case I agree with the original poster, buy and hold is the way to go with this property. I don't know your living situation or anything but duplexes are prime for house-hacking as well.

    1Reply
  • Robert D DismukesPro Member
    Flipper/Rehabber · Memphis, TN · Member since 2019 · 37 posts · 36 votes
    6y

    @Ben Roberts $90 a month isn't a lot for such a huge risk . So the 11% from your HML sounds in line , especially if it's your first dealings with that particular lender. I know there's some fees involved as well. Don't forget that , probably a couple grand . You could get some fat shaved off that on your next dealings with them . But in all seriousness, HML's are not an ideal source of funding your deal if it's going to be a hold . A quick fix and flip , Unless you've done the groundwork for a refi maybe . But then you'll get into holding limits . Have you done the estimate for repairs yourself or did you have a contractor do it ? Would like to see the unit. This is my stomping grounds !

    1Reply
  • Robert D DismukesPro Member
    Flipper/Rehabber · Memphis, TN · Member since 2019 · 37 posts · 36 votes
    6y

    @Ben Roberts I just looked that up. Sorry but don't do it and expect that kind of return . Ain't nothing worth $140k in hickory hill anymore. Hell , I don't think the malls worth that anymore . Good luck

    2Reply
  • Joel Brown
    Investor · Grangeville, ID · Member since 2017 · 85 posts · 34 votes
    6y

    I have a place about 2 miles north of there in Colonial acres. It’s a little nicer neighborhood, less gangs but I’ve been trying to sell it for a couple of months with no luck. I’d be surprised if the arv of the duplex you are looking at is close to $140k. Nothing in that area duplex or not is selling for that much. You need to get it cheaper and make sure you have property management that will manage it in the neighborhood.

    2Reply
  • Robert Leonard
    Rental Property Investor · Greater Boston Area · Member since 2018 · 258 posts · 105 votes
    6y

    I know a lot of people have been investing in Memphis lately, but I don't personally like the Memphis area for a long-term buy-and-hold rental property. I'm sure there are good and bad neighborhoods, as there are in any city, but the overall city demographics have kept me away so far. I think there are better markets with better deals available, personally. 

    Robert Leonard

    0Reply
  • Dean HarrisBusiness Member
    Real Estate Agent · Memphis, TN · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    @Ben Roberts

    There aren't many duplexes in 38115 that are going to be valued at $140,000. In fact, unless you are in Midtown, there likely aren't very many duplexes at all in Memphis valued at $140,000. 

    CrestCore Realty4.713 Reviews
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    3Reply
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