Potential Memphis BRRRR Deal Thoughts?

Question

Hi Everyone,

Looking for feedback on this deal analysis. Property is listed on the MLS for $90,000; Will be using hard money for this deal where the rate is 12% and 2 points. Potential rent is $850 (based on rentometer info). I have the following questions:

1. Do you think that the hard money money rate is average in the area?

2.  I have over $30,000 invested in the deal after I refinance, is there any relation to to the total project cost and the ARV

3. Suggestions on how to make this a good deal

All feedback is welcome :) Thanks !

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*This link comes directly from our calculators,                  based on information input by the member who posted.

Sean Tagge · Answer

@Keleisha Carter ok now knowing its in 38118 your ARV is probably going to be $85-100k tops. Ya its a decent neighborhood we do a lot of turnkey houses there. I wold rate it a C+ to B- B area depending on where you are at on the zip code it's a big zip code area the farther east the better.

Keleisha Carter · Answer

@Aaron Montague Thanks Aaron, my agent sends me off market deal as well. We try to analyze those. At the moment I am trying to practice as much as I can analyzing deals

Aaron Montague · Answer

@Keleisha Carter

Short answer: buy it for 30k cash, fix it, then flip it.

This deal is terrible as laid out.  You are going to lose BIG money if you buy at the numbers you presented. Hard money is going to chew up your cash reserves.

The MLS is neither a good nor a bad place to find leads, it is simply another source among many.  Don't discount it or rely on it too heavily.

How to make this deal not suck:

Rework your numbers for more accuracy. Property management should be at least 10%.

Cap Ex + Repairs needs to be at least $200/month except for the smallest of brand new single family homes.  Everything breaks eventually, start saving now.

If this place really needs 35k in repairs, I'd offer 30k cash and let it sit.  There is a back of the napkin formula in flipping that is essentially (purchase + repairs) < 70% of ARV. You could probably buy at 38-45k and still make some money on a flip if your ARV number is accurate.

Allan Smith · Answer

Best way to make a good deal is to find one. I would skip this one and go find a good deal that's not on the MLS or if it is has a big value add opportunity. That’s not a good deal for Memphis.

Keleisha Carter · Answer

@Sean Tagge So it is in Parkway Village 38118, from my research it is a good neighborhood. I came up with the rehab cost by multiplying $20 p/sqft just to get an estimate of the rehab cost.

Trying to figure out as well the financing option for exit strategy from hard money.

Keleisha Carter · Answer

Thanks @Allan Smith I realized.

Sean Tagge · Answer

Is it in good condition as is right now or does it need repairs? What is your renovation estimate? that would tell me a lot more.

Do you have permanent financing lined up? You are not going to want to leave the hard money in placed for longer than 3-6 months what is your plan to get it to a 30 year fixed 3-5% interest rate?

What do you think it is worth all fixed up? ARV?

What is the address and I can really tell you if it is a good deal or not. But from what I initially see probably not a great deal.

Potential Memphis BRRRR Deal Thoughts?

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