All Forum Posts by: John Dirks

Hi @Becca F.. Great post/rant. Alot of great responses as well. I also have found after being in the RE world for a bit, it's not all roses, champagne, and unicorns. We have 3 Memphis properties and one Bay Area. All SFH. Stress, theft, bad tenants, repairs, acts of nature, and people who dont know how to take care of a house happen.

You are correct at the point of taking a LOT of houses to over take W2 job. That is what I have found as well. Sounds like you also found out the higher the class area, the less the issues. But lower cashflow. Generally higher equity growth tho. 

Very awesome on the multi unit. Hearing more about this would be great. It is something I plan on getting into. 1031 from SFH into multi seems to be the most promising way as long as the class is not to low.

We were in the same position last year. We opted to keep our primary to rent. Mainly as if we sold we would walk with almost nothing due to a heloc and fees. And our rate is pretty much unbeatable. Much like yours is now.

With that being said, we learned some things along the way and there are factors you need to consider before making the final call. 

Make sure you can qualify for your new mortgage (assuming you are getting one) with keeping the old house. Only 75% of projected rental income can be used for DTI calculation.

You may not get the $2,000 rent as expected so be prepared if its lower in reality. 

You can always sell later. Still avoiding capitol gains taxes if within the "2 of the past 5 years qualification". Make rent now to see how it goes, sell later.

Also look at the equity in the property you have. The calculations say that only counting PITI, you will bring in $700 a month. If you took that $135,000 in equity, you could put $40,000 down (20%) on 3 separate properties. Can you bring in more than $700 a month after PITI on 3 $200,000 properties?

Lots of ways to cut it depending on goals. Personally, I like the rent now, settle into your new primary, then plan what to do with the equity in the old primary. You could even get a HELOC on it.

Thanks @Dmitriy Fomichenko! One down, lots to go.

Investment Info:

Single-family residence buy & hold investment in Memphis.

Purchase price: $110,000
Cash invested: $10,500

Single family two story property in Memphis, TN.

What made you interested in investing in this type of deal?

I was looking for a 1% deal in a lower crime area where I could find a long term tenant to appreciate the property. Found the areas that the tenant I was after would like to live and looked there.

How did you find this deal and how did you negotiate it?

This deal was brought to me by a realtor via a wholesaler. I made an offer based on the numbers that worked for me, and we met where everyone wins, including seller, realtor, and wholesaler.

How did you finance this deal?

Cash purchase and rehab, then cash out refi.

How did you add value to the deal?

It was listed as a very large 3 bed 2 bath. I planned to add a bedroom as there was room in the house. After inspections, it turns out there were 4 bedrooms instead of 3. Bonus! My team refinished all the hardwood to a beautiful shine. Replaced the stove, dishwasher, and hood. Removed the wallpaper. Updated the bathrooms. New water heater and HVAC. Replaced the kitchen subfloor and installed LVP to match wood floors in the house. Made it a very enjoyable property.

What was the outcome?

Refinanced the property. Appraisal came in much higher than expected. Was able to pull out most of what I put in. CoCROI doubled. Currently rented. Hope the tenant enjoys and appreciated the property.

Lessons learned? Challenges?

Things are not what they seem. Plan for extra expenses, including wiring, plumbing, and any other unforeseeable. Most stores don't stock large appliances. Plan extra time for shipping/delivery. Have a checklist of all items, room by room, including outside, mailbox included. Don't sweat when you need to put in more money. Job has to be done anyway.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I spent some time building a good team. I would recommend them. Message me if interested. Most of them are not on BP.

I have a property in contract that is over 1700 sqrt with only 2 bedrooms. Plan is to make it a 4 bed if applicable, but the cashflow/CoCROI is not better initially doing this. Comes down to the projected cost vrs ARV.

Anyone have experiance with adding rooms? Purchase price is 100k, 10k rehab/30k adding 2 rooms. Rent projected at 1000 2 bed / 1300 4 bed. ARV 140-150k either way.

@Aron Schlabra do as much research as you can on the areas.  While I have been looking, it really is street to street.  Different areas offer different strategies, rental range, tenant class, and a host of other nuances.  As @Dean Harris said, his zip code breakdown is great.  

Factors on how you want the deals to structure, risk, tolerance of rehab, rental price zone, cash left in deal, and how long term you have seems to make an impact on which area you pick.

Hi Jeff,  I have been looking in Memphis as well.  Those properties on Realtor.com are listed 62,500 and 64,600 respectively.  Those are their last sold prices, but if you look further into detail, 618 sold for $62,226 above list price.  Its also part of a investor portfolio.  "Investor liquidating rental inventory. Seller may entertain splitting properties into a minimum of 20 to 25 properties."  

It could have been sold in a package deal and they just split the cost even amongst the properties.  Im not tax specialist, but if you purchase an investment at 132k and sell it for 65k, you have no gain I think.

I have found it useful to dive deeper into the Memphis properties to find out why things dont make sense up front.

Hope this helps a little

Do you know how parking is in the area?