All Forum Posts by: Jonathan Vest

Hi BiggerPockets,

I'm considering the purchase of a small 1,200 sqft home in the Memphis area on a HUD auction. I've done my numbers on the property and believe I could make this work as a BRRRR.

The foreclosure ask price is $70k. I have estimated repairs to be around 6-8k (calling them $10k just to be safe) - so all in 80k. I think I could then get it appraised for 100k at the very least. Homes in the area are comping around 100-105k.

That means I can pull 75k out in my refi. Which leaves 5k in the deal, but cash flows (more than) $2,400 a year — ~50% ROI.

Here's the problem. There are tons of interested investors that are viewing the property. I know that many HUD bidders will ask for 89-90% of the ask - but I'm afraid this will go for a significant amount above the $70k.

For me, I think this project only really works if I can get it for $70k or less. Any advice for a first time HUD bidder? Should I just bid the $70k and move on? Any nuances I should be aware of?

Thanks so much in advance. You guys rock!

Jonathan

Hey Bryan! Good to have you.

Congrats on the deal! Seems like quite a find.

@Lana McDonald Hi Lana! That would be great. Let’s connect - and if there’s a way I can help you I’d be more than happy to. What I lack in investing experience, I think I make up for in knowledge of this city - ha!

Hi Curt! Thank you for the feedback. I agree that the allowances for those three are definitely a killer. My goal with the 3.5% down is to take advantage of an FHA loan since I'd be living in one side of the property. However, I'd like to keep my "rent payment" to myself relatively low. I feel that ~$700 is still far too much, even for a 3.5% down deal. Perhaps I'd have better luck looking at older properties that need more renovations?

Good Evening BiggerPockets family! My name is Jonathan and I'm an aspiring real estate investor in good ole Memphis, Tennessee. I've been infatuated with analyzing rental deals for quite some time, but I figured it was time to throw together an analysis tonight to hopefully gain some insights and constructive feedback from some of the investor gurus out there! All feedback is greatly appreciated. 

I'm looking at a duplex located in Memphis, TN. Seller is asking $189,000 for the property, although I'd be shocked if they were able to get that much for it. Currently, one side is rented at $925/mo. 

The strategy for this property would be to take an FHA loan for the home at 3.5% down, with an assumed interest rate of 5.04% (average FHA interest rate for Feb - still need to speak to a local lender).

Annual property taxes - I pulled off of the listing. $1,687 for county and $1,312 for city for a combined $2,999/year, amortized at $249.92 a month. Ouch.

PMI I estimated to be 0.05% of the total loan amount $189,000 - divided by 12 -- $78.75 per month.

For property insurance - I did a rough estimate of $189,000/$1,000 x $3.50 and amortized monthly.

Vacancy = 5%, Repairs =5%, Capex = 8%, and property management =10% (even though I'd manage it while I lived there).

Clearly, the numbers don't look very great at the $189,000 ask (see below)

So, we've gotten a negative monthly cash flow of $693.35 to live there. What's it look like when I move out and acquire a tenant for the other side?

The only assumptions I'll change for this one is doubling the rent.

Still losing $27.35 a month. At least at that asking price.

Let's lower the asking price to make the numbers "make sense". My target CoCROI is 10-15% at least.

Changing the ask price to $170,000 means this property can pull a 15.94% CoCROI. However, for a whopping $79.03 in free cash flow -- I don't think I'll be taking the leap.

What I'd really like to know is this -- What do you all think of my numbers? Is there anything I could add or tweak about the model? Any criticism is welcome.

Thanks!

Jonathan

Hi James! Thanks for the reply. I'll definitely be in there at some point in the next few weeks to meet everyone and listen in. Looking forward to it!

Are there any local Memphis BP members who are currently attending meet-ups in the area? I’d love to get some more info and get plugged in.

Thanks!

Jonathan