If you do a detailed pro-forma P&L, you'll see you'll make about 15-16% of the ARV in profit.

Brian, based on your response and @Gordon Cuffe's response, it sounds like I should be shooting for a pro forma cap rate of ~6-7%.

Also, make it clear you are not interested in pro formas and will only be offering based on actuals.Hope this helps.

So if we skip that form as the buyer for awhile we can get out of the contract in 2 weeks using the mortgage clause and get our EMD back.

@Isaiah Turner - it is a game of chess, screw up and you loose :D  If you're looking to start building wealth, buy and hold is the way to go.Use conservative rent estimates and run a conservative pro forma with plenty of reserves for capital improvement, vacancy, repair, and property management.  

If for nothing more than to reinforce the assumptions in your pro-forma.

However, can I form a corporation for each house, lease the house to that corporation and then the corporation/LLC leases to the tenants?

I'd be looking at appreciation as well to form a potential exit strategy.As AJ stated, depending on what part of Memphis you are in, you may be paying both Shelby County taxes and Memphis City taxes.

The other probability is that it's not a 15 cap on todays numbers, but a 15 cap on what the broker pro-forma says.

I usually do 4-5 year pro forma's with 2-3% rent increases each year.