Aloha! 40k..Invest in indianapolis or memphis or las vegas?

Question

👋hi BP friends. My name is Romar from Oahu, Hawaii. I'm an extreme greenhorn, new to REI.

I'm shopping for my first investment.  I've contacted realtors familiar with REI in the above mentioned locations, two of which I've also spoken with lenders also.

I have $40K I want to invest with. Should I SFH or Duplex? Also if I find a turnkey property I can purchase cash, free and clear...should I go that route, or leverage my money and buy 2-3 properties with 20%-25% DP??

Please help. Any advice or suggestions is appreciated..thank you!

Phillip Dwyer · Answer

Like @Christopher Brainard mentioned, you'll have a lot more options in the Memphis and Indy markets if you want to pay all cash.

You could likely buy one rental in the Las Vegas market with a 3-5% cap rate with the funds you have.  You'll be paying market value likely.

Christopher Brainard · Answer

Hi @Romar Lagamo and welcome to BP.

Of the three locations you mentioned, Las Vegas is probably not optimal for what you have to invest and your investment criteria. Right now the market is highly competitive and the rent ratios in Las Vegas aren't favorable. Finding a place at 75% ARV will also be difficult - when these deals do come up, almost all the bids in will be cash bids and would make it very hard for you to compete. Also, for a SFR in a descent area, you're looking at a 200k+ price point.

I'm not personally familiar with the Indy or Memphis markets, but I believe their price points in general are lower and the markets aren't as hot, which will give you increased flexibility.

-Christopher

Larry Fried · Answer

@Romar Lagamo Working with 40k of capital, I would avoid the duplexes (as others have said) and avoid buying with cash.  Sub 40k property is going to buy you a lot of headaches as an out of state investor, where as conventional financing can get you 2 $80-85k houses, which could put you in much better neighborhoods with better tenants.  You could also look at doing something more passive to build up your capital, such as private lending for an 8-12% annual return, or something I've done in the midwest is invest in a kind of syndication where I buy into portfolios of 10 SFR homes, and co-own with the managers who make money alongside me.  I wrote about these investments I made in a couple of blog articles:

Have I Found the Holy Grail of Passive Real Estate Investing?

James Wachob · Answer

@Phillip Dwyer I agree with you statement: "you'll have a lot more options in the Memphis and Indy markets if you want to pay all cash."

I meet a lot of investors who are interested in the TurnKeyAlternative model. They are able to purchase properties below market value, and renovated the homes to their standards - then sell for a profit or keep as a rental.

The key to this strategy is having the right team in place. My team offers to help with: acquisitions, renovation and property management.

Romar Lagamo · Answer

Aloha Douglas! I finally took the plunge and signed on BP! Great talking to you and getting connected with Patrick, I've reached out to him, we talked once but I haven't heard from him since last week.  I'm looking for immediate cash flow, long term holding and appreciation. And a location that is safe for the tenants that could be a long term stay. Since I'm new, I'd like an investment that is turnkey with no repairs needed. Just keys and away it goes!

Hi William, yes, I love Indianapolis. I love the A and B+ Class (Carmel, Fishers and Zionsville) but they are so expensive to me with not the right return for the downpayment in my calcutions. Ive been looking in the Lawrence area and pockets in town. Please if you have any suggestions let me know. And an investment that is turnkey as well.

Howzit Sean, I have no connection with Kansas but man your football team is killing it this season!!! Im on the fence on SFH vs Duplex, and I'm not sure whats a better option for myself as my first investment there.

I read time and time again on BP that locking in a top tier property management team is more important than the buying the property itself. What questions should I ask when looking for a team such as that? And any referrals would be great! Douglas, I know I'm going to you once I find an investment in Memphis!!

Romar's Expectations:

Prefer off market listing purchase

buy below or better 15%

ARV: 25% over final purchase price

COC return: +20%

ROI return: +10%

long term relationships with reputable and trustworthy property management teams

long term relationships with reputable and trustworthy agents

AND A LOT OF LUCK!!

Account Closed · Answer

Hi Romar,

I'm in the Indianapolis market myself.  My take on the market is that quality duplexes are hard to find right now.  Very many people want them because of the increased cash flow.  You can find some that need to be fixed and create value/equity by doing so.  Or, you can buy one with tenants in place for more of a premium.

Small single family homes are more commonly available.  Some of my investor clients are buying Class A and B+ and getting more modest returns because they have a newer home, in a better neighborhood and plan to hold it long term.  (with $40k to invest you could purchase 2 of these using loans).  Some other clients are buying low-dollar homes (sub $50k); these latter ones typically come with more property management demands so be sure to get a good manager (and figure how to manage your manager).

If you want to talk Indy market details and specifics, I'm available.  Cheers!

James Wachob · Answer

@Christopher Brainard If you need help analyzing a deal in Memphis, my team would be happy to serve as your boots on the ground.

Alex Craig · Answer

I rarely operate in this space, but I am getting a package of A and B class homes. Within the package is a C class home rented for $650 to a section 8 tenant. Actually a decent area and I have met the tenant. Seems nice and is taking care of the space. Sales price is $39,500. PM me for details.

Sean Tarpenning · Answer

I'm in Kansas City but see returns similar to Indianapolis and Memphis.  Like these guys said, it's all about your expectations and what you want/what you can get in return.  I never recommend over leveraging into any property.  Also be sure to have a great property management like they said!

Aloha! 40k..Invest in indianapolis or memphis or las vegas?

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