Midwest BRRR for under $100K ?

Question

Hello,

I need help researching/analyzing locations in the midwest for my first investment property. I've narrowed my search to the following areas for affordable entry points and growth mostly.

Some things I discovered in my search as a newbie =)

• Detroit, MI - 15.1% rental yields, hip new destination for millennials, and large companies (Pfizer, Ford, Chemical Bank) moving there.

• Cleveland, OH - Home values up 10.5% over past year and efforts to become a tech hub (blockchain innovation)

• Indianapolis, IN - Named #1 state in US to make money from REI by CNBC and Indianapolis ranked in the top 20 markets to watch.

I'd love to house hack a multifamily under $100K. Here are my questions...

• How to best analyze which zip codes/areas to put on my radar and which to stay away from?
• Aside from BP, what are other websites, blogs, publications, or resources to dig deeper for information such as economic growth, expansion, etc in specific areas? 
• Advice on things to consider when researching/analyzing these markets?
• If you were in my shoes as a first time investor, where would you buy your first multifamily BRRR for under $100K in the Midwest and why?

Thank you so much for your time and help.

Ross Denman · Answer

We've had clients find SFR deals in decent schools in most areas of Indianapolis and the metro area, but you will find them most frequently on the East side of Indianapolis in Warren and Lawrence Townships around German Church Rd. The eastside tends to have spots of high and violent crime, so it tends to have a worse reputation and lower values, but we still do pretty good with our rentals there.

We also see a few opportunities in the other in exterior townships as well. Keep an eye out in areas like Franklin Township around Thompson Rd or Southeastern Ave, most anywhere in Perry Township, Decatur Township around Camby Rd (Camby area,) and Southport Rd (Old Mill Park/Pheasant Run areas,) Wayne Township between High School Rd and Raceway Rd (Sungate, Cameron Meadows, Chapel Glen, Chapel Hills, Farley, etc.,) or Pike Township near 56th and Georgetown (Eagle Highlands, Eagle Glen), 56th St and Lafayette Rd (Deer Creek/Liberty Creek area,) or anywhere around Guion Rd north of 38th St. It's harder to find well priced deals in Washington Township as there are some of very nice and established areas. Keep an eye out for areas with flood zones though as they tend to keep property values low and attract more troublesome residents. We see these in areas like Mars Hill, parts of Eagledale, north of Pleasant Run Parkway, Ravenswood, etc. Locals can do ok, but I think OOS investors should be a little more selective as you will have to rely a lot on your property manager and they don't usually have the time to babysit tough properties all year long.

Basically, if you can find a rental of $900+/mo in the exterior township school systems that are better than the 1% rule, you'll do pretty good. I like to find homes that rent for $900/mo in a $75k range all the way to $1,200/mo rentals around $100k. It's tough to find decent rent ratios above the $1,200/mo mark.

I think a good property is more important than great numbers. A good property may not make your desired numbers in the first year or two, but over time they will usually be worth more and outperform the lower end homes. It's the difference between buying penny stocks or investing in Amazon.com. Consistency and predictability vs speculation and volatility.

Ross Denman · Answer

We have a lot of OOS investors in Indianapolis, but I'm not a fan of duplexes. Cash flow is very inconsistent due to high vacancy rates and most duplexes are in lower income areas. Personally, I prefer SFR's until you get to 4 unit buildings or more. I just think they are more consistent in performance.

I'm not sure if you actually mean "house hacking" as that means that you will be using one of the units as a personal residence for a lower down payment. Of course that also means a higher mortgage cost, but typically, you get to live for free while someone else is paying down the principal. Are you planning on moving to your target city? Otherwise, you will likely need to put 20% down or by for cash and refi.

I think that crime is the number one thing to keep your eye on. Schools aren't as important, since these aren't usually catering to families with school age children, but gangs, drugs, murders, assaults, break-ins, etc. will ensure that you get amazing less than stellar tenants and all the complications that come along with that.

Best areas to consider in my opinion for multi's would be near Broad Ripple off of College Ave, but don't expect to find a deal. Good properties go for a premium. Be sure to work with a realtor and property manager or other investment firm to give you a better idea of the neighborhoods that you are targeting. We are in them all of the time.

Alejandro Guimoye · Answer

Great article @Steve W. thank you for sharing!

Alejandro Guimoye · Answer

Thank you so so much @Ross Denman for being so generous and sharing your on the ground knowledge and expertise. This definitely helps tremendously and gives me good starting points. I'll keep you posted on what I find (hope that's ok) and will reach out to you for property management and anything else that might be mutual beneficial.

Cheers!

Steve W. · Answer

@Alejandro Guimoye

For your items 1-3, I found this very educational, they go through an example and provide the resources used to perform the market analysis.

https://joefairless.com/podcast/jf1527-how-to-perform-an-in-depth-analysis-of-your-apartment-syndication-market-part-1-of-2-sydication-school-with-theo-hicks/

Alejandro Guimoye · Answer

@Joshua Howaniec Thanks and yes looking to purchase in the next couple months. I'll message you.

Alejandro Guimoye · Answer

I appreciate the advice @Ross Denman and will definitely check out Broad Ripple. Yes I'm considering relocating to where I end up purchasing to take advantage of the 3.5% FHA, but who knows OOS investing could also work if I can swing the 20% + rehab costs.

What areas do you recommend for SFR's with low crime but where you can still find deals?

Thanks!

What areas do you recommend for SFR's with low crime but where you can still find deals?

Thanks!

Alejandro Guimoye · Answer

@Nathan Grubb Thanks for the head up! I'll make sure to keep this in mind for sure as I narrow it down.

Joshua Howaniec · Answer

Im with Ross on this one. Indianapolis is a good place to be. But I live here too so I'm biased. But ya, lots of people buying from out of state. If you want to meet a good agent message me.

Are you looking to buy soon?

Nathan Grubb · Answer

Not to rag on Detroit at all, but watch out for "incoming companies" making the place valuable. Just from my more recent experience, Pfizer just moved in my area too and didn't really create the jobs we thought it would. Also, a big manufacturing plant was supposed to move in too and bring hundreds of jobs, and that just fell through at the last minute (they had already won all of the public domain suits to take properties for the building, and had broken ground).

Midwest BRRR for under $100K ?

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