Canadian Investing in Indianapolis

[Kris Lou]

Hi everyone, my name is Kristian. My wife and I are from Toronto, Canada, and we're excited to start our journey into the Indiana real estate market. We're in the process of liquidating our Ontario portfolio, which consists of four properties. While they cash flow, we've realized we're over-leveraged and want to take a different approach.

Our plan is to purchase our first investment property in Indiana, possibly paying cash, with the goal of generating reliable income. Ideally, we'd like to acquire one or two duplexes that meet the 1% rule and provide us with $1,000–$2,000 USD per month after property management fees and other expenses. This income will help support our dream of moving to Europe in the near future.

We're hoping to connect with an experienced realtor who works with investors and can help us navigate the market. We also need recommendations for a reliable property manager who can handle day-to-day operations.

We’ll be visiting Indiana in January or February to explore neighborhoods, meet professionals, and learn more about the market. If anyone has advice, feedback, or contacts, we'd love to hear from you! Does this plan sound realistic? Are there areas or strategies you’d recommend we explore?

Looking forward to hearing from the group!

Thanks,

Kris

[Drew Sygit]

@Kris Lou Be careful with agents as 95%+ of them really only know how to handle owner-occupied transactions.

We don't do biz in Indianapolis, so this is unbiased info we hope you find useful:

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

Property Class will typically dictate the Class of tenant you get, which greatly IMPACTS rental income stability and property maintenance/damage by tenants.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

If you buy/renovate a property in Class D area to Class A standards, what quality of tenant will you get?

Similarly, if you put several Class D tenants in a Class A 4-plex, what do you think will happen to the property?

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

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Recommend exploring as many sources as possible to get referrals AND cross-reference them to get as much accurate information as possible.

Check out NARPM.com, BP’s Property Manager Finder (BiggerPockets: The Real Estate Investing Social Network), etc.

Also, encourage you to learn from the mistakes of others - by reading posts here on BiggerPockets about owners not having their expectations met by their current Property Management Company.

To avoid going through the same poor experience, keep reading.

Even if someone gives you a referral here, do NOT make the mistake of assuming that the PMC will meet your expectations, just because they met the expectations of the referral source.

In our experience, the #1 mistake owners make when selecting a Property Management Company (PMC) is ASSUMING instead of CONFIRMING.

It's often a case of not doing enough research, as they don't know what they don't know!

Owners mistakenly ASSUME all PMCs offer the exact SAME SERVICES and PERFORM those services EXACTLY THE SAME WAY, so price is the only differentiator – so, they often select the first PMC they call or that calls them back!

So, the first question they usually ask a PMC is about fees - instead of asking about services and HOW those services are executed.

EXAMPLE: PMC states they will handle tenant screening – what does that specifically mean? What documents do they require, what credit scores do they allow, how do they verify previous rental history, etc.? You’d be shocked by how little actual screening many PMC’s do!

This also leads owners to ASSUME simpler is better when it comes to management contracts.

The reality is the opposite - if it's not in writing then the PMC doesn't have to provide the service or can charge extra for it!

A well written management contract should clearly spell out what is expected of both the PMC and the owner, to PROTECT both and avoid misunderstandings. Why do you think purchase contracts are so long and have such small print?

We recommend you get management contracts from several PMCs and compare the services they cover and, more importantly, what they each DO NOT cover.

EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

P.S. If you just hire the cheapest or first PMC you speak with and it turns into a bad experience, please don’t assume ALL PMC’s are bad and start trashing PMC’s in general. Take ownership of your mistake and learn to do the proper due diligence recommended above😊