First Deal Indianapolis

[Ricardo Campos]

Greetings BiggerPockets!

I am a new investor from California and making my first post on the BiggerPockets forum. Currently, I am under contract for my first rental property in Indianapolis and would love to get some feedback. 

This is a 3/2 SFR in a Class B neighborhood, 911 SF, purchase price is $122,000. Neighboring properties are around $110,000 - $150,000. Rents in this neighborhood range around $950 - $1,250. It is a desirable neighborhood with great schools, with very steady appreciation over the last 6 years. My agent is confident this unit will rent at $1,075 easily, and a property management company stated it would rent in the $1,100 - $1,200 ballpark. I locked in a 30 year fixed rate of 3.625 % with 25 % down (mortgage payment of $417/month), which I am very pleased with.

One of the biggest draws about this property was that it was already rehabbed / "rent ready". We had an inspection done and it looks to be in great condition, with exception of the water heater and AC unit extending past their useful life (which will be negotiated). Below are the expenses I am carrying:

Expenses:

Property Taxes: $1,626 annually ($136/month)

Insurance: $714 annually ($59/month)

Maintenance and Repairs: $900 annually ($75/month)

Capital Expenditures: $960 annually ($80/month)

Utilities: $0

Advertising/Administration: $300 annually ($26/month)

Property Management Fee: 10% of gross income = $1,200 annually ($100/month)

Tenant Placement Fee: 50% of first month's rent = $538 annually ($45/month)

Turn Reserves (Cleaning): $500 annually ($42/month)

Breakdown

Rental Income $1,075 - 7 % vacancy = $1,000/month ($11,997 annually)

Expenses = $561/month ($6,737 annually)

Expenses/Gross Income = 59 %

For the record, when I called the County Assessor's office, they told me the assessed value is $81,300, and I would be paying 2 % as an investor (number is carried above). 

After factoring in all of my expenses above, my projected Cash ROI is at 0.74 % (not including return on equity). Not sure if I should keep principal in this calculation, but I did to avoid complications.

Overall, what are your thoughts on purchasing this as a long-term investment? Would this be a foolish mistake with such a low ROI, or would the likely appreciation and anticipated ease of renting make this worth it. Any feedback is greatly appreciated!