Is it a big NO-NO to buy my 1st rental property in another state?

Question

Hi there folks,I just happened to bump into a FB post from an agent marketing a 4plex in Indianapolis that at first seems to be a good deal. I am from Miami, FL and have never been in Indianapolis or any of its surroundings. I am not targeting it either, I just happened to see the ad and took a stab at analyzing it.I exchanged a few emails with the agent and after factoring in all the expenses (PITI, vacancies, capex, utilities and management) the property is still above the 2%rule.The downsides I see are the distance and the age of the property(1910) Not sure if the distance should be a blocker for a good buy and hold deal.Can any one from the area give me your impressions on the age of the house and also the area? The property is located in IN 46221Thanks in advance and Happy Investing!

Mike D'Arrigo · Answer

@Allende Hernandez I would be more concerned about the asset class than the fact that it is out of state? As much I am a very big proponent for Indianapolis, you have to be very careful with MF in Indy. I avoid it for the most part. Most are very old properties, as is the one you are looking at, and are in very rough areas of the city. Being in the 46221 zip code does not tell you anything. The 46221 zip code is 20 sq miles and has a population of over 26K people. It encompasses some really rough areas and some pretty good areas. I recommend you approach with extreme caution and know the area extremely well. You'll get your clock cleaned with a MF in the wrong part of Indy.

Lane Kawaoka · Answer

Allende Hernandez Everyone has an opinion in real estate. I think it's because a lot of people in real estate make money so a lot of egos. That said take everything with a grain of salt and one POV. I see both arguments and both work. I personally do out of state since I can't find what I am looking for in Seattle. Some people don't have the skills to manage from a far and should not do that. Does not mean you are the same. Some people cannot sleep at night if they did that... There are meds for that but you need to challenge paradigms.

Phil Bottfeld · Answer

Hi Allende, Check out my interview on the The Real Estate Loop Podcast Episode 80. We go into the details of the various types of Turn-key provider platforms and what they offer. If you have not already made a decision on which to use. I think it's a helpful podcast.Regards,Phil Bottfeld

Account Closed · Answer

@Allende HernandezThis agent who is telling that there is $200K comps in this area is FULL of it! There is nothing selling for $200K around south Belmont, SFR or MF. The area is not in redevelopment or anything else. STAY AWAY FROM THIS DEAL!!!!!!!! Take other peoples advice on this thread. NEVER deal with an agent that is also selling the property. ALWAYS go find your own agent. One who actually has your best interest, not one that is concerned about making a commission.

Mike D'Arrigo · Answer

Percy N. · Answer

@Allende Hernandez as @Erin Donlan mentioned, check the FISCAL vacancy rate (i.e. if it was occupied for 10 months but tenant is 2 months behind in rent, then fiscal vacancy is 20% even though property was occupied in all months).For an old house, I would budget a higher cap reserves depending on when the roof, HVAC, plumbing and electrical was updated. Any one of these items could run $3-$12k on an average 4 plex.

Erin Donlan · Answer

Glad we could help @Allende Hernandez! Keep in mind with it being a 4plex, each unit then is running about $540/unit/mo. I'd be interested to see what their vacancy rate is. It might not seem a big deal since you won't be dealing with the tenants directly, but you'll want to be sure you have good paying tenants without a lot of turnover. Have you looked up the crime stats in the area? I also find Trulia can be helpful with their neighborhood map. Just because there are higher comps in the area doesn't mean it's necessarily a good neighborhood. Indy can vary street to street. You really need to make sure of the area before moving ahead.Keep us in the loop on what you decide to do!

Allende Hernandez · Answer

Thank you all for your valuable input.@Percy N. I did factor 10% for capex, which comes up around $216/mo, of course that is just a guesstimate but...is it a good assumption?@Bob Bowling & @Erin Donlan if I jump, I am planning in offering 90K, take it or leave it. Total rent is $2160, so that is well over the 2% rule. The realtor sent me some comps and the are all running a bit higher around the 220K but also have a few more sqft.@Mike D'Arrigo & @Larry Fried Thank you for the insight. I do not know the area at all since this was found by accident. I just saw it looks good on paper and I am doing my researches to find those subjective points that numbers don't show. The property is located at S. Belmonte Ave. Does that tell you something?@James DeRoest I did factor in 10% of the rental for property management. I do not have any intentions of managing that myself. Can you PM me with details of that 3plex?Thank you all! I haven't made mi decision yet, I guess it will depend on some answers about the quality of the neighborhood and my level of boldness about buying a 1910 house that far away.

James DeRoest · Answer

The other downside is that you'll need a property manager, so for the first 3 years you are going to be raped every single month by them. It's an old property, in a run down area (you can tell from the price), it'll be heavy on management, and doing that from 2,000 miles is just going to be expensive.Plus the Facebook ad? So...the seller couldn't find anyone on MLS, Craigslist, Zillow, and now is advertising or at least mentioning this property on Facebook? That just smells.I can put you in touch with a realtor selling a triplex, (three townhouses) for $60k. Doesn't mean you want to buy them.

Larry Fried · Answer

I very much agree with @Mike D'Arrigo. MF in Indy can be very tricky, and I would also advise you to visit the area before you decide to invest there. This property may look great on paper, but in actual performance you have to consider what kind of tenants will live there, and will they take care of the place. Then there is the true condition of the property and how much work it may need overtime. At this point I advise extreme caution.