BRRRR in Indianapolis, Indiana

[Angel Vargas]

Hi All -

My name is Angel Vargas and I am proudly a new member of the BP family. Unfortunately, I am from a tenant friendly state (NY). And while I am not new to out-of-state real estate persay, I am new to out-of-state rental properties. This is such a great community and resource for folks like me.

From everything I read, it appears that Arizona and Indiana are two of the favorites for investors. The BRRRR approach seems like a great fit for me. However, being from out-of-state, I am concerned about the learning curve and the unknown. Thus, ANY advise/insight that you folks can lend would be greatly appreciated.

Some Questions:

- Which parts of IN (and Arizona) would you folks recommend I look at for the BRRRR method?

- Are there any specific laws or particulars that I should be concerned with or educate myself on?

- How is the rent market/sale market?

Most importantly, thank you all for contributing daily and helping folks like me get their feet wet in such markets!

Cheers!

[Ross Denman]

Angel,

I work in the Indianapolis market so I can give you some insight regarding what I am seeing here. I am guessing that much of it will apply to Arizona as well, but I can't say for certain.

There are 2 active business models that I am seeing frequently in Indianapolis.

• Pre 1940 homes in gentrifying areas. These homes are usually need much larger rehabs so I don't typically recommend this to out of state investors until they have built a team that they are comfortable with. There are a couple of different strategies. For rentals, I see better success with the 2 bedroom bungalows or smaller 3 bedrooms. The large homes in the city tend to draw in multiple roommates or large families. The larger homes tend to have more maintenance issues and more wear and tear which increases the cost to turn the vacant units. I recommend flipping the larger homes. There are a lot of investors who are also doing "short-term" hold strategies. The go in to do a bare minimum rehab to get it rent ready and lease the home for 3-10 years while the areas are appreciating. After the time frame is up, they do a more extensive rehab and sell the home at the top of the market. This creates some cash flow for a few years, reduces your tax liability, and increases the equity that you can cash out in the future.
• Post WWII homes. I see my investors having the most success purchasing the vinyl track homes built in the 1990's or newer. These can frequently be purchased in relatively good condition for $70k-$110k. These homes typically rent in a range of $900-$1,350/mo. I see several of these types of homes purchased for investments every month. It usually costs less than $5,000 to get them rent ready and frequently less than $1,500. You don't even have to BRRRR these homes as a bank will usually finance the home if there isn't much distress. You can also get older homes that need more work and need to be rehabbed and use a more traditional BRRRR strategy. There are tons of 1960's-1980's 3 bedroom ranches you can pick up for around $25k-$45k but you may be looking at a $10k-$20k rehab as well to make it a good home. The standard type of these homes rent for $750-$900/mo.

The most important thing to consider is location. Because I am a big fan of positioning yourself to have as many exit strategies as possible. Target areas that have retail sales activity. There are still large pockets in Indianapolis that are almost exclusively rental properties. These homes typically do not grow in value because when you sell them, they are usually sold to other investors who are not looking to pay anymore than you paid. By targeting areas with high retail activity, you have a better chance of appreciation and a retail exit strategy in the future. You can work with a realtor to gauge the retail sales activities. Other things to consider are:

• Crime. You can use Trulia's Crime Map to get a better idea. https://www.trulia.com/real_estate/Indianapolis-Indiana/crime/
• School Systems (applies more for family homes than city homes.) All of the suburban schools are pretty good and we have the most success in these areas of Marion County.
  • Washington Township Schools
  • Town of Speedway School Systems
  • Franklin Township Schools
  • Wayne Township Schools
  • Pike Township Schools
  • Perry Township Schools
  • Southport Schools
• Flood Zones. Indianapolis has a few large creeks and small rivers running through it. Flood insurance is not cheap and keeps increasing. I use the MLS to research this, but you can get information here but I find it harder to read http://dnrmaps.dnr.in.gov/appsphp/fdms/
• Know the area, walk the street. A simple exploration on Google Earth can reveal that your target property is across the street from an industrial complex... but the wholesaler may not tell you.
• Enforcement problems on the street. I recently researched a property for a client and didn't even have to drive it. I did an enforcement search on the street one block each way. This street had 2 homes that were getting complaints about high grass and weeds and 2 other homes that were constantly getting complaints from the city about trash and illegal operations of businesses. Both of these homes were operating mechanic shops out of their garages. You can do your search here https://permitsandcases.indy.gov/CitizenAccess/ Just click the search link under the enforcement tab.
• Walkability. Are there conveniences and amenities near by? Are there safe places for the kids to play? Sidewalks? Bike Lanes?

To evaluate rental income these are the tools that I use (outside of our own database and the MLS which are not public.)

• - Zillow provides a rental zestimate. Zillow is typically between $50 and 10% too high on this estimate in Indianapolis. My recommendation is to round this number down after subtracting $50-75 from the rental zestimate when figuring numbers for your deal.
• - This is probably my favorite free tool and there are not a lot of people who know about it. It also has some built in calculators as well.
• - You can use this to assist in determining rent ranges but you are limited to only a few monthly inquiries without subscribing.

I would also target homes that a have an ARV/FMV of $50k+. Banks will not typically finance deals less than that so it makes it hard for your refinance and even harder to sell on the retail market.

I recommend networking with a property manager first. They should have contacts for just about everything you may need from Realtors and Wholesalers to Contractors and Project Managers. I am not a big fan of the "all inclusive" one-stop shops as I have seen too many investors purchase poor investments because of the lack of checks and balances. I prefer for my clients to have teams who have different incentives and are not afraid to give you a different perspective on locations, properties, rehab levels, etc. I'd rather have a team of specialists and a mob of parrots.

My newest soapbox is tenant retention. Our investors are most successful when they retain tenants for multiple years as one vacancy can wipe out an entire year of cash flow. Here are some things that we see help retain tenants.

• Take care of the home. Many tenants leave when maintenance is deferred over and over again. Don't just do temporary fixes without having a plan for a long term solution.
• Central Air. We have plenty of homes built 1970 and before that do not have or may have never had Central Air Conditioning. We do have 90+ degree weeks every summer and your tenant is only going to sit through 1 or 2 before finding someplace cooler.
• Energy efficiency. It's hard to press for much higher rent just because you've upgraded the windows and added insulation to the ceiling, but tenants are not going to stay long when they have high utility bills. Also, anything that can be marketed as "Green" increases the draw to your home as well.
• Conveniences. In many of the older homes, there is not even an outlet in the bathroom and maybe not even behind the counter top in the kitchen. These create issues for tenants who are trying to get ready in the bathroom or can't even find a place to plug in a blender or toaster. I now have owners who are install USB capable outlets in the kitchens and/or master bedrooms. These outlets are only $30 and are very convenient as we all use USB chargers for something.
• Extra bathroom space. I wouldn't pass up a good deal with only one bathroom, but bathroom space is the first thing that most tenants outgrow. When everyone is trying to get ready in the morning, the extra bathroom becomes vital.

I know that it's a lot of information and somewhat overwhelming, but being able to identify potential issues and knowing what headaches you may face on a deal helps you evaluate the deal and have realistic expectations. I can usually research all of this information in about 30 minutes when I have the free time (which seems to be never.) Best of Luck!