new investor strategy in Indianapolis?

[Chris Grebeldinger]

Out of state investor here - I'm thinking of trying to acquire rental property in the Indianapolis area.

I've been looking at A and B multi-family homes.  Any advice about neighborhoods to look at or avoid?

[Ross Denman]

@Chris Grebeldinger You'll have to understand that Indy is not landlocked like most of the larger/older coastal and port cities. Because of that, the majority of people here prefer detached lifestyle (SFR) except in the luxury apartment and condo market downtown. The vast majority of multi-family homes are lower income and higher crime areas. As @Mike D'Arrigo mentioned earlier, A-Class assets are typically dominated by home buyers and will rarely have rent ratios that make sense for cash flow. I certainly have investors who purchase A-Class assets, but it's usually just parking money for long term equity growth with very few headaches... not ROI based on cash flow.

I typically consider asset classes tied to rent price ranges. The market determines the rental rates based on a variety of criteria. Usually schools and crime... walkability comes in to play in some areas (usually more urban,) but local conveniences certainly can be a factor. It's all really based on desirability. Investing in "undesirable" areas is never wise... regardless of price. Long vacancies and bad tenant to not produce positive cash flow even if the house was free.

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According to Rentcafe.com https://www.rentcafe.com/average-rent-market-trends/us/in/indianapolis/

Most rentals are in the $700-$1,000 range.

• < $500 - 3%
• $501-$700 - 30%
• $701-$1,000 - 48%
• $1,001-$1,500 - 16%
• $1,501-$2,000 - 2%
• > $2,000 - 1%

While people grade neighborhoods differently, I would consider that C neighborhoods are probably $700-$1,000 rentals (actually, I usually say $900) B neighborhoods are $1,000+. I find the sweet spot to be $900-$1,250/mo. It's hard to find any cash flow in homes that rent for more that $1,250/mo unless you have a lot of cash invested and your ROI will be a lot lower than what most investors are looking for.

With that information in hand... I would recommend targeting MFH's that can rent for $900+/mo/side. The areas that I see this occur most frequently will be Broad Ripple, Woodruff Place, and the near/old Northside of Indianapolis. You may find some in the Mapleton-Fall Creek area or Irvington as well. I'm sure that there are other places in town, but those are the ones that come to mind. Ensure that you figure for higher vacancy rates as MF rentals tend to have shorter vacancies. You will also want to understand common area maintenance, especially if you are targeting 3 units or more (lawn care, snow removal, cleaning and upkeep of common areas, etc) and understand the parking situation. Street parking is less desirable than private parking.

Another consideration to understand the neighborhood demographics in Indy is to print out a map and google "Starbucks." Draw a 1 mile radius circle around each Starbucks in Green. You might do the same with Target, Macy's, Nordstrom, etc.

Next google "pawn shops" and "payday advance" locations. Draw a 1 mile radius circle in red around those areas. Understand that Starbucks doesn't invest in areas where the local population can't afford a "luxury coffee" and you will find very few pawn shops in the best markets. They will be in the areas where people struggle to pay their bills... this is not where I care to invest. Sterling's map (mentioned above) will be similar to the map that you're creating.