Can I get some opinions on this neighborhood please?

Question

Hi, I'm submitting an offer on this duplex that I believe has solid numbers. The thing holding me back is that the neighborhood may be iffy.

The Indy guide map from BP has this as a C class neighborhood. On trulia, however, it kinda seems the amount of crime would be closer to D.

I've attached an image of a map w/ the neighborhood in question.

I really appreciate any insights!

Lee Smith · Answer

@Teho Kim  That's an area that is changing.. At this point it's pretty speculative.. You didn't list whether it's a 1, 2 or 3 bedroom per side.  Worst case scenario:

1 bedroom duplex should rent for $450-500 per month2 bedroom duplex should rent for $500-550 per month3 bedroom duplex should rent for $575-650 per month

In Indianapolis: When dealing with multifams, you need to be aware of a couple of different things.

Higher vacancy rates, instead of 2-4 weeks to fill a single fam, you are looking at 4-8 weeks to fill a multifam. It’s not for lack of applicants, but lack of GOOD applicants.

Higher turnover rates.. While my single fam renters generally rent for 4+ years on average, my multifams only rent for 1-2 years on average. The premium for single family houses is not that much more, and most residents will gladly pay that amount to not have neighbors. Turns(One tenant moves out and you have to prep for next tenant) are what kill you in rentals. A good tenant turn is probably going to run you $1000-1500. It's VERY rare that someone gives you the property back in the same condition you gave it to them.

Watch out for owner paid utilities. These can break the deal. While water/sewer is easy to deal with($50-60 per month per unit), anytime you are paying for heat you are looking for trouble. Residents crank the heat up in the winter and then open a window to cool off...

Most multifams in Indy are in low income areas, and are much older(1900-1950’s). The deferred maintenances wrack up quickly, and you have to multiply that by the number of units.

I am not trying to scare you off, just you need to budget for them.

Ryan Mullin · Answer

Strongly strongly prefer to be north of the tracks or east of the tracks. OR south of raymond.  This is very close to a lot of renovation / gentrification, but not in that particular section.  Everything that Lee said definitely would apply here.

Teho Kim · Answer

@Lee Smith: I'm sorry, it is a 2 bed/1bath per side and although our numbers are very different, I am confident I can get at least 700 a side. I had the pleasure of talking to an experienced investor over the phone and he tells me that the numbers aren't as great as I'm thinking they are. The CoC on a good case scenario would be 11% and he says I shouldn't accept anything under 14% for the C-class neighborhood duplex.

As a beginner investor, I think I should be aiming for B class neighborhoods.

Teho Kim · Answer

@Ryan Mullin : What a huge coincidence! Bo Kim, who I was talking to on the phone, said he closely worked with you. Going w/ your opinions and passing on this offer.

Bo Kim · Answer

@Teho Kim Looks like you got some good feedback from both @Lee Smith and @Ryan Mullin. Good luck Teho, Indy is awesome :)

Jaron Walling · Answer

I agree with @Mike D'Arrigo and that explains why all the junk duplex houses in Indy get flipped and turned into SFH at triple the price.

Mike D'Arrigo · Answer

@Teho Kim I wouldn't consider it a real high crime area, There are certainly worse in Indianapolis What I don't like about it is the mixed use. You have residential surrounded by commercial and industrial. Just look at the surrounding streets. That's a deal breaker for me. It's hard to attract quality tenants in an area like that. The other issue I have is it being a multi family. I love Indianapolis for single family but for the most part, do not like it for multi. As @Lee Smith accurately points out is that most multi family is in old, low income neighborhoods and this one certainly fits that. I think you would have all of the issues that Lee mentioned. He gave you some great insight. I would listen to to it.

Ross Denman · Answer

I entirely agree with Lee. There are decent places to find duplexes, but in general, I usually deter OOS investors from them. See what happens to your deal evaluation when you run about 12% vacancy rate (which is very realistic in my experience.) Duplexes usually turn more frequently, cost more to turn, and sit on the market longer than "good" SFR's. Then figure in what your PM is going to charge you to place a tenant (ranges from 50%-100% of one month's rent.) If you're losing 2-3 months of rent every year or two, paying $1,000-$2,000 every time it goes vacant, and paying the PM $400-$750 every time they place a tenant... You're probably not looking at consistent positive cash flow.

Also, something that many people don't seem to consider. Investment properties that are more than 20 or 30 years old were most likely rented to the poorest of tenants (since anyone could get a bank loan in those days) but investors who spent the bare minimum amount to keep the tenants in the home. This means decades of neglect and deferred maintenance. We forget that there was almost no mid-class  or better rental market until 10 years ago when we saw many middle class homeowners lose their homes. The current culture is changing and more people are seeing renting as being more advantageous to their lifestyle than owning. They like the convenience and flexibility, but they also have higher expectations for the locations and types of homes that they want to live in. Older homes tend to have higher maintenance, even after they are "fully" rehabbed. Fully rehabbed doesn't mean that the sewer line has been updated, or that the 100 year old studs in the walls or attic have been changed or even looked at. Most of these homes also have some kind of foundation problem, even if it's minimal. Most of the time, I don't shy away from homes with somewhat we basements or some settling, but I've seen homes with bowing walls that looked like they could one day collapse in to the basement.

With that being said... @Ryan Mullin is one of the more seasoned investors in town working with these homes and will be a very valuable resource.

Can I get some opinions on this neighborhood please?

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