A little over a year ago, I was working in the entertainment industry in LA and decided to leave my job to pursue screenwriting fulltime. I figured it’d be good to have some other income coming in steadily as screenwriting is very boom and bust (in my case, mostly bust). Like a lot of people here, I was interested in real estate for a while before I ever seriously started making moves towards actually investing. After visiting with a good friend, Grayson, who’d been investing in his market in Oregon locally, we decided to try our hands at going in on something together. He turned me onto BiggerPockets, and after listening to a bunch of podcasts and hours of research, we decided to try BRRRRing out of state.

We landed on Indianapolis for several reasons. We liked the size, the prices of the homes, the diversity of jobs, not too many days with freezing weather, the universities, etc. Up to that point, I hadn’t heard too much about investing in Indy, so I was hoping it might have a little less competition. Though honestly, there were a few cities that we could have settled on, and we needed to pick one.

After picking the city, I began to peruse the BiggerPockets forum for Indianapolis. I reached out to people I saw consistently contributing here to pick their brains and learn from their experiences. See if we couldn’t wangle a few recommendations from them while I was at it. Everyone was incredibly generous with their time and recommendations (no wangling required).

For our next step, we flew out to the Indy to meet with some of the connections we’d made remotely and tour the city. Get a feel for the area in person. The trip was well worth the money. A lot of neighborhoods that looked okay online felt sketchy in person, and we happened upon some we’d never heard about before that looked great. It was valuable seeing just how quickly a neighborhood can go from the hot and trendy place to be (like Fountain Square) to… let’s just say less than desirable.

While we were plotting our new business venture, we spent a disproportionately large amount of time trying to figure out how to structure our business legally. Do we go with an LLC? People were talking about DSTs, series LLCs, etc. Ultimately, we decided to begin with a general partnership for the time being, likely upgrade to an LLC down the road. The main reason for waiting is that since I'm in CA, I'd have to pay an $800 a year franchise tax, which doesn't sound too appealing when you only have a couple of properties that are cash flowing around a $100 a month. Not the mention the hassle of forming and, if things didn't work out after our first, dissolving an LLC.

Looking for Properties

The whole time, from around August to when we eventually purchased in January, we were checking out properties from the MLS and wholesalers and dissecting them. I built a custom BRRRR calculator in Google Sheets to help me understand the process and to be able to quickly adjust numbers and see how they'd affect the deal.

We finally got our funds ready to go around Thanksgiving. We talked with our realtor, an all-in-one PM, in house rehab, superstar whose business was quickly exploding. We met him out there and thoroughly liked his hustle and systems. He came highly recommended from the Indy out-of-state investors Facebook group - which has been an invaluable resource by the way.

We had a call with him and sent him some properties we were interested in and didn’t hear back for a couple of weeks. We checked in and got the excuse that things were crazy with the holidays. Okay, not a big deal. We’ll try again. Then we didn’t hear back for another couple of weeks. Soon, it’s early January, and we’re fed up. We decide we’re going to tell him to get cracking or we’re going to start working with someone else. Before we’re able to, we discover the reason he’s gone MIA: he gambled away all of his client’s security deposits and December’s rent checks.

Had we gotten our act together sooner and bought closer to September, we would’ve been part of that unfortunate clientele. We really dodged a bullet there, entirely through pure dumb luck. Some of our investor buddies/mentors weren’t so lucky. However, it was a valuable lesson to enforce the adage “trust but verify” as well as to not keep all our eggs in one basket.

While that certainly gave us some pause, it didn’t deter us. After our millionth call with a premier wholesaler in Indy, Mainstay Property Group, we closed on a duplex in the Irvington neighborhood. The whole process happened quickly. Fourteen days to close if I remember correctly.

Rehab and PM

We decided to go with Edwin Watson at Triple E for our property management. He also manages rehabs, so we went with him to fix up the place. He was able to get the property up to snuff quickly. We needed a new roof on both the duplex and the detached garage, which he got done within about two weeks of us owning the property - in the winter no less! A selection of some of the various repairs includes new paint, vinyl plank flooring on the downstairs, drywall repair, electrical repair, and tree trimming.

It’s probably a good sign that this section is so short. Other than it costing more than we had initially budgeted, which almost feels like an investing rite of passage, we had very smooth sailing on the rehab side of things.

The duplex had a tenant on one side and one side vacant when we purchased. After finishing fixing up the empty side, we found a tenant for the vacant side about 4 weeks after listing it.

Refinancing/COVID

Throughout the process, we were reaching out to lenders trying to find what our best options were. We were in a bit of a weird spot because although I had cash for the deal, I didn’t have a W-2 income coming in, which made it hard to qualify for conventional loans. It’s a shame because the rates are so low we were really hoping to lock one in for a 30 yr.

Then we stumbled on some commercial lenders, where the rates were understandably a little higher. The loans were only conditioned on the property themselves, not your personal income. That helped get around the income issue. “Great! We’ll do that”

Well, once we had all of our ducks in a row, namely fixed up the place to ‘force appreciation’ and got it fully occupied, we went back to the lender we intended to use. Unfortunately, due to COVID, their rates had jumped up crazy high and that was even if you could get a loan done before they completely shut off the tap. Back to the drawing board!

We have a relationship with US Bank and were able to take advantage of a cashout refi program they had - 20 year, 5%, 70% LTV. Not the best, but a solid option to have in our back pocket. Plus, they were great to work with and didn't have origination or appraisal fees. We shouldn't have a problem as long we get the appraisal we're aiming for: high $140k or low $150k.

Cue rite of passage number two. Our appraisal came back at $120k. A lot lower than we'd hoped. Through pure luck, our lender was able to bend their guidelines and give us an 80% LTV instead of 70% "just this once," which mostly made up for what the appraisal lacked. That was a big relief and saved us from having to challenge the appraisal, which we still think is low, though probably not by enough to save the numbers for the deal.

An unexpected bonus: while we’re mainly focusing on cashflow, with the shorter loan term, we’re paying down much more principle on the loan than we’d thought we would each month.

Another COVID related issue we had to deal with was a delinquent tenant. As we were figuring out our refi, we had one tenant who wasn’t paying. Putting us up against the question every family member skeptically asks when you tell them you’re going to invest in a city you have no connection to, “What if your tenants don’t pay?” Which is a fair enough question, just one we’d hoped not to have experience from the get-go. Fortunately, with us hounding our PM and our PM following through, we received late payment from the tenant. Each month since has been late as well, but I’ll happily take late full rent rather than have to deal with eviction during a pandemic.

The Deal Numbers:

Purchase Price: $85,000

Closing Costs: $2,400

Rehab: ~ $20,000

Total Costs: $107,400

Refi: ($120,000 x 80% LTV): $96,000

Cash Left in the Deal: $11,400, not a true BRRRR, but still content with the result

Total Rents: $1567

Cashflow: On paper, we're breaking even. I use a fairly conservative 37% CapEx, Repairs, Mgmt Fee, & Vacancy that, combined with our high taxes (for now), is eating our cashflow. As we increase rent, lower vacancy with diligent management, and lower our taxes with our reassessment, we'll steadily increase our cashflow.

Lessons Learned

We need to be better at estimating our ARV. We were convincing ourselves we'd get to use the higher comps in the area rather than assuming they'd use the low ones. We're still happy with the deal, but it's something to look out for on our next one.

Another thing that we didn’t look into as well as we should have was the property taxes. The property is assessed at $170k and the way property taxes are structured in Indy is you pay double (2% instead of 1%) if it’s a rental. That really hurt our cash flow. We filed a subjective appeal in April and are still waiting to get the assessment lowered. It’s a painfully slow process. It’s especially frustrating because I know of a friend who filed in early June and got his adjustment in mid-July. They claim they’re handling them in the order they’re getting them, but that’s not what I’m seeing. We’ll know next time to file immediately if we think we’ve got a chance to actually get it lowered.

We're in the middle of our first flip, but as far as buy-and-hold rentals go, duplexes are great since it's essentially the same amount of work for two doors instead of just one. I would think compared to a SFR, they'd appreciate a little less and be tougher to sell since you're more likely to be selling to another investor than an owner occupant, but for the extra cash flow they seem like the way to go.

Thank You’s

I’ve been totally blown away by how open, friendly, and generous the investing community has been. It surprised me because in a way we’re all competing over the same deals (not really but a bit) that I figured everyone would be secretive and defensive of their team and strategies. We’ve learned a lot from both experienced investors with 50 doors under their belts to others just getting started like us. We’ve also enjoyed a lot of patience from service providers in Indy who’ve had to answer a lot of questions from us newbie’s before we felt confident enough to jump in.

Indianapolis, Indiana

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