Investor · Redondo Beach, CA · Member since 2009 · 147 posts · 129 votes
10y
Josh, a few thoughts on this. I invest in Indy myself and I am definitely not an expert but a few considerations:
- At that estimated rent you are looking at a rougher area. Are you ready/willing to take on a C (or D) class property as your first deal? Even with a property manager you could get a tenant that simply trashes the place. You could also be just fine, I personally only invest in places that do more than $750/mo
- Taxes - are you sure those are correct? If the current taxes are this, then make sure you double them. Investors pay 2% not the 1% that OO places pay. double check
- Other expenses to build into your math/model - maintenance/capex - 10% minimum, vacancy 8% min.
- how are you rehabbing this? The toughest thing about being out of state is getting a good GC and team to rehab. Hopefully you have good line of site to one
- What is ARV? You want to be sure you have multiple exits. What if the rental game just isnt your thing? how do you sell it? sure there are investors to buy it but we are all cheap people looking for a deal :) Make sure you have a strong ARV so you can sell it retail if need be (note: the area needs to have decent amount of Owner Occupied if retail is a real option no matter what the ARV shakes out at)
Real Estate Agent · Indianapolis, IN · Member since 2015 · 87 posts · 56 votes
10y
In addition to the questions @Brian Larson posed, I'm not seeing how you're going to be positive cash flowing in anything under 5 years. The monthly payments on the 401k loan (assuming you're going to be paying it back in 60 months, which obviously you'll need to to avoid a penalty) seem to be $540/mo. That's not including payback the 0% loan, monthly management costs, taxes, or maintenance. Unless I'm missing something, this is a big no to me. Like Brian said, area alone would be a deal breaker for me.
Minneapolis, MN · Member since 2016 · 19 posts · 13 votes
10y
Thanks @Erin Donlan and @Brian Larson! Great insight...I am going to look into the items you mentioned. This is definitely a buy and hold strategy, so I am ok with the 5 year payoff. The area and maintaining a good renter is key to this making sense...so I need to do more due diligence there.
My strategy was to buy my first property, and then do a cash out refinance on it to buy my next property. Thoughts on that strategy?
Do either of you have a crime checker or good method of evaluating an area remotely? I know this might be a dumb question, but any tips are appreciated.
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
10y
@Josh Bast You didn't say what area it's in but with rent of $625 that's going to be in a rough area. Personally, I would avoid anything under $750 for a 3Br. If you want to DM me the address, I'll be happy to share my thoughts. Indianapolis is a good cash flow market but you have to buy in the right areas.
Real Estate Agent · Indianapolis, IN · Member since 2015 · 87 posts · 56 votes
10y
@Josh Bast Refi is an option but most lenders will only do 70-80% cash out. Just make sure you're certain on your ARV and look at comps in the area if you haven't already. Ideally, whoever you're working with has provided that information to you already. :)
Best option is to have someone who knows the area and that you can work with closely to vet your deal and the area it's in. I'm an agent and investor in the Indianapolis area, and happy to help if you're still looking to do deals in town!
FWIW, I don't like deals where you can't cash flow monthly immediately. Even if you're holding for decades, why wait for that return?
Cash out refinancing may be very difficult on a property with that low of value. Also you will need to put cash into the property every month to cover your costs. Can you afford to finance a tenant for 5 years monthly plus carry major expenses that will arise.
This is a very risky investment that will likely never pay off and not a good way to start investing.