Indianapolis or Jacksonville for turnkey Investment

[Tanveer Ahmed]

I am completely new in real estate. I talked with an investment company and they said I can buy an old house or cheap house ( single family 3 bed, 1 bath or 2 bed, 1 bath ) for 20k- 30k and do a rehab( Jacksonville, FL or Indianapolis, IN).These homes will not have so much of an equity. May be 5% or less. So, the summary of our discussion: The total cost including acquisition and rehab will be around 40k to 50 K. After that, I can rent it out for $700 dollar. After all expenses including PM cost, TAX, Insurance, Vacancy, Repair I can have a take home cash flow of 60% of the rent which is around $400-$420 a month. Assuming there is no mortgage and buy all with cash.

So, here is my questions.

1. Is this a good way to approach for the first time investor? 

2. Which state is better for getting this cheap rental property and less risky? Indianapolis or Jacksonville, FL?

3. How can I compare different states for investment, including vacancy rate, crime rate, and demographics data of a place?

4. How do I know the agents or realtor giving me all the authentic information? 

[Chris Clothier]

Hi @Tanveer Ahmed.  Welcome to the site!  

Unfortunately, you are not going to make money passively investing in "Cheap" or "old" housing.  Investors will tell you that actively investing in those two descriptions for properties can be very lucrative, but will also be very time consuming and you have to work hard to keep 60% of the rental revenue.  You have to work VERY HARD!

Passively investing in low price, cheap, old houses in low-demand neighborhoods is a great way to lose money, but not make much money.  Any one telling you that your expenses will be 40% is either lying to you on purpose to sell a property or they are simply too new or uninformed of the real numbers.  You will be lucky to keep 50% of your rental revenue and, over time, will be lucky to collect 10 months of rental per year as an average.

So be prepared to only realize 84% of expected rental income and then will lose 50% of that to taxes, insurance, management, routine maintenance and playing catch up on deferred maintenance.

Run your numbers off of those calculations and if you like what you see, then you will at a minimum have a more realistic outlook and expectation going into your investment.

I'm not sure there is much difference between the two markets.  Jacksonville will be more expensive and the houses are constructed differently because of proximity to the coast.  I'm not sure what the term are, but the houses are block built houses and built for the area.  In Indianapolis you are going to have houses with basements.  I'm not sure that is a negative, its just something to be aware of in that they are built differently.  

Beyond that, when talking about buying cheap houses with $700 rents, understand that these are not nice areas.  These are not high demand areas, regardless of city.  That is why you have to be careful as an out-of-state, passive investor.  A person who wants to rent a property for $700 is earning somewhere between $22,000 and $30,000 a year.  Maybe they are earning as much as $35,000 a year.  They are one lost pay check away from having to make a decision about what to pay for.  Do they pay for food, medicine, travel to work, etc.?  Or do they pay rent.  They are not as stable as a higher income earning household that may be looking for a rental payment between $1,000 and $1,500.  

Will it costs you more to buy nicer properties in more stable areas and neighborhoods? Yes.  There are absolutely home in Indianapolis and Jacksonville that are better long-term buy & hold properties at a price point that is more stable and a more reliable investment for you.   

Whether or not you can trust someone and the information they are giving you comes down to your own intuition.  Whether you travel there and meet someone face to face or simply have phone conversations with them, do your own research and ask questions of local investors.  You will quickly learn who gives you good, unfiltered information and who is trying to steer you to doing business with them. 

I definitely think you can find some really good individuals and companies located in Indianapolis and Jacksonville to do business with.  That is something I would definitely look for in your situation.  I would want to company I worked with to be located in those cities.

Best of luck as you get started!  Reach out with questions as you start navigating the site.