All Forum Posts by: Ric Ernst

@Lincoln Wright Hocker & Associates specializes in real estate law. You didn't mention if you are local to Indy or an OOS investor. I can't recommend a CPA but, if you aren't local, I can't see a reason why you would need one specifically in Indianapolis.

@Anthony Sgro I agree with @Brad Gibson...offering a couple options is a good way to go. Vacancies cost money and, even if your rents aren't up to market rates with the existing tenant, the loss will likely be less than turning the unit over assuming they are good tenants that take care of their unit and pay their rent on time. Extending them for 6 to 12 months will also give you an opportunity to get familiar with your new asset as well.

One important note when inheriting a tenant, be sure you stipulate that the tenant's security deposit goes to you at closing. You may have a hard time collecting that from the seller if it was not included in the deal. 

@Account Closed you can absolutely find $30k-40k properties in Indianapolis (I have purchased many) and, if rehabbed right, you'll end up with a decent cash flowing asset. However, there are some pitfalls with properties in that price range. $40k is going to get you a 2/1 or maybe if you are lucky a 3/1 SFR in a C or D class neighborhood that will most likely be at least 60 years old (likely older) and in need of quite a bit of work. You'll be replacing windows, gutting bathrooms, adding HVAC, repairing roofs, replacing doors, paint, floors, etc. You can easily sink another $20-40k into your purchase to get it rent ready.

If you do it right you'll have an asset with that will rent for $650 - $800. However, tenants in this rent range aren't always those with the most stable jobs so you may experience vacancies (or evictions) more often than is sustainable. Every time you turn your property over, you will be laying out additional cash for cleaning up the property, painting, yard work and repairs which could easily eat up a few month's rent and evictions add to that cost. Not to mention the lost rent when you are vacant.

As for BRR, while your house may fetch $80-100k if you do a higher end rehab in a good market, appraisals typically come in for far less and perhaps closer to your purchase price. So you may end up dropping $60-$80k into a property after rehab and only being able to borrow $30-40k back. That's not a bad thing necessarily but, unless you have lots of cash to keep buying, you will eventually tap out.

I am sharing personal experience here and not trying to discourage you. This model is working for me and the examples I sited above are worst case. If you work hard, you may find that diamond in the rough that needs minimal repair, cash flows great, attracts the perfect long term tenant and appraises well. Just don't count on that being the case. Best of luck to you! 

@Sowmya K. adding AC to houses will certainly add value and typically justifies higher rents not to mention making your house more attractive to potential renters. As for adding one at the request of a tenant? I suppose that depends on the tenant. If they are a great tenant who always pays on time and your property is cash flowing, I would certainly consider it. Might be a negotiating point to raise rents slightly when their lease is up for renewal. I can't guess why 2 units would be required unless it is a bigger property in an A or B class neighborhood that would benefit from 2 zones. I'm no expert but that sounds like a $8k - $10k job if you need to run duct work. $3k - $5k should cover a single unit with a lot of capacity. One piece of advice if you do end up putting a unit or two in....chain the condenser down to a concrete pad or put a locking cage over it. These units have a habit of disappearing even in nicer neighborhoods.

@Aaron Singer ...@Harvey Levin posts on here and I am pretty sure Section 8 is his speciality in Indianapolis. Otherwise, if you specifically investing in C class and decide not to go Section 8, PM me and I'll send another recommendation.

@Phil T. I am no expert so best you check with your bank but, in my experience, as long as your mortgage is solely in your name and your LLC is a single member LLC owned and managed by you, you shouldn't have a problem. I've quit claimed properties back and forth without a problem. You could go the safe route and ask for permission from your lender. I believe there is a law or regulation in place that explicitly permits this. Might be more complicated if you have a partner on either the mortgage or entity, though.

@Account Closed that is spot on and has been my experience. I have several C class properties. They perform well but appraisers don't tend to value them nearly what the market says they should be. 

@Charlie Anne you didn't mention where this property is but $360 annual property taxes on an investor owned $128,000 property doesn't sound right. Any 110 year old property is going to be super expensive to fix and maintain and that low purchase price and the low rents suggest it isn't exactly in great shape. I think many of us would fantasize about living in a beautifully restored Victorian but I wouldn't consider this a good investment from a rental perspective and banking on appreciation might not be a great move unless you know exactly what sort of shape it is in to begin with a higher maintenance budget.

@Richard Covarrubias I have 4 SFRs in that general area. My 2/1s are renting in the $650 range and I am expecting to get around $750 - $800 for a 3/1 which is under constructions. $700 for a 2/1 duplex sounds a bit high to me but that will largely depend on the quality of the units. Do they have AC, parking spaces? Duplexes in that area are generally pretty old so a quality rehab could be pretty expensive. That makes me a little suspicious of an $87k all in price. If you plan to move forward, ask your TK provider to allow you to send an independent building inspector in as a condition.

@Douglas Brown sorry you went through this! Curious if you notified your insurance company that your property was vacant. Typically there is a distinction between vacant property than a tenant occupied property as far as insurance goes...the vacant property premium is higher although, if you are doing a turn-over, that shouldn't prorate out to much over the course of a couple weeks or however long you are vacant. That should have given you the coverage you needed. AC units do tend to walk away from vacant C class houses in Indy which is why all of mine are installed on a concrete pad and chained down. Most yards are unfenced and easy to walk in and out of.