All Forum Posts by: Ross Denman

@Justin Lentz I work with investors all over the world who are investing in the Indianapolis area. Most of my clients are from California (because finding real estate investment opportunities can be tough) but I have worked with clients from Israel to Singapore.

There are lots of great midwest and southern markets that people have found success in... for years Indy, Memphis, and Kansas City were very common and we are seeing other options like Oklahoma City and some Pennsylvania markets as well.

I live in Indy, so I'm a little biased, but... other than the obvious numbers, there are some other metrics to take in to consideration. There are a variety of other reasons that different markets work well for investors.

How is the regulatory environment?Indianapolis tends to be a business/contract oriented state. This means evictions and other complications tend to rule in favor of the investor if you do all the right things.

Understand property taxes in your target market. I've seen things that look deals get shredded to very thin margins by changes in property taxes.

What kind of experts and professionals are available to build your team with? I had a friend who purchased a 40 unit building in a smaller market and was very unsatisfied with her property manager, but struggled to find a replacement. It was a big frustration to her for over a year. When investing out of state or area, ensure that you have options if you have to replace members of your team.

Visit your target markets. While this isn't necessary, the most successful investors that I usually deal with know their target markets pretty well and usually visit them at least every year. Indianapolis can be very "block by block" and it's something that really needs to be experienced to understand it. It's also nice to meet local investors, professionals, and other players to bounce ideas off of and get a general idea of what is and is not working for people in those markets.

@Jalon T Wiggins, I am not an attorney, and I'm not sure that I understand the postioning... but I will attempt to give you some insight. I always recommend new creative structures be ran past an attorney though. You can find Indiana's Security Deposit Laws here 

http://iga.in.gov/legislative/laws/2019/ic/titles/032#32-31-3-9

I'm unsure what you mean by "lease purchase." Most common contract conveyances that I'm familiar with are:

• Purchased "subject-to"
• Master lease
• Lease w/option to buy (very similar to Master lease.)
• Land contract

They all vary depending on whether title changes, equitable title, recourse, etc.

I sounds like you are trying to structure something similar to a sandwich lease or wrap around mortgage. These can be great deals, just make sure that you understand all of the numbers and liabilities, or you may find that your spread is not big enough to cover your responsibilities.

As far as the security deposit goes, Indiana tends to be very wide open when it comes to its regulations. Third-party property managers have stricter guidelines on holding security deposits, but I believe that landlords have more freedom. Regardless of whatever you do with the security deposit, you do have to make sure that it is available to refund to the tenants upon completion of the leasing contract.

I would tread lightly when it comes to security deposits though... as there are civil penalties (and potentially criminal) if you violate your fiduciary responsibilities. If you are resident is signing a lease with option to buy, I would ensure that they surrender a non-refundable option fee. There are no regulations on how fees like these can be spent, but it will obligate you to the terms of the option (usually that the property will remain available to purchase at a set price before a date in the future.)

As mentioned earlier, I would have someone else help with the structure and paperwork. Hope that helps

I just spoke with my PM today and she said that things are pretty much normal. They manage a little over 350 units and run about 8%-9% late rent collections typically. She said that April rents came in pretty normal.

@Rebecca Bautista I just spent a couple hours talking to an local investor friend of mine about these things. Most of us are positioning ourselves to be as liquid as possible right now and reduce liabilities and unnecessary expenses.

The most important thing is to not get caught up in following the blind masses. Do things that make sense. If you don't understand or it seems too good to be true... look more closely. You can usually spot the flaw and simply have to account for it.

So... I've talked to a few people in my market, Indianapolis... I was also taken back by an interview with Robet Kiayasaki regarding the upcoming depression... and that was before Covid. 

We all know that money is fake. That's why we are real estate investors. Real assets vs derivatives. Here's my take the investing market post-corona.

1. Subject to contracts for failing BRRRR investors: There have been thousands of investors building BRRRR portfolios over the last few years. Most of these are highly levered and will topple with just a few months of missed rent payments. Many of these investors may be faced whether to carry their mortgage out-of-pocket, indefinitely, this summer if the rents stop. This will create a motivated seller market with subject-to hybrid strategies probably dominating the scene. We may see new marketplaces open to sell non-traditional contracts and derivatives.
2. Bailout Money: Keep an eye out for grant opportunities. The federal government will be strategically deploying financial aid to districts that need it most. Engage the local municipal and state governments who are seeking and redistributing these grants. This creates opportunities for thriving neighborhoods while taking on bigger projects with hedged risk.
3. Online Auctions: We were planning on going to the county sheriff sales in our areas, but the auctions have all been canceled. I expect that this will accelerate the shift to online auctions. This will make these auctions more competitive and may impact market prices as the auctions become more competitive. This will likely accelerate the foreclosure cycle so we shouldn't see bottle-necked inventory for years like last time.
4. Note Investing: Depending on how the contracts/notes/derivatives are structured and the inventory and asset mix of the banking institutions... we will probably see an influx of note investing opportunities. 
5. Creative Finance/Owner Financing: I've spoken with some out of country investors who were considering reentering the US market (pre-corona) from a seller finance position. This is a more passive position and decent returns with less headaches than owning rental properties. Obviously, this also ties in to note investing as well.

I'm using this time to catch up on some phone calls (not business, just relationship calls,) updates social media channels, create content for future marketing campaigns, and engage others through social media channels (we're all going through this together.)

I fear for the thousands of over-leveraged BRRRR Investors in the upcoming year. If cash flow stops, most of those BRRRR investors were not properly prepared to weather the storm.

I was discussing this issue with a group earlier today. We tossed around the idea of the hardest hit/wave of inventory may actually come from the over-leveraged BRRRR investors. I've counseled people on leverage and risk for years. This especially applies to BRRRR. At the end of the day, many of these investors want to see higher ROI's and less money invested, so they over leverage. Worse yet, they aren't keeping adequate reserves. What happens when all 3 tenants quit paying rent and one of the HVAC systems fail and needs a $1,500 fix?

Currently, I'm polishing up on my subject-to contracts and short-sale skills right now.

@Madina Shaik Thanks. Fixed. Look forward to networking

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@KB Bjerk I agree with Mike (as usual.) If you don't already have experience managing GC's and large projects, you will likely find yourself exceptionally frustrated. I did several small deals and oversaw other projects from OOS investors before taking on my first gut and it was still pretty tough. The larger the job... the more that will go wrong. That doesn't mean that you shouldn't do it, it just means that you should go in prepared. I recommend visiting your local REIA and trying to connect with someone who has experience in your area to consult with. Be sure to fill your network and have people you can call when you have questions.

It's not just the construction side of things that can be difficult. Ensuring that GC's are showing up, getting ample work done in a timely manner, and working according to your expected quality is important, but you may run in to red tape with the city and/or utility companies as well. Everything from permits to having things certified as safe before getting the utilities on. You will also want to make sure that you put your exit strategy on a timeline. If your rehab finishes the week after Thanksgiving, good luck selling or renting for a couple of months. Also, your appraisal may vary depending on the time of year and recent sales activity. There are lots of components when pulling together a successful deal.

Personally, I believe that your first deal should be solid and relatively straightforward. It's easier to build a portfolio around something that isn't a ton of headaches and cash flows predictably and consistently. Finding a local mentor will go a long way and many of us are open to sharing all kinds of information over a cheap dinner (not too cheap...) Real estate is fun and addicting and most of us investors love to share our stories and experiences. Best of Luck!!!