The Challenge of Out of State Investing in Indianapolis

I admire the courage many of you out of state Indianapolis investors have. Hopefully someday I have the knowledge and experience one needs to invest out of state. For now, I’m slowly starting to figure out the hundreds of little pockets that make up the 368.1 square miles of Indianapolis. I live here so that helps. Keep in mind I left out the suburbs of Indianapolis when calculating the square miles. So the Indianapolis market is much larger than 368.1 square miles. I’m just starting my investment journey. However, in the past eight months I’ve learned quite a bit by focusing on building my Indianapolis lead funnel through direct mail marketing, and finding a few mentors with decades of investing experience.

The biggest challenge to investing in Indianapolis is that it takes a long time to learn the market, and the only way to learn is to get out there on foot. What many out of state Indianapolis investors might not realize about Indy is that the market and demographics of a neighborhood can change drastically from one block to the next. In Indianapolis, it’s not enough to simply know the buying and selling trends of a zip code, township, or neighborhood. You have to know how the market changes from one square block to the next. I've often thought about what to do with these houses that are this close to a desirable pocket of homes in Indianapolis.

My marketing produces a phone call from an absentee owner who is looking to sell his house fast because he is tired of being a landlord and the house has been vacant for a few months. I pull up your mapping software and you’re stoked because the property appears to be a few blocks from a great neighborhood with loads of owner occupants. We all know that finding a good neighborhood is half the battle! I schedule an appointment to view the house. While driving through the neighborhood I realize that the subject property and the other surrounding properties aren’t nearly as nice as the homes 500 yards down the road. In fact they are nowhere close. No worries I say to myself, I’ll still have a look. I'm in luck! The property smells like pet urine. Many investors refer to pet urine as the smell of money! It’s still not enough though. The neighborhood is a ghost town and no matter how many stainless steel appliances and granite counter tops I put into the property I know it won’t rent long term. No tenant of sound mind would want to live in a neighborhood full of vandalized properties. Someone once said that no matter how many updates you make to a house it will be hard to find a good tenant if that tenant feels unsafe in the property. What are my options then?

Well…I know the deal looks good on paper. You could buy it for $10,000, and give it a quick makeover by putting $15,000 into it. Then, I could rent it to a less than desirable tenant for $700 a month because market rent 500 yards up the road is $900 a month. I just have to hope that this less than desirable tenant stays in the property long enough for me to sell the deal turnkey to an unknowing, naïve, and inpatient out of state Indianapolis investor for $35,000, netting me $10,000 in profit. How can savvy out of state investor pass on such a pretty property filled with stainless steel and granite, that is renting at 2% of purchase price? Because a few months down the road the out of state investor will be stuck with a property that is sure to have an enormous vacancy rate.

Out of state Indianapolis investors can avoid making that mistake by working with reputable and local property managers, real estate agents, wholesalers, and turnkey companies that operate with integrity and with their clients best interest in mind. You should make sure your team is on the ground in Indianapolis regularly. Also, take the time to truly get to know the team you’re thinking about working with. Build a relationship slowly, until you feel comfortable investing your hard earned money. Resist the urge to buy all your deals strictly on the numbers that are advertised to you. There are plenty of deals to be had in Indianapolis. Just know the market! Or find someone you can trust that knows the market.