Is market overpriced in these two cities?

Question

Hello everyone, new member from Northeast here, and complete newbie in RE investment! I've been spending sometime now educating myself and looking at a few markets, and I'm narrowing down to either Indianapolis-IN or Columbus-OH. Profiles of these two cities seem to be somewhat similar. I've never been to Columbus, and I have lived in Indianapolis for a short period some 20 years ago (I'm sure the city has changed a lot by now). Any advice which of the two I should focus on? And neighborhoods I should look into? Or should I just do both? lol

Also, do you think these two markets are overpriced right now? I made a trip down to Raleigh NC few months ago to look at some properties, and it was pretty wild there. I wonder if Columbus and Indy are the same? Should I wait for dust to settle a little? Btw, as OOS investor, how do you build your team?

Being newbie and OOS, I'm not ready to do BRRRR, so I'm looking at either single home or maybe duplex. I'm thinking of potentially getting a few properties within a year or so.

I'd love to get your thoughts on this, any advice or tips for a newbie are welcome!

Marc Rice · Answer

@Sara T.

I grew up in the northeast in MA where I’m all to familiar with high prices. The Raleigh triangle area is very hot and prices have rapidly rose, I don’t think rents have caught up there yet.

Columbus and Indianapolis on the other hand are more affordable and have a lot of room for rapid growth  which is why they’ve been so hot over the past 24 months. Columbus in particular is still a great market to invest for cash flow and appreciation hybrid, it’s just harder to find deals that cash flow handsomely.

In Columbus you can find 1% rules in B-/C+/C/C- neighborhoods with a little bit of work, but to find those in A/B class now is not a realistic expectation for a new Oos investor.

Overall you should find a good investor friendly agent in your market you want to invest in and have him/her start sending you deals.

Sara T. · Answer

Thank you for all the insights and suggestions everyone! Yeah, I need to think about building a team properly. That'll be my next task.

So far I've been trying to run the numbers while being mindful of the market I'm getting into. I would like to balance the appreciation as well. Columbus seems to be growing a bit more rapidly than Indy, but maybe that's why (i think) it's a bit more expensive too? How's the vacancy rate there? One strike for me about Columbus is that property tax seems to be on high side compared to Indianapolis.

What's the reasonable CoC and CapRate in these areas?

Tim Johnson · Answer

@Sara T. - Your question about building a good team may be even more important than which city you choose.

While an investor-savvy realtor and an investor-savvy property manager can be the golden duo, I would get recommendations and interview a few property managers first of all. They often (not always) come with their own in-house contractors, handymen, list of vendors, etc. that will be needed if you're going to depend on them from out of state. As a realtor, I'm also working hard on building relationships with prop managers and vendors so that I'll be able to really help the investors coming into our market. (I'll let someone else share wisdom on the yea or nay of Columbus vs. Indy.) Best wishes in your ventures!

Caleb Brown · Answer

Everywhere is hot and hasn't slowed down. You can wait but we don't know if the market will continue to be crazy or dip. Buy right, stick to your numbers. On the team find an agent or PM they can hook you up with other vendors. BP is a great way to connect.

Dan H. · Answer

My advice to newbies is to start local.  I do not know what local is in your case, but OOS has risks that local does not.

RE markets are efficient.  The prices are based on many parameters.  Two of the primary parameters are expected risk and expected appreciation.  This efficiency of market explains why there is a poor relationship between initial cash flow and cash flow over a long hold period.  The market with the anticipated lower rent appreciation will have this priced into the RE market and therefore have initially a better cash flow.  The market were rents are expected to increase will similarly have this priced into the market and start with poor (maybe even negative) cash flow.  If the markets perform as predicted, the initial poor cash flow market will benefit from higher increasing rents and eventually have better cash flow than the market that had the initial better cash flow, but was expected to have less rent appreciation.

In your local market it is easier to build and maintain your team, you have local first hand RE market knowledge, and you can more easily perform heroics if it is ever necessary.

I recommend you take a second and third look at your local market.  This is nothing against the two markets you are considering.  I have heard good things about both of those markets so I think they are good markets, but better markets for their local investors or more experienced investors.  I also do not believe either is over priced meaning likely to experience a large depreciation.

Good luck

Frank Rodrigues · Answer

IMO, the numbers are always more important than the zip code. You can find good deals in many "hot" markets and even not-so "hot" markets, it really depends on what kind of team you have and what type of property you are trying to acquire. Indy, Columbus, Raleigh, KC, Michigan... these are all places that you can find good deals in. You can choose one or choose all, the most important thing is to make a choice and go. Just remember, in real estate you make money when you BUY! So start buying! I hope that helps and best of luck!

Marc Rice · Answer

Property taxes are pretty high in Columbus. Vacancy rate is usually 5% a year, it's pretty standard for most markets.

Cap rates in Columbus are 5-6% for A, 6-7% for B, 7-10%+ for B- to C-. There are variances there as well though, that's just on average. CoC is dependent on your financing structure...

Clay Boykin · Answer

@Sara T. It depends on your investment strategy. Looking for 1-2 units starting out is a great tactic. If your wanting to do a lipstick rehab it is very possible. If your wanting to house-hack it is very possible. For starting out, I would network as much as possible. You want to build a team that way when hiccups/problems arise, your not dead in the water. Especially being OOS. Columbus has a diverse rental market when it comes to investing. It also has a hot airbnb market.

All in all though, my best advice for any newcomer is to network. Like the wise Robert Kiyosaki said, "your network is your net worth."

Happy Investing!

Jake Knight · Answer

I like all the suggestions above and feel like you would be best off interviewing different management companies in your two markets of interest.  I'm in the Indy market and am with a large property management company (that also offers brokerage services) so I think I can offer a lot in this area.  I have found our market compared to Columbus quite often.  Columbus edges us in population but both have seen growth over the years.

Please DM if you want to chat further.

Brandon Goldsmith · Answer

The market in Columbus is still decently hot, but as many of the others said, it just comes down to how good the team is that you have in place. In the meantime, I would narrow in on some criteria that you are looking for a market and specific properties. @Sara T.

Is market overpriced in these two cities?

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