Should I Buy?

Question

Looking for advice on whether or not to purchase a property. I am in discussions with a seller about purchasing a duplex that was built in 2025. It meets the 1% rule and cash flows, but it is the nicest property on the street and doesn't have reliable comps. The area is ok and could be in the path of progress in the next 10-15 years. Thoughts?

Josh C. · Answer

This is almost certainly a Neu project. They have built dozens of the exact same duplex all over the city. We currently manage several.

As most metro infill projects it will be the nicest house around as everything else is 100 years old and these are brand new.

Go off actual rents for gross income, as just because all the duplexes are the same they are in different neighborhoods. (Likely $1400-1900 per unit) But your expenses will be low and we personally haven’t had too much maintenance calls and they seem built decent. Have the tenants do any snow removal and it’s your call if you want to keep the grass cut or pus that to the tenants as well. Trash is included in your property taxes.

Management fee of $60/unit (CityPlaceIndy). Math should be straightforward and cap ex should be very low for 7-10 years.

Good luck!

Rick Albert · Answer

There are a couple of things to keep in mind:

1. Do the numbers work and are you getting an appraisal? Appraisal isn't fact but it is a layer of protection. If the numbers work then who cares. I almost never look at comps when I'm buying because I look at the numbers.

2. Based on very limited research I've done, typically new construction is very slow in appreciation for the first five to ten years. You are paying a premium for brand new systems but each year those systems get older. This can be a challenge if you want to sell later on, especially if there are more properties being built. In two years if you want to sell but the next set of new construction are coming online, you are older so therefore you can only compete on price.3. There are two major upsides to buying new construction. The first is hopefully it is designed with the latest trends in mind. That means you can rent it right away. The second is we are seeing the cost of repairs is high, so having all new construction minimizes those costs in the beginning.

4. My only main concern is where is the new construction? It is part of a community of like properties? Is it in the outskirts of a city where it may not be as desirable because it is so new? That could limit your tenant pool.

Frank Pyle · Answer

I would not buy it just because it hits the 1 percent rule. A duplex built in 2025 in Indianapolis can look great on paper, but being the nicest property on the street with weak comps usually means your downside shows up at resale and appraisal, not in year one cash flow. The quick check I would run is rent minus PITI minus management minus maintenance and then ask whether it still works with higher taxes, full market insurance, and at least 5 percent vacancy. If it only works when everything goes right, I would pass. The one thing you can do today is underwrite it like an average property in that pocket, not like a premium one, and see if you still want it. What are the price, total monthly rent, taxes, insurance, and your financing terms?

If you want, send the numbers over and I can do a quick reality check. If you need help tying the underwriting to financing strategy, IEC can help with that too.

Mackaylee Beach · Answer

Making a decision about purchasing property, especially one that stands out as the nicest on the street, involves weighing various factors. Here are some considerations that might help:

Long-Term Growth Potential: Since the area could be in the path of progress, research any upcoming developments or infrastructure projects that could enhance property values over time.

Risk vs. Reward: Being the nicest property on the street can present both opportunities and challenges. While it may attract quality tenants due to its appeal, it might also be harder to set rent prices without reliable comps.

Market Trends: Examine current market trends in the area and similar neighborhoods. Are prices generally stable, increasing, or decreasing? This can provide a clearer picture of potential future value.

Investment Goals: Reflect on your investment goals. Are you seeking steady cash flow, long-term appreciation, or both? Ensure that the property aligns with your financial objectives.

Ultimately, trust your instincts and make sure the investment feels right for you and your financial strategy.

Peter William · Answer

I got it.Thanks a lot.

Greg Kasmer · Answer

@Matt Smith - Advice would depend on your goals... If you're looking for a stabilized deal that cash flows and doesn't require heavy renovation this could be an option. However, if you're looking for a heavy value-add/renovation project to drive up the value and refinance to recoup cash this one might be hard. Could you give some more clarify on your goals in general as well as details on this property? (Down payment, cash flow, expenses you've incorporated into your analysis, etc...)

Matthew Bernal · Answer

That’s a strong find. Getting a 2025 duplex to meet the 1% rule and cash flow is pretty rare right now.

Being the nicest property on the street is really the only thing to pressure test. It can hurt you on comps today, but if the area moves the way you expect, you’re essentially ahead of the curve.

I’d zero in on:
– Whether rents are truly at market
– How the deal holds up if appreciation is slower
– And how much your cash flow shifts based on financing terms

I work with a lot of investors on deals exactly like this, and small tweaks in loan structure can make a bigger difference than most people realize—especially with newer builds.

If you want, shoot me the numbers and I can run a quick sanity check on it with you.

Are you planning to hold this long-term or more of a medium-term play?

Neville Walker · Answer

Hi Matt,

Hitting the 1% rule on a 2025 build is great, but being the nicest house on the street could be an issue. Without prying into your specific market, I'm curious about a couple of things:

Are those rents actual or just projected? It can be tough to actually get someone to pay premium rent for a brand new place if the rest of the block is rough.

Also, how are you financing this? With no solid comps, an appraiser might just drag the value down based on the older houses around it. Do you have a plan if the appraisal comes back low?

I feel like if you're just planning to hold for the next 15 years and it actually cash flows today, the lack of comps doesn't matter as much. But if you need to refi or sell anytime soon, it could be a headache

Bruce Woodruff · Answer

If you can't get decent comps, then you need to dig deeper. And the nicest house in the neighborhood thing is a concern (depending). Plus you can't even count on the 1% rule....

Do you have any room to get the price lower?

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