I'm looking for some B Class properties for my Buy-and-Hold portfolio in Fountain Square and Warren Park area of Indianapolis.
I was looking at this Investors Guide to Grading Indianapolis Neighborhoods and noticed that Fountain Square is listed as a Class B neighborhood but the schools are rated 3 out of 10 (that's not Class B in my world), and the neighborhood doesn't look like a Class B neighborhood. I understand it's going through a gentrification right now, one of the properties I'm looking at has two new construction properties next door. It seems like sellers are trying to charge for this neighborhood gentrification on the front-end before it actually takes place, I don't believe in prepaying for potential/projected appreciation so this is throwing me off. Additionally all the sellers are saying the area is a trendy hangout area with bars, restaurants, and major employers nearby, etc.. Maybe it's because I'm from Southern California and grew up in Los Angeles but this just looks like a regular Class C neighborhood, What am I missing?
Warren seems a little more like a Class B neighborhood, better schools and a more suburban feel.
I'm seeing varying rents in both neighborhoods Fountain Square and Warren but Warren seems to be a little more consistent at the high range and I don't have to search for the good pockets, but there doesn't seem to be anything to draw people to the neighborhood like Fountain Square.
Am I missing something in the proximity to Downtown Indy with these neighborhoods?
Other than the future possibility of a complete gentrification in Fountain Square, What else is there that's demanding Class B+ pricing in a Class C (some areas) and Class C- in other areas?
If you're an Indianapolis local please enlighten me.
I believe the fountain sq area goes to IPS.......which is probably why its 3 out of 10
I see where you're coming from my friend. People are selling tears downs in Fountain Square for $80k. The revitalizing of the neighborhood is happening quickly and you will definitely see 60k homes next to 300k homes scattered throughout. The closer you actually get to the square, the more valuable property is. Also, a coupe decades ago, a popular fad came about where people were selling off the back 10-50% of their lot. If you buy in that area, make sure you get a full lot. The attraction is the entertainment/night life, not the school system, like it is for most classes.
As for Warren, the schools are much better. They are widely known for their outstanding athletics programs which draws national attention at times. It's accurate to call it a C area because of the crime levels. Probably 50% of residents rent. After driving down a few streets, you'll see what I'm talking about. It's a blue collar area so rents will likely not exceed 1500 max. That's generous.
Let me know if you want to talk about it. Contact info on my page.
your missing proximity to Lilly and down town..
these type of pockets exist all over the country..
I would buy a 80k rental were the next door houses are 300k
before i would buy an 80k rental and everything is 80k with no hope of any expansion or re gentrification.
@Jay Hinrichs I agree with your philosophy 100% on buying an $80k rental next to a $300K rental. I guess it's throwing me off because I've only bought this early into a gentrifying area once before. The last gentrifying area I bought into had just selected a winning developer, the contract award came with City approved plans for the developer to build out a combination of 2,600 new SFR's Condo's, For-Rent Apartments, and a Senior project, with some affordable units sprinkled into the mix to appease the local politicians for gentrifying the area and forcing the poor out, there was also a Whole Foods, Target, and others retailers committed. That I could quantify the value of paying a little more early in the gentrification stages, that property went up in value over 100K the first 18 months of possession.
What's going on in this area of Indy I can't seem to quantify it other than some people are buying $40k - $80K properties, tearing them down and building new, some are doing gut rehabs with a change in floor plans, and some are buying the $60k-$90k property putting $30k into it and renting it out in hopes of the spike.
When I see the land for these lots are valued at $4,000 - $6,000 depending on lot size, that's a big gamble to teardown and scale that $40k - $80k property purchase to the $250k - $300k properties that are being sold on some of these deals. If there were better fundamentals other than it's the next "Hot Spot" I'd feel a little more comfortable.
I may go one neighborhood over to Warren, a true current Class B neighborhood where I can get decent cash flow with less risk.
As an Out Of State Investor acquiring Class B product tells you how conservative I am, If I were a gambler I'd be in Cleveland dealing in the high cash flow Class D/F product and dealing with the headaches that come with it.
Ray,, you cannot buy lots in fountain square for 4 to 6 k that shipped sailed a few years ago.
Plus you cannot compare some large West coast development to anything in these areas. these cities are basically 100 years older.
lots in fountain sq are 40 to 80k. to me an 80k rental that is rent ready basically is just about dirt value.
the numbers there for 50k lots and 350 to 400k new builds work very nicely for builders. its better than rehabbing those old props.. I don't landlord.. so not much help there.. but I sure know infill.
Ray lastly were lots have almost zero value is in places in the mid west were the homes can only be sold for 50 to 100k and there is no new construction.. those are just areas that are appropriate for drip landlord income.
which is cool for most its what they can understand and its what they can finance.
not every one can get construction loans.. especially newer or beginning investor.. nor should they.
@Caolan Hoff Thank you for that information. As an OOS investor I usually look for fundamentals to quantify my investments, I'm currently leaning towards Warren as I analyze the various Class B neighborhoods. I see there's more Class B product the further you get away from Downtown but I'm not a fan of the suburbs, I like having a larger pool of rental applicants to choose from to place.
What are your thoughts on Irvington?
I'll reach out to chat.
@Jay Hinrichs That's true! I'll leave the construction and development to guys like you that know what you're doing and can take advantage of those economies of scale building many homes in one area, I would never do a single site project, the cost would be too much and no money would be made if I tried it.
Once again @Jay Hinrichs is so 100% right on about Indy. I invest there, have two SFH's and have tried to buy as close as I can to Fountain Square and Bates. I don't know if this is a generational thing but to me I don't think millennials care about school ratings at all... also, I'm sure they are low because Indy public schools are like any other public school which means they are both awesome and really bad all at the same time. I'm a public school teacher in Boston so I guess I'm not afraid of low school ratings because in our district we probably have some of the worst and some of the best schools in the state right in the same district. I don't give school ratings much weight. School's change too... where I live in Boston a tear down is 500k minimum and yet the school ratings are not great... but if you talk to the parents they all agree that yes, the highschool is rough, but every kid coming into the district are from new parents who just moved and bought some crazy expensive house (just like in Fountain square) and in 10 years the district will be completely different. Schools are only as good as the parents in them so if you have a gentrified area with involved parents the schools WILL change, its not the other way around where "bad schools" turn kids bad. Good parents turn bad schools into good ones. It has happened all over Boston and I promise it will happen in Fountain too, give it a few more years. All those folks who bought 500K brand new construction have kids in day care right now but they won't put up with bad schools once they get into the lower grades.
I think the general trend overall in the US right now is to move into urban areas so I think that's on your side in Fountain square. And I hate the grading system... I think there is "traditional" A, B, C, D ratings and then there are what I call "millennial ratings" where schools are less important than where the breweries are popping up. I would say when you get close to the actual fountain square you are close to grade A honestly.
@Ray Johnson I don't know how you get better fundamentals than Fountain... its close to Lilly, right on the awesome bike trail, the square its self is hoping with businesses, and you can walk in 5 minutes almost into the downtown. You HAVE to visit and walk/ bike it to really get a feel. I "walked" it on google maps and then visited in person and then I got it. I know that there are some older elements there but its long since been gentrified- hence why Bates has blown up too... I think that's honestly where you need to be a bit more careful. Anyways, to me fountain is a waaayyyy better investment than Warren and the suburbs. More renters, younger, hipper, more disposable income, you have appreciation on your side if you are BRRRR'ing. Just my thoughts but with my two SFH's they are close-ish to fountain and I got both of them rented in the winter in a week's time at the rent that I was asking for with great tenants. I'm sticking with the urban gentrification model. I think that's where the population trends will continue to expand in the near future!
@Adam Sankowski good take on the schools..
also cant forget about Salesforce they moved in 2k workers and took over the biggest building downtown.
If you are going to be an out of town investor you need to invest in a plane ticket and walk the neighborhood.
@Adam Sankowski Thank you for the very good insight! I never thought of looking at the school ratings that way in an area experiencing gentrification.
The properties close to the Fountain and Lilly are too expensive to cash flow as a Buy-and-Hold. I'm seeing some in Fountain Square but others are heading into nearby neighborhoods, I see some in the Bates neighborhood but I'm not sure how to read the neighborhood when I see a lot of security metal/bar screen doors on some of the houses.
What are your thoughts on the Irvington neighborhood?
I'm going to send you an email I have a few questions regarding your experience in Indy as an OOS investor.
@Eric Michaels I agree with you 100%. I usually perform online analytics first, get a realtor onboard to cross reference my data, then I usually take a week long trip to the area I invest in confirming my findings. I try to get a lot of the time consuming preliminary items out of the way prior to travelling to the area so I'm not making too many trips.
When I first started doing OOS investing, I would travel to an area first, check it out and I found myself constantly going back and forth for areas I missed or got referred to last minute, or an agent wanting to show me new areas once I've left, I was wasting a lot of money going that route, now I try to crunch as much as I can before travelling.
@Ray Johnson Irvington is cool, its close -ish to downtown and yet a different school system I believe? I have to totally agree with @Eric Michaels on the visiting thing and sounds like you agree too. Good job getting opinions first before going too. I visited both KC and Indy when I was going to invest and it wasn't until I saw Indy first hand that I became really impressed with what I saw and how much the city has put into revitalizing a lot of it. I don't think that the 80's and 90's treated the city well but its def. on the upswing. You can have a neighborhood like bates where yes, there are meth dudes, but also hipsters happy to pay solid rent for the right places. I think when you see the areas of Bates closer to the Lilly building you won't be sketched out. So far I love the tenant quality and low stress of the investment. My KC house keeps me up at night but Indy has been smooth sailing. Its def. where I'm investing from now on!
@Ray Johnson Indianapolis varies neighborhood to neighborhood and even street to street and this is particularly true of Fountain Square, It's not possible to make a blanket statement that it is any one particular class. There are a handfull of streets that have gone through a lot of gentrification but you can go a few blocks away and be in a D class area. The problem is compounded by the fact that people stretch the boundaries of what they call Fountain Square. Be careful and get to know the area well first. Warren is a township made up of several diverse neighborhoods. Most of the neighborhoods are what I would consider C/C+ with some B class areas. There are some real nuances to the area. Fountain Square and Warren Towsnhip appeal to very different types of tenants. Fountain Square (true Fountain Square) appeals more to a younger, single demographic that likes the night life and proximity to down town. Warren is obviously a more suburban area and appeals to older people with families in general. I've been active in Indianapolis since 2010 and know it well. I'd be happy to help you if I can.
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