Mid West Buy and Hold Investing with High CoC Returns?
Wholesaler · San Diego, CA · Member since 2015 · 48 posts · 12 votes
I've been following threads on investing in the Midwest on BP. I saw a few threads on the NW Indiana region. A few areas recommended included Hammond and Merrillville. After a bit more research, Hammond turns out to a a high crime region - so I'm assuming C or D class. And got feedback from another investor that Merrillville can get very rural quickly which may make finding renters a challenge. Red flags.
Any feedback for areas that are strong rental markets?
I'm looking to buy and hold with low $45-60k entry with a 12-15% return, Class B neighborhoods in a landlord tax friendly state / area. Does it exist?
It can be very easy to get caught up in numbers without knowing an area. I have been working in Northwest Indiana since 1998 so I know it well. Every time I read people's comments about how it is the mythical place that has low crime, low property prices and high rents I have to shake my head.
I choose to invest in the area because the below average schools and above average crime rates do not deter me. There are all types of people that need to live in all types of areas. Real estate investing is no different than anything else. The risk and the reward are hopelessly intertwined. Typically if someone professes that an area offers high rents and low aquisition costs, there is a reason. I choose to accept the risks inherent with the reward of investing in C areas.
If you are looking for a B class area with $45-60k aquisition costs I'm afraid the only way to find them is with a time machine.
Search within yourself to figure out what you really want and what risks you are willing to take. Many investors do very well in C areas. Your price range will invariably lead you to C areas at best.
The key to success is knowing your risks and controlling them. Do not take anyone's word for anything. Look at the facts without the rose (or green) colored glasses and base your decisions on facts and leave emotion out of the equasion. The rules of economics dictate that if an area was a true B class area where properties could be bought for $50k, the smart money would flood in and the values would rise to match any other area of its type.
I hope the best to you. Just remember that education is the key to making sound decisions. If you can sleep at night investing in C class areas then do it. If you can't then you are better off choosing a different approach. You will succeed if you want to. Don't rush into a bad deal but don't pass on a good one because it isn't perfect; few are. @Account Closed
Think about Terre Haute Indiana . City of 100,000, several colleges . No really bad areas , great place to invest .
It can be very easy to get caught up in numbers without knowing an area. I have been working in Northwest Indiana since 1998 so I know it well. Every time I read people's comments about how it is the mythical place that has low crime, low property prices and high rents I have to shake my head.
I choose to invest in the area because the below average schools and above average crime rates do not deter me. There are all types of people that need to live in all types of areas. Real estate investing is no different than anything else. The risk and the reward are hopelessly intertwined. Typically if someone professes that an area offers high rents and low aquisition costs, there is a reason. I choose to accept the risks inherent with the reward of investing in C areas.
If you are looking for a B class area with $45-60k aquisition costs I'm afraid the only way to find them is with a time machine.
Search within yourself to figure out what you really want and what risks you are willing to take. Many investors do very well in C areas. Your price range will invariably lead you to C areas at best.
The key to success is knowing your risks and controlling them. Do not take anyone's word for anything. Look at the facts without the rose (or green) colored glasses and base your decisions on facts and leave emotion out of the equasion. The rules of economics dictate that if an area was a true B class area where properties could be bought for $50k, the smart money would flood in and the values would rise to match any other area of its type.
I hope the best to you. Just remember that education is the key to making sound decisions. If you can sleep at night investing in C class areas then do it. If you can't then you are better off choosing a different approach. You will succeed if you want to. Don't rush into a bad deal but don't pass on a good one because it isn't perfect; few are. @Account Closed
That was great @Paul Stout.
@Account Closed Paul is right. I'm investing in C areas in Indinapolis with less money and sleeping at night. I just wish I could find more of them. They are not easy to find and you need to have a great relationship with your PM.
We bought a house 2 weeks ago in a B area for 28,500 dollars. I can assure you there were no time machines involved.
One last thing that I must advise @Account Closed. If you decide to move forward with C areas, become intimately familiar with the concept of internal rate of return (IRR). You absolutely must factor that in when dealing with lower income housing. Do your due diligence. You can find properties where you catch the previous owner at their saturation point where they have already dumped money into a property in hopes of deferring its obsolescence. Just remember that you should use these properties as a stepping stone. If you keep them too long the IRR will slowly but surely regain any profit that you thought you had. Don't count on appreciation on any real estate deal but especially these.
Thanks for the feedback @Paul Stout felt like I was chasing a unicorn a bit.
I'd find a few interesting areas then do the city data type research and get deflated. I may just need to consider a loan and go with a higher price point since I'm looking for class B. My priority would be to have quality renters with less turn over and stable positive cash flow - even if that means a higher price point/loan.
David. I do know a good realtor that has lived in the area her entire life. My wife and i have lived in terre haute our entire lifes. We know the neighbor hoods well. We have a 53 unit rental business started in 2002. We manage our own properties , and have great cash flow.we have also flipped 3 houses . We would spend a few days showing you our properties and also available properties. There are numerous sf homes in our area that with minor cleanup and some carpet and paint. They are rent ready . We shojld talk Jim
@Account Closed
We have turnkey homes in indianapolis with 15% Roi.
Great homes at our website www.d360creatingwealth.com
@Account Closed If the $45-$60k range was for a cash purchase then I would tell you that you should definitely look at using leverage. Many people feel safer paying cash for a property for a variety of reason. Most people look at the holding costs of vacant properties and feel better knowing that they can eliminate a mortgage from the equation and that makes them feel safer. The reality is quite different. If you pay $50k for a property you will own a $50k property. Your depreciation (this is one of the biggest benefits of real estate investing) will be on a $50k property. That's roughly $1,800 per year that you can write off on your income from that property. There is a high likelihood that this property will be a single family home (SFH). When you lose a tenant in an SFH you lose 100% of your income. Turnover is a real and high expense (go back to my comments on IRR).
Now lets take the same $50k and put it into a $250k triplex (based on a 20% down payment). You can't buy an SFH in a B area for $50k but you may be able to buy a duplex or triplex for $250k in a B area. Your depreciation is now roughly $9,000 per year. If you lose a tenant you only lose approximately 1/3 of your income.
There is also an economy of scale to consider. If you bought three SFH properties and they all needed roofs you would be paying for three roofs. If you had one triplex you would only have to buy one roof.
If you stay at or below 4 units you can get a residential loan that can be amortized over 30 years with a fixed rate.
When you move to B class areas you will notice that the cap rates tend to drop. Do not be fooled into believing you are getting a lower return. Everything on and in a residential property has a life span. When that life ends it takes real money to replace it. Those costs must be considered when calculating your actual return (IRR).
If you are looking for a good area to invest it is always best to start near somewhere you or someone you know are familiar with because you live or work there. I see you live in an area where that is easier said than done. You may be surprised what you can find within 2-4 hours of where you are even though it seems impossible based on your immediate area. There are things I know about where I live and work that I would never have a chance to glean unless I was here watching it on a daily basis. The demographics are very important and they should guide you to the right area. Three websites you want to become familiar with are bestplaces.net, city-data.com, and irr.com. These sites will tell you who lives where you want to invest. That should be the first step. Who do you want to service and why? Find them and you will find your property.
Another thing you might want to look into is house hacking if your circumstances allow for it. Mine do not but you better believe if they did I would take full advantage of that strategy. @Account Closed
I've been following threads on investing in the Midwest on BP. I saw a few threads on the NW Indiana region. A few areas recommended included Hammond and Merrillville. After a bit more research, Hammond turns out to a a high crime region - so I'm assuming C or D class. And got feedback from another investor that Merrillville can get very rural quickly which may make finding renters a challenge. Red flags.
Any feedback for areas that are strong rental markets?
I'm looking to buy and hold with low $45-60k entry with a 12-15% return, Class B neighborhoods in a landlord tax friendly state / area. Does it exist?
I invest very heavily in NW Indiana area and I disagree with the comments above. I wouldn't call the entire Hammond C or D area. There are parts of Hammond that are bad and if you stay away from those areas, you will do fine. There is lot of gang activity in South side of Chicago, but that doesn't make the entire city of Chicago a C or D area.
As for Merrillville, I am not sure what you mean by "can get very rural quickly"? I own several properties in Merrillville and it is red hot market to rent out and flips. I just sold a flip there for $130k and have another one closing this week or next for $140k and working on another one which we will list out at $150k. I have zero vacancy in Merrillville. There are good and bad parts in each city, but if you put the entire city in one big bucket, it's unfair to the city and you will lose out on some opportunities.
Best wishes for your success
@Account Closed - would you consider crossing into Michigan? We have a few areas between Kalamazoo & Battle Creek that would fit what you are looking for.
You gave one of the best advice/comments I have ever seen on Bigger Pockets... Well Said!!! I hope you don't mind me using it every once in a while. LOL!!
Hi Lena,
You may want to consider Northeast Ohio. There are areas here that are considered lower crime, have great, reliable, tenants, with homes in the $65-75,000 range that rent in the $1,000 range. If you are interested, please message me and we can talk more!
Nada
@Paul Stout thanks again for the sound advice.
A bit more about where my head was at: the strategy for a full out SF purchase was for higher monthly returns. The alternative would have been to split the capital and invest in two SF's with loans but comes with more risk, management, capex etc. I had originally considered MF units - but in the midwest areas that I was investigating - I did not see that type of rental market/inventory.
Another way to look at the MF vs. SF argument was if I could find a strong rental market where tenants stay for years (I have one property like this in CA) with low turn over - it would be easier to manage one roof, set of tenants etc. The risks are definitely diversified across MF's so I'll think about this more. Great way to look at the depreciation/ tax savings. This is not something I had considered so think more on this as well.
My goal: identify a few key areas / pockets of interest in the midwest and fly out to do 'boots on the ground' research after the areas checked out on city data, craigslist, zillow, BP feedback, etc. Thanks for the other sites as well. Will add those sites to my research as well. My challenge right now is finding a couple of areas of interest close to one another to buy a plane ticket for.
I've been crunching the numbers for property around my area. This is actually where I had started. The properties in the class C/D neighborhoods are at $450+ with rent of about $1300/mo for a 3bed/2bath. It's also very challenging to find a PM that will manage class C/D neighborhoods in the LA area. But more importantly, it would take me 10 years + to earn my money back based on the margins. I'm anxious to make my money to work for me now. :)
Thanks all others who reached out, I will take a look at the areas you all suggested and reach out
@Sharad M. thanks for the feedback about Merrillville and Hammond. I was intrigued with Merrillville and Hammond because of the low entry points and decent rent / returns.
When I did some City Data research on Hammond, the crime rates looked very high compared to the rest of IN. But I'm hearing that certain pockets may be more favorable than others. This is where I would need to find a good realtor to show me around when I fly out for 'boots on the ground' research. It sounds like you are seeing good returns.
With Merrillville, I looked up a few properties on google maps and pockets of areas looked like all open fields. Based on feedback from another investor that lives in the area, she mentioned that it can get rural quick and her concern was that homes may be hard to rent for that reason. Would love to hear more about what you're seeing in these areas, vacancy rates and to connect. Thanks.
I can't recommend Grand Rapids and West Michigan too highly for investors. Based upon 3rd party independent companies like Truila, RealtyTrac, Zillow, etc. the Grand Rapids area is one of the hottest real estate markets in the country for renters and homebuyers. The economy is doing fabulous too. The amount needed to invest is small. (Besides all that, its just a great place to live!)
Thank you @Derrick Craig and I do not mind at all.
@Sharad M. I do not believe anyone was unfairly classifying a certain area in NW Indiana. The point of the discussion that was perhaps missed was the price point. I agree wholeheartedly that there are many great areas in NW Indiana that have low crime and exceptional schools. However, you will not find a $50k property that rents for $1000 plus. Someone may stumble across a great deal like that but they are the exception (rare exception) not the rule. I think the entire region from Milwaukee to Indianapolis have many great opportunities for investors. You just have to accept that you will pay for B class. Nothing is free in any area.
@Account Closed Its good to hear that you have a plan and that you are thinking about your strategy. The details of that plan and strategy are dictated by your risk tolerance. Identify your why and decide what you can accept by way of risk and the rest will fall into place. The fact that you are here on BP and are willing to ask questions, listen and rethink your strategy based on sound advice indicate that you have what it takes to succeed. One of the biggest hurdles investors face is shifting their paradigm from a homeowner or tenant to an investor or business owner. You do not need to find a place or property where you want to live. You need to find a place or property where your clients want to live. This is a business and you need to know who you are selling to. Only then can you make a plan to market to that target group. Only you know whats right for you. You will receive a lot of garbage information. You have to learn to pluck the useable items from it and trash the rest. If it sounds too good to be true, it is.
I would have to agree with @Sharad M. about property location. Many areas change block-by-block and you have to make an assessment based on each individual property location. Blanket statements about areas can limit investor potential....
@Account Closed I live in Lake County, IN. It's kind of a funny place. Cross the street, and you're in a different town, with a very different kind of neighborhood. Head to the south part of the county, and you are in literally in farm country. Head North, and you're in the what amounts to a Chicago neighborhood.
Hammond in general has a lot of crime, but there are sections (the south and west side, generally) that are pretty nice. Merrillville is much the same: nice areas, some rural areas (which are building up, and quickly), and some pretty rough neighborhoods. As a good rule of thumb, the closer an area is to Gary, the more crime (and poverty) there is.
Make sure you get to know the neighborhood if you're looking to buy and hold there.
Think about Terre Haute Indiana . City of 100,000, several colleges . No really bad areas , great place to invest .
I grew up in Terre Haute, and have family there. West Terre Haute is pretty rough, although I guess technically that's a different town...
I do not believe anyone was unfairly classifying a certain area in NW Indiana. The point of the discussion that was perhaps missed was the price point. I agree wholeheartedly that there are many great areas in NW Indiana that have low crime and exceptional schools. However, you will not find a $50k property that rents for $1000 plus. Someone may stumble across a great deal like that but they are the exception (rare exception) not the rule. I think the entire region from Milwaukee to Indianapolis have many great opportunities for investors. You just have to accept that you will pay for B class. Nothing is free in any area.
I disagree with that completely. There are several properties that you can find for $50k that will rent for $1,000. They are worth a lot more. I am closing on one tomorrow in Merrillville where I will get $1,100 rent and my cost will be in $50k range. I have done about 250 deals in last 5 years in the area so I am not talking exceptions here. Prices have consistently gone up in last few years so entry point is getting higher now than it was a year or so ago.