Los Angeles · Member since 2020 · 9 posts · 1 vote
Hi all - I've been looking to acquire my first rental property and have been looking in Indianapolis for the last few months. I've been focused on this market largely due to its stable cash flow as well as moderate appreciation (know it's not as high growth as others). That being said, I am looking for some help to review my proforma - am I missing anything? If anyone has feedback on this market, would love to get your thoughts. My biggest concern is that prices are just too high for SFH right now and for a market like Indianapolis, I feel like I'm paying top of market; however I'm really itching to just get in and start learning...
Rental Property Investor · Seattle, WA · Member since 2017 · 73 posts · 42 votes
5y
Hi @Jonathan Tao, what is 'Administrative' and 'Contingency' for? Are your closing fees/interest rates quoted from a lender already? The numbers look okay for the most part except I would say PM fees usually are >10% given some common fees on top of the monthly management fee: 1 month leasing, onboarding, professional photos, renewal, inspection.
What are you using to determine worst, base, best rents? I tend to use the lower end of the rent range when analyzing deals unless there's really strong evidence that it can rent at a higher price point. If you're leasing out in the winter, you should also expect slightly lower rents and/or longer DOM.
Rental Property Investor · Seattle, WA · Member since 2017 · 73 posts · 42 votes
5y
Hi @Jonathan Tao, what is 'Administrative' and 'Contingency' for? Are your closing fees/interest rates quoted from a lender already? The numbers look okay for the most part except I would say PM fees usually are >10% given some common fees on top of the monthly management fee: 1 month leasing, onboarding, professional photos, renewal, inspection.
What are you using to determine worst, base, best rents? I tend to use the lower end of the rent range when analyzing deals unless there's really strong evidence that it can rent at a higher price point. If you're leasing out in the winter, you should also expect slightly lower rents and/or longer DOM.
Investor · Indianapolis, IN · Member since 2018 · 2k+ posts · 1k+ votes
5y
where are you looking on market or off market?
so a lot of the best deals are off market.......and they tend to have a considerable amount of rehab than most out of state people want to get into being they are so far away........i think if you go off market and look for those deals that may require a lil more rehab then i think you will have success.....just my 2 cents.
Rental Property Investor · Indianapolis, IN · Member since 2019 · 27 posts · 13 votes
5y
Hi @Jonathan Tao, thanks for sharing your analysis. Here's my thoughts:
1) What neighborhood? Feel free to share with me directly if you want. To be successful in Indianapolis, you want to make sure you understand the specific neighborhood.
2) Vacancy at 5% seems fine for a base, but given COVID and winter, might consider tweaking the worst case for that up to 2 or 3 months.
3) Landscaping - small yard?
4) Contingency - that 5% doesn't look right compared to the monthly $.
5) PM fee should be 10% base unless you have multiple properties to bring to the PM. Maybe you're considering administrative/leasing fees to be part of this, but it could make your model a bit simpler by consolidating a few rows.
6) Property taxes seem like a decent estimate. 7) I think your insurance may be a bit low for a $145k property.
8) Fair enough mortgage / interest rate.
9) What is your credit loss line? Very small, but still curious.
At the end of the day all of that is pretty minor, but my overall comment is the estimated cash flow doesn't look great. If you're expecting only around $100 in FCF, might be good to look somewhere else. I think you've got some good conservative estimates in there, but without seeing the property and knowing the neighborhood (to comment on projected appreciation and monthly rent) its hard to comment further.
Feel free to shoot me a message if you want to chat more!
Los Angeles · Member since 2020 · 9 posts · 1 vote
5y
@Kat He thanks! My PM and mortgage are already quoted so I feel good about them. The admin and contingency were more so for paperwork, filings and even out of pocket expenses by PM, which can be more.
I stressed my scenario by using +5% for best case and down 15 or 20% for worst case, which may be a bit draconian but looking at protecting equity.
That being said, even in my base case - a 6-7% ROI feels light for a market like Indy
Los Angeles · Member since 2020 · 9 posts · 1 vote
5y
@Eric Hart thanks for the feedback! I'll be sending you a direct message later this AM with the specifics as I know Indy really varies by neighborhood and street. I've been working with a local PM so been leaning on their feedback but would love to get more insight from others. Overall I feel my base case is reasonable but like you said, just getting ~100-150$ FCF a month (or 6-7% ROI) seems kind of low for Indy, no?
Rental Property Investor · Indianapolis, IN · Member since 2019 · 27 posts · 13 votes
5y
@Jonathan Tao yeah, the general consensus seems to be Indy is a great place for cash flow, so if you're only expecting $150/mo that hardly seems worth it. That is a fully loaded number though based on your analysis so that's good.
Definitely a reasonable case, but doesn't seem like its a home run or anything. But again - you may be running ultraconservative numbers and have a good deal on your hands?
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
5y
@jonathan tao What are the contingency and administrative costs that you have. You have 8% combined but I don't know what they are. You have property taxes at 2%. Is that based on the purchase price or the assessed value? Taxes don't reassess at transfer in Indianapolis like they do in CA so make sure you are basing it on the actual assessed value. 10% for maintenance is also high. With the rent and price that you are showing, this deal should work
Los Angeles · Member since 2020 · 9 posts · 1 vote
5y
@Mike D'Arrigo - Thanks for the feedback. The contingency and admin were really just "misc" expenses for LLC filing, any potential travel, etc. that i was bit concerned about but now that I'm looking at it, I don't think they need to be there. The savings there offset the fact I was understating my PM and leasing fee so somewhat of a moot point.
WRT to RETs, I pulled the last assessed value and grew it by 3% multiplied by 2%. Curious - how do reassessments work generally speaking in Indy?
I do agree, I think the deal still pencils and generates some cash flow even on my conservative assumptions (e.g., 10% R&M contingency on top of capex reserves). That said, there are some immediate repairs for this deal, likely in the $15K range (per my property team and broker who both toured it).
Given your experience in this market, is this the type of cash flow you're seeing today or more recently?