Indina rental market

15 Replies

Hi

I have a few rental properties in Indiana in different areas.

I am seeing that in the last 3 years, the tenants have not been stable at all. All my homes

are getting vacated in a year or two.

I have a property manager managing all the homes. I always do whatever he suggests

for repair works and to get the house ready for rent ready.

I wanted to check if others with properties in Indiana are facing the same issue.

Any advice on what I can do to determine the cause and improve the situation will be

very helpful.

If you have rental properties in Indiana please share your experience.

thanks

Debashis

Tenants in the lower class property don't stay too long. I can't understand why either since many of them move in with appliances etc and its gotta be expensive and difficult to move. I also haven't really raised rent either. So it just seems that they have transient lives. I assume average tenancy of 18 months in my models for that reason. 

@Anish Tolia

What I have been told by those that have worked these asset class's for years and my own experience over about 20 years lending on the asset class,, is that most of these folks will move 30 to 40 times in their life and generally will live in the same town and many times within a 5 mile sq.. the reason they move frequently and one may not understand is that its not a huge deal for them. I have been in literally hundreds of these asset class homes over the years.. and these folks just do not have the same amount of possessions as many do.. because they do move so frequently they don't collect stuff. so in many cases they can pick up and move in a matter of hours... As well as especially with HUD.. they know the value of a voucher as landlords get desperate when they have vacancies and break ins.. so they will move once their lease is up to the next FRESH rehabbed home.. get U haul at 10 am pack up move and be to the next brand new rehabbed home by 12 pm... wham ... they are gone you have a turn over and the cycle repeats.. These are life long renters they know the game... and what is common sense or how a landlord lives there lives is totally foreign to many of these folks.

Hi @Debashis Sadhukhan

I invest very heavily in Indiana market and my experience has been different from yours. In last 4+ years that I have been investing, the rents haven't gone up a lot, but the tenants have been very consistent and quality of tenants hasn't been bad at all. As of today, everything that is rent ready is rented out and in most cases we are able to rent out properties before they are ready because of high demand.

Every now and then we do get stuck with an odd bad tenant, but that's definitely not the norm. I invest in mostly B area so that could be why. Even for my C area properties, I haven't had any major issues with them either.

What @Jay Hinrichs is saying is very true, but in my market that applies pretty much to D class or lower C class areas. My experience has been that most of my tenants move because of some life event, like change in jobs, getting married, divorced, etc. In a lot of cases if the tenants are looking for a bigger or small property in the area, we are able to find something for them from one of our properties. All of my properties are being managed by a property management company also.

What part of Indiana are you investing in?

@Sharad M.

  correct by @Debashis Sadhukhan    description in the thread I am describing C class and lower... And your market Sharad is one of those under the radar markets that you found and you get the best of both worlds you get C class prices and B class or better tenants.

Like Jim Harbough says    " who has it better than you "  NOBODY     :)

@Jay Hinrichs

I 100% agree with your point on tenant class with C and D class areas. The numbers of paper seem great for these kind of properties, but the tenant turnover and management issues make these properties very challenging. Not every PM company would want to manage these kind of properties.

I am fortunate to be investing in the area that I am. It is a great little market where you get best of both worlds. Not as under the radar as a year or so ago. The competition, specially for flips, is pretty intense.

Thanks a lot for your responses.

I guess I should have given more details about the properties:

In my opinion they are A or B class.  These homes are in good areas in good school districts (except Indianapolis):

Fishers, Greenwood, Noblesville, Indianapolis

All single family detached 3 to 4 bedrooms.

Year built is 1997 to 2001

Sq feet from 1200 (Indianapolis) to 2500 (Fishers)

Rent - $900 to $1300

These are NOT dilapidated homes that we then renoved. They were in good shape to begin with.

Obviously they do not fit the 2% rule, more like 1% rule.

We not been able to increase rents since we purchased them during the crash 2009 to 2013. Tenants are not bad in that they are not messing up the properties or anything like that, but they keep leaving, sometimes breaking the lease and leaving.

Most say they are changing jobs etc. But this has happened quite a few times.

I am wondering if there is a big supply increase in the market as tons of folks are now buying and renting and there are many turnkey operators now touting this 'amazing' opportunity. Even hedge funds apparently are into this. So, in the areas mentioned, is anyone facing this? Any ideas about what could be causing this and how to reduce vacancies? Thanks in advance for your responses.

@Debashis Sadhukhan In your class of properties and in those areas, you've had a lot of competition from the equity funds, particularly American Homes 4 Rent. Their acquisitions are down 60% this year so the pressure should be easing up and returning to equilibrium. Keep in mind that new rentals are not being built so it's not as though there is a long term over supply. For every foreclosure there is a displaced homeowner that is now a renter. On top of that, new household formation is growing again since the recession of 2009 and millennials are moving out of mom and dad's basement and becoming renters.

The only thing I can think of is how good is your pm.  You may need to get a better pm.

@Debashis Sadhukhan

  here is how I handle my A class rentals  and remember I am one of the worse at land lording as Its not a passion of mine and I hate the detail and getting fix up calls.

First off I under cut the rental market if its 1200 I rent for 1150 or 1100... rate of return on the rentals per month is not my concern its longevity of tenant, so I don't have what your going through.. then I tell the tenant I will never raise the rent as long as your on time you don't bug me much with little dinky things.

Tenants leaving is a HUGE issue with SFR's especially if you have debt. you take one month of vacancy 1k to fix it back up even a spruce up is usually 500 to 1000. and a placement fee of another months rent.. and you just lost 3 months of rent on that one house. so that usually kills whatever you thought you positive cash flow rental was doing for at least 12 to 18 months. And if your in a situation were this is constant then your probably not cash flowing at all and are probably negative flow ...

I have seen many landlord get stubborn over monthly rental rates and their property sits for 2 3 or 6 months.. trying to get an extra 50 or 100 a month. when their holding cost for 3 months might be 3k... if that all makes sense.. turn over kills the rental yield no matter the asset class.

Thanks everyone. The information shared has been very helpful.

I agree with Jay's comment on no rent increase and keeping rent below market should help. 

If you are using property manager for the Indiana properties and are extremely happy with them, could you also share the pm company names. 

@Debashis Sadhukhan - all good advice above.

Don't forget that some of these renters are probably buying a home now that they've weathered the financial storm and their credit is recovering from 2008-2010.

I often offer incentives to sign another lease about 3 months before the current lease expires.  Things like: a ceiling fan, one room of custom color paint, a microwave hood, small storage shed, etc.  Notice all of these items are part of the home and add value plus entice the current tenant to stay.

I also make all my leases expire at the end of April - I don't want a vacancy in January when it's -10 outside.

Feel free to PM your current PM info & I'd be glad to comment on their capabilities.

@Debashis Sadhukhan

I have found that the B class neighborhoods have faster turnover than my C class homes because they are leaving to buy homes.

My C class tenants actually have longer stays.

Have you considered offering any of your homes on a lease with option to purchase?

Hi Jeb,

All my homes have the same property manager: 

Complete Real Estate Solutions

http://www.cresindy.com/

They do a reasonably good job.  But turnaround time between tenants is bit high I think - usually a month.  It usually takes one to 2 weeks just to get rent ready.  If anyone is very happy with their Prop Manager please let us know.  

You would be well-served to follow @Jay Hinrichs philosophy regarding pricing your rent 'under market' so as to minimize turnover/vacancy (see his post of April 19th).  

Vacancy, turnover, renovations & re-leasing of the unit absolutely decimates your cash flow!

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