I recently have been looking at the rental property market of Chicago and it's suburbs. The acquisition costs are attractive, the property taxes are scary. I then began to look in the Gary, Indiana area which then led to Indianapolis and surrounding. I am looking to start putting some money to work using the BRRRR strategy. I would love to hear what your thoughts are on your area of expertise. Ideally, I would find someone who wouldn't mind me plugging into their team of rockstars. I was CA based, but now I am in Phoenix. I have a goal of buying a rental, preferably a duplex or larger before the end of the year. It will be my second acquisition this year besides my primary residence here in Arizona. I look forward to seeing where this thread goes.
Hey Ryan - is this your first flip/BRRR? Currently doing this in Indi.
@Ryan Ray we have clients doing BRRRR's and variations all year long. Deals are pretty competitive right now, but the market should soften over the next couple of months when school gets back in session. I'm actually expecting a pretty soft market until the election next year as the upcoming political circus will likely make a lot of people more hesitant to making major purchases.
With that being said, I would recommend building a good team and filling up your network. You will need help with acquisitions, renovations, and lending. I usually help my clients build their team with a variety of providers and professionals that many of my clients have worked with over the last couple of years.
Please understand that there is a lot of hype around the BRRRR method and while it's an extremely powerful way to build a portfolio, it's rare that you can actually refinance 100% of your money back out and cash flow as well. You have to have tons of equity and great rent rates to do this and I've only seen a few that fit this criteria. My goal is to have no more than 20% of the FMV invested over the long term. If I can't refinance that much, I should just purchase conventional with 20% down.
You will also want to ensure that you have adequate reserves. My personal rentals tend to cash flow about $1,000-$2,500/year and that's simply not enough income to handle any major overhead like vacancies or major repairs. Currently, I am putting in an insurance claim for a major wind and hail storm we had about 6 weeks ago. The estimate is over $10k, but I have a $5k deductible. That's going to take half of my reserves for the property and put me in the hole for cash flow for a few years if I don't have any other major expenses come up. Fortunately, I'm prepared for these kinds of things, but many new investors get caught off guard when issues come up and all of their money is tied up BRRRRing another property.
Feel free to reach out if you want to know more about what I'm seeing in the Indy market.
@Ross Denman Ross thank you for bringing the voice of reason to all this hysteria about BRRR its funny its like it was just invented and book written I guess it is for new investors.
we were funding BRRR in the mid west and indy specifically as early as 2002.. the risk though as you state is you have folks trying to do their first one who don't live anywhere near the project.
there is a reason most banks wont lend on construction projects to anyone who lives more than 100 miles from the project .. they learned this over a very long period of construction lending.
and your right the spreads are simply not there to achieve the perfect BRRRR locals can probably get it done.
but out of state pretty tough.. to very rare.. so then if your leaving equity in .. The reality is why take the risk of a rehab getting off the rails which as you know is more common than we think.
HI @Ryan Ray , my wife and I for a hot minute considered doing rentals in Chicagoland since we lived there for 30+ years. Lived in small suburb in Bartlett (DuPage Country) and realize it really is not a wise choice to do rentals or flips since property taxes are really high. It didn't help that they also doubled the state gas tax from 18 to 36 cents beg 7/1.
My wife and I picked up and moved to Indy area (Brownsburg) and really see lot more opportunities not to mention property taxes are much more manageable. I am also interested in learning more about areas to invest in, the notion of BRRR sounds nice but think I need to walk before we run.
@Ross Denman , I follow your posts regularly and see you as a frequent contributor on BP. I would love to gain more insight from you about what areas make sense to consider doing a flip.
Thank you both for your post, very ineresting and helpful.
@Michael Svoboda I think that the best flips are done in the areas with the most retail activity... mainly the suburbs. My favorite suburbs to watch are actually Brownsburg, Avon, and Whitestown, but those are usually for nice rentals as it's tough to find adequate distress in the suburbs right now to make a decent flip. The best flips would be in Carmel, Fishers, or Zionsville, but finding opportunities can be tough. You might keep an eye on auctions and sheriff sales.
I'm not a fan of the "up and coming" areas of Indy as there were a lot of investors who have gotten caught in Bates and Fountain Square without being able to sell their homes at a reasonable price. Many of them ended up with a secondary strategy of BRRRRing the property instead, but they are probably not going to cash flow as it wasn't purchased with the BRRRR model in mind. I do like the near northside of Indianapolis right now as it's really hot, but finding a decent entrypoint can be a challenge. Herron Morton and Kennedy King neighborhoods really have great value right now, and anything near the Monon Trail should carry some more serious consideration as well. These are older homes and much bigger projects though. I've seen $150k rehabs in these areas and that's a huge project to try to manage if you aren't familiar with managing contractors.
@Nick Giulioni yes, this would be my first BRRRR. I am interested in the buy and hold strategy, less so of flipping.
Got it - yes Indianapolis works - but you need to identify exactly what your goals are on the front end. Feel free to reach out (PM) if you want to chat.
@Ryan Ray - great question. I’m invested in Indy. But why not invest in the Phoenix area? The dry climate and lack of severe weather means less repair costs. Indy winters aren’t easy on a building.