Any advice for REI in Indianpolis while living in California?

18 Replies

Greetings BP Forum. I was at a BP networking event here in the Bay Area last week and the subject was investing out of state while living in the San Francisco Bay Area. The area of focus was on Texas, but there were a couple of people there that seemed to think that Indianapolis was a great area to look at.

I've been told Cap Rates of around 13% to 14% can be found there, especially around the Fountain Square Area.

Thoughts?

@Brian Garlington  Cap rates are only one tiny clue to finding possible areas to invest. One can learn a lot from the web (crime rates, schools, walk-ability, proximity to a pool of tenants.)

I live in the Bay Area and invest in St. Louis because I used to live there and have family there.  My search for putting together a team on the ground, was easier than being a stranger to the area.  Cities are big, neighborhoods have cycles of being worthy of investment dollars.  Call property managers in your area of interest and ask about vacancy rates, turn-overs and what kind of listings they wished that they had more of.  Then go hunting for such buildings.

Originally posted by @Brian Garlington :

Greetings BP Forum. I was at a BP networking event here in the Bay Area last week and the subject was investing out of state while living in the San Francisco Bay Area. The area of focus was on Texas, but there were a couple of people there that seemed to think that Indianapolis was a great area to look at.

I've been told Cap Rates of around 13% to 14% can be found there, especially around the Fountain Square Area.

Thoughts?

Some one telling you about 13% to 14% cap rates on SFR's has no clue what they are talking about. They will not be able to provide a cap rate comp to support those numbers unless it is a made up one on one of the properties they are trying to sell you.

But what is the fake cap rate telling you? $10,000 NOI at a 14% cap rate means the market is only paying $71,400 in Indy. The same $10,000 NOI in the Bay Area would probably sell for $166,667. Seems location, location, location would be telling you to invest in the Bay Area.

 Maybe this is telling you NOT to invest in Indy..

http://www.usa.com/indianapolis-in.htm

Originally posted by @Bob Bowling:

But what is the fake cap rate telling you? $10,000 NOI at a 14% cap rate means the market is only paying $71,400 in Indy. The same $10,000 NOI in the Bay Area would probably sell for $166,667. Seems location, location, location would be telling you to invest in the Bay Area.

 Maybe this is telling you NOT to invest in Indy..

Huh?  What kind of weird math trick was that?  Never mind.  Forget I asked. 

@Brian Garlinton ... You'll find nice returns in LOTS of cities across the US.  Especially compared to what you'll get in your home area.  I've said this before.   I've heard good things about Indy and our investments have done pretty well there.  

My preferred approach is to start with some property managers/realtors (as mentioned above).  Make enough calls and you'll find someone who does both.  Someone good.  Guaranteed.  After that, if you're serious, make a trip out.  Ask your realtor/PM to line up 7-8-9-10 investments for you to look at.  Line up some other meetings with repair guys, contractors, realtors, etc.  Whoever.  Just go meet locals and get the flavor for 3 or 4 different areas of the city.  

A trick I've picked up in my advanced age is that getting on the ground and meeting people really opens up new doors and teaches way more about an area than any research can.  Especially if you have an experienced local showing you the ropes.  

Originally posted by @Bill Devola :
Originally posted by @Bob Bowling:

But what is the fake cap rate telling you? $10,000 NOI at a 14% cap rate means the market is only paying $71,400 in Indy. The same $10,000 NOI in the Bay Area would probably sell for $166,667. Seems location, location, location would be telling you to invest in the Bay Area.

 Maybe this is telling you NOT to invest in Indy..

Huh?  What kind of weird math trick was that?  Never mind.  Forget I asked. 

@Brian Garlinton ... You'll find nice returns in LOTS of cities across the US. 

Yeah, it's a little more sophisticated math than just promising someone "nice" returns.  Do the suckers go for that?  Anyway, I'd be happy to walk you through the math if you want to educate yourself.

No...it was a way cool post bro.  Tell it again.  

Especially the part where he should be looking to pay as much money as possible for $10K NOI. That was the best part.

Originally posted by @Bill Devola :

No...it was a way cool post bro.  Tell it again.  

Especially the part where he should be looking to pay as much money as possible for $10K NOI. That was the best part.

 but

See you don't understand. The cap rate is measuring the risk of collecting that $10,000 NOI. Both properties have the paper "chance" to collect $10,000 NOI but the market has decided that the lower cap rate market is preferred. They make that decision by plunking their money down. The 14% market is created by people that want $10,000 NOI but are not confident of collecting it so they are DISCOUNTING the value. Or they are just poor investors that can't afford the more stable investments. Or poor investors that think a paper NOI is GUARANTEED because some slick guru sold them on the idea that cheaper is better.

The $64,000 question do you know anybody that lives in Indy that could give you an honest opinion . If not what you could do is call the local police department  and ask them ,"If you have a daughter would you feel comfortble having your daughter live on this street by herself"? 

There are a lot of buy-and-hold investors in Indy as well as turnkey providers. If you're serious about it, set up meetings with local investors and make a trip out to Indy. A lot of turnkey providers would be glad to give you a tour of some of their properties and you'll really get a feel for the neighborhoods that you can't over the web. It can be a great rental market as long as you educate yourself about the market. At what rent rate does your tenant quality drastically improve? Is a duplex in Bates-Hendricks a good investment? What about a SFH in South Fountain Square (is South Fountain Square just an agent term for another not-so-desirable area?)? You'll want to know answers to questions like these and many more so you know what you are investing in, what the area is like, and what type of tenant it will attract.

Thanks Daniel, Thanks Jamaal! No relatives in Indy but I have some in Ohio and N.Carolina............thanks for the advice everyone

Hey @Brian Garlington . Welcome to BP!

@Mike D'Arrigo  does work in Indianapolis. He's a good person to connect with on that front. Best of luck on your out of state investing!

@Brian Garlington Dallas has a booming economy with great job and population growth but because of some of the highest property taxes and insurance rates in the nation, the returns are very low in comparison to Midwest markets like Indianapolis and Kansas City. 13-14% return are not realistic however when you take in to account vacancies and maintenance which a lot of people neglect to include. Still, the returns in Indy are quite good. The key is being in the right area and having good property management. We sell turn key properties in both Indianapolis and Kansas City and know the markets well. Feel free to PM me or call me if you're like more insight.

My advice for REI in Indianapolis while living in California is simple: Don't do it!

I agree with Bob that investing in CA is less risky, but probably for a different reason than him. I have nothing against REI in Indy and sure it is possible to make a fine return there, if you live in Indy. If you do not live in Indy, are not familiar with the market, are new to REI, don't know anybody in Indy, and are thousands of miles away if there is a problem you need to address, then it seems fairly darn risky to me. No amount of arguing that you'd have a PM, would do some research on the internet, and fly out for a couple of days, and passing that off as sufficient due diligence is going to make it much less risky IMO.

On the other hand, there are plenty of ways to make great money in REI in CA, and here you can become a local expert in the market, take your time & put in the effort to actually buy yourself a great deal rather than paying market value (or higher than market price with a turnkey out of state), you can supervise or DIY the rehab to cut costs and ensure it is a quality job, you can PM it yourself again to cut costs and ensure the job is done right. You can make good money in CA REI, and no you don't need to speculate to do it. In the process you will learn a ton too and become a real, local, hands on investor.

Buying out of state won't make you a RE investor any more than I would become a sophisticated stock investor by buying a Vanguard S&P500 index fund, but I would probably get better returns than you over the long haul in that case.

Does anyone in here actually have investment property in Indy? Is it performing well? Do you find a lot of competition in both the turnkey world and for a solid property manager? We usually handle the Sunbelt, cities like Charlotte, Birmingham, Houston, Orlando etc. with pretty solid returns and happy clients. I am just curious as to who has boots on the ground in Indy

I not only own investments here in Indy(low income, and bread and butter neighborhoods), I also have my own brokerage where we specialize in working with out of state and international investors. 

Is indy a good market? Yes... Is it risky? Well, if you are out of state and don't do your own research, then yes it really is VERY risky.... As others have said, you need to make sure you have a good crew here on the ground. You need to make sure you are double and triple checking everything anyone is telling you.. A lot of the big names on here have an aversion to inflating ARV(after repaired values) and Rent rates, so do your own research... Even if you work with me, I tell you to double check my numbers.

Is 14%+ on a SFR doable? Well, it depends on your risk tolerance.. Most likely a SFR with that kind of cap rate(including vacancy rates, repairs, etc) is going to be in a lower income area where you get a good tenant. My company works in these types of areas, and while we have a pretty good success rate with finding these renters, the occasional one slips through...

You are more likely to see this or more on duplexes to quads. Again you are dealing with lower income renters though and that provides it's own challenges..

Bread and butter neighborhoods in Indianapolis are providing 8-10% cap rates. Those are on houses in the 80-125k ARV range.

Your best money is in buying houses that need a ton of work. You buy it, rehab it, and rent it...

2nd best money is in buying turnkeys. You buy it fixed up, maybe with renters in it(although I would prefer you place your own tenant unless you REALLY know the property manager who placed the tenant)...

I would be happy to help you out with purchase, rehab, property management, and sales.. We can help you with any part or piece of that puzzle, or just if you want a second set of eyes on a deal you are looking at with someone else, give me a call! If you just want a CMA(Comparative Market Analysis), for $5 I will give you active, pending, solds over the last year, and leased properties over the past 2 years within quarter mile radius or the neighborhood the subject property is in. I also offer a service where if you want a third party to create a video of your property we will do 1080p/60fps video for you for $100.. Give me a call and I can go into more details or just let you pick my brain for a bit.. haha

Originally posted by @Brian Garlington :

Greetings BP Forum. I was at a BP networking event here in the Bay Area last week and the subject was investing out of state while living in the San Francisco Bay Area. The area of focus was on Texas, but there were a couple of people there that seemed to think that Indianapolis was a great area to look at.

I've been told Cap Rates of around 13% to 14% can be found there, especially around the Fountain Square Area.

Thoughts?

 Not any more.  Fountain Square and Bates Hendricks are pretty much tapped out as far as buy and holds go.  Its extremely tough to get an 8 or 9 cap these days. There are areas near fountain square that will get above 10% but you have to know where to look... and yeah there are rough pockets.. 

As an out of state investor right now I would not focus on trying to be near fountain square, its too narrow of a search.   2 Years ago I was saying the opposite. I encouraged a lot of people to buy in FS and BH and surrounding areas.  And now prices have pretty much doubled.  Both on the acquisition side and the retail sale side.  Not because of the influx of out of state buyers or any thing like that..   but more so the community at large here on the south east side of Indy over the course of 20 or 30 years + the economy is good and people are loaning, investing, building and rehabbing.   

There are more opportunities out there!  Dont worry.  :)   Tons of good Indy neighborhood threads on here.  

@Ryan Mullin  Even though its harder to find those higher cap rates in FS and BH, what do you think about appreciation in these neighborhoods compared to other Indianapolis areas? As a self-identified buy and hold investor (without actually having made any deals yet) would it be wise to trade-off cap rate for appreciation; or should the goal be for both?

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