Wanted to share a case study of our recent purchase in Indianapolis through Rent to Retirement, hoping this is helpful for those who are looking into this company or turnkey investment in general. The property is a single family home located in a B/C neighborhood.
Purchase price: $142,000
Conventional loan 20% down
Property tax: $1076
Management fee: 8%
With the assumption of 6% repair and maintenance, 5% vacancy, 6% capex, it will net us $268/month, reflecting a 9.8% cash on cash ROI.
We closed it over a month ago and just received our first month rent. The process was smooth and all the parties involved (RTR, local turnkey provider, lender, PM company) are pretty responsive. The numbers provided by RTR are mostly accurate (the only thing is that their property tax number $829 was for owner-occupied which became $1076 since it's now a rental). So far there hasn't been any maintenance issues but of course too early to say. Overall it's a positive experience.
We have a few rentals in NY where we live but now shifting our focus out of state for obvious reasons. Our plan is to purchase more properties in Indianapolis, turnkey or fixer upper. Look forward to meeting more people in this market. Any comments, questions, suggestions welcomed.
Wondering where you came up with your numbers for Maintenance/CapEx and Vacancy?
Great to hear you are having a great experience! Curiois to hear what property management company are you all using and what area of Indianapolis is the rental in?
Glad to hear will file this away. We are doing rehab and resell in Settle area and finding a "rental" property is almost impossible that makes sense for cashflow. We are looking into a few company's to do an out of state turn key in the next year! thanks!
Thanks for sharing your experience! We enjoyed working with you on this IN property, and look forward to hopefully working with you on many future investments. We are available whenever you would like to have a follow up strategy discussion about creative ways to scale your portfolio, diversify into more markets, llc/tax topics, etc. We are here when you need us, and have many resources at your disposal!
To your success!
@Melissa Perez Glad you asked. I forgot to mention RTR uses 3% vacancy, 3% r&m, and no capex in their models, under the assumption that their newly renovated properties have minimum repair needs. I used more conservative numbers based on what we learned from our NY rentals and from other investors. What numbers do you use?
@Justin Han This property is in Devington, managed by Pillario Property Management. Are you from Indy?
@Kevin Ivey We are on the same boat. Our properties in NY hardly generate any meaningful cash flow but appreciation has been good in the past years, so overall we consider them good investments. However an issue for us is the big loss on paper will affect our ability to borrow conventionally. By contrast, properties like this one in Indy will lower our DTI, theoretically allowing the banks to lend us more.
@Zach Lemaster Appreciate it Zach!
@Doris Jin Huang Yes, I noticed the NO Capex calculation myself. Although we are supposed to get a brand new furnace and water heater based on the inspection so im glad those are two less things to worry about we will have to account for the roof and any other items that may pop up over time. I plan on using a smaller 4% for CapEx, 4% for R%M and 3% for Vacancy for now. Our market is a huge rental area and we will also have significant reserves in place already so we will be covered. I just want to see how things go at first then adjust as needed going forward.
@Doris Jin Huang Whereabout in Queens are you in? Are you a live-in landlord there? I agree it is tough to decently cashflow in NYC. Our duplex cashflows a small amount but considering how high the rents are you would think it would be so much more.
Maintenance/repairs and capex only $1,764/yr? 5% vacancy= only a few weeks in lost rent without anything for make-ready costs. One turnover, plumbing leak... even a simple water heater, will set you back years. Hope for appreciation and rent increases.
Avg occupancy time 3.5 years to 4yrs, avg leasing time 18-21 days = less than a 3% vacancy. Brand new builds that have a one year comprehensive warranty (maintenance free), 10yrs structural warranty, etc., or full renovation to ensure cap ex have at least 7 to 10 years of life remaining. Avg holding time for typical investor 3.5 to 5 years will likely not experience cap ex in either of these scenarios. Always good to run your own numbers, but also know why you are inputing the numbers you are. We have a long history of rental performance across many locations to evaluate what numbers should be a starting point to evaluate.
@Zach Lemaster Avg holding time of 3.5-5 years is much shorter than I thought - what does your typical investor do after holding a property for 5 years?