Real Estate Investor · Chino Hills, CA · Member since 2014 · 47 posts · 19 votes
Hello BP!
I'm currently evaluating a SFH 3/1.5 in Indianapolis. House is 1150 sqft. The home will be completely rehabbed (cabinets, bathrooms, flooring, roof, furnace, windows, etc.). Built in 1978. Zip 46221.
Any investors out there familiar with the market who can provide some feedback? This would be my first turnkey investment! I want to make sure I'm not overpaying for the risk/return that I'm going to be getting.
Are these assumptions conservative enough? I don't mind lower returns if they come with the corresponding lower risk. This would be my first turnkey and I'm just looking to take baby steps here.
Sunnyvale, CA · Member since 2014 · 14 posts · 12 votes
12y
seems like a good home as a primary residence. You need to also budget for capex which is where all your cash flow will disappear. Have a trusted home inspector inspect every aspect of the house and get his opinion on when major things may need replacement like boiler, ac, roof and if any issues with plumbing etc and make sure to get an estimate of replacement cost for each of the items if replaced with similar things. Make a 15 year projection of your capex and see if you still come out ahead. Vacancy rate is another killer. Make sure you call other property managers in that neighborhood and check what is the typical vacancy rate when someone moves out and check with your turnkey provider if they charge first month rent for replacing tenants.
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
11y
@Ben G. Brings up a good point that I was thinking about while reading this thread. If they are going to do s complete rehab anyway why wouldn't they just do that and sell it if the neighborhood is good?
Maybe partnering with them on a flip is a better option?
Real Estate Broker · Indianapolis, IN · Member since 2009 · 575 posts · 496 votes
11y
This is a great neighborhood for investing in general... We would definitely manage in this area but like @Mike D'Arrigo said I think the rent would be better at 900/month. 1000 is definitely possible if the house is really nice, but I like to be on the lower end of rental ranges and shoot for the best possible tenants. Maybe it rents for 1000 in year one since it has a brand new rehab, but I would plug in something a little lower for the long term. good news.. There are comparable houses selling for over 100k in the area, even as high as 115k... so... in the long run I think making an 8% return on this is pretty reasonable. Cash flow won't be great but as long as you can get this back to mint condition for an exit at some point you should be good. It really boils down to property management and how well they can turn the house over in between tenants and for an exit sale...
Real Estate Investor · Chino Hills, CA · Member since 2014 · 47 posts · 19 votes
11y
Thank you all for your helpful responses so many months ago as well as those who chimed in more recently. I'm back with some updates!
A few weeks after initiating this thread, I visited Indy, the property under rehab, and met with the seller and PM. I was performing my "due diligence" but, looking back, my heart was set on pushing through with the purchase. I know, classic beginner's mistake, getting emotionally attached to a property.
With the help of an independent inspector we touched up several details of the rehab work that were initially unsatisfactory. When it came time to close, I had spoken with him as well as with the contractor on several occasions and I was comfortable moving forward.
@Mike D'Arrigo and @Account Closed yes, the projected ARV was $87K. The rehabbed home ultimately appraised for $87K, for whatever that's worth. I realize I didn't get the best possible deal out there... I think I'll be more selective moving forward.
Investor · Indianapolis, IN · Member since 2013 · 647 posts · 196 votes
11y
@Jason L. hard to hit a homer at your first ever at bat, but I think you'll be just fine. Sounds like you did some great due diligence and that you're always looking to improve.
Investor · El Dorado Hills, CA · Member since 2014 · 447 posts · 62 votes
11y
@Jason Leong
Does the property have an HOA? Didn't see that on your expenses. My experience is when you have under $200 per month cash flow that can be wiped away quickly. Estimating your costs beforehand is like trying to figure out your monthly checkbook to the cent.
Being into the property for 87k fully rehabbed sounds like a good deal. My suggestion is to put your cash flow back into your property and pay it off over a shorter period of time.
Feel free to send me the address if you're looking for another opinion on the property numbers.
My other question is who's performing the rehab? Is the rehab going to be complete that you can have inspected before you close?
Does the rehab include new pex plumbing? This is a must for me on all of my properties in Indy!