From Utah to Muncie Indiana

9 Replies

Guys, I need some help.  

I'm currently looking for my first rental and after scouring the MLS, I realized that I needed to be creative to find a good investment. I reached out to a mentor who has been in the rental business for decades; his speciality is storage units, but I know that he also owns many single and multifamily units. After many emails, he let me know that he just purchased a new storage facility and was unloading his small properties to focus on this facility. He has several SFR close to my (and his) house, but after doing some quick calculations, I realized that they would only be cash flowing about $200 a month after the mortgage, taxes and insurance. It's difficult to find a SFR of Multi in Utah County that will do much more than that right now and, from what I know (which isn't much), you have to depend on appreciation, depreciation and long-term gains to really get your value out of buy-and-holds here. It's nearly impossible to find a property that meets the 2% or 50% rule here.

He also offered me his 5 units in Muncie, Indiana.  He's been upfront with me and told me that the rentals are in a terrible part of town, they usually attract lousy tenants, there are a lot of evictions, they're old houses so they require upkeep (however, he's put a lot of money into fixing them up), and he has to be careful of theft when they're vacant.  He has a management company managing them though, so he doesn't have to worry about any of that and after all expenses (including mgmt fees), they net him around $500-$800 per month.  He bought them during the crash and is offering them to me for $50,000 (total).  He's been assuming that the market in Muncie will come back (as it has everywhere else), but it hasn't yet.  He's tired of them and allocating his money elsewhere.  

Everyone says that you should buy in your backyard and you should manage your first property yourself to get the experience, but the returns here are so dramatically different.  I need some expert advice.  I could purchase the Muncie properties with cash (should I?) or I could finance the properties here.  Or should I keep looking?

Any advice/feedback is greatly appreciated!

I'm new as well in the Utah market so my advice won't be Awesome, by any means, but I've also realized the same. The Utah market is harder to find a buy and hold with good cash flow. My main residence will be my first property but will only be at or around .7%-1% month! It only feels right if I know I have a good reserve, being that my cash flow is dramatically low. When I have my realtor license I'll be looking for distressed properties to hold, in hopes to fix up and get a better cash flow afterwards but my target area has a lower inventory of lower priced distressed houses. I've heard amazing, uplifting stories of investors in hard markets, so I know it can be done. I've been getting a ton of great advice but in the end I feel like you should ultimately do what you feel comfortable with. There is no one true way to make it in our dream world so stick with your gut feeling. Good luck!    

(I feel like we need some more podcast directed towards our "Utah" market.)  ;)

Jake,

I once owned over 100 SFR and 400 Multifamily, and, Like Your Mentor, I sold them all to invest in Self Storage and have built a portfolio of 2,500 +. By the way, I live in FIshers, IN and some of my Self storage Facilities were in Muncie Indiana. I won't give advice, but I'll share my experience having gone through this personally, and having coached/mentored Hundreds of other Real Estate Investors over the past 10 years: Single family rentals are tough enough in your back yard, and virtually impossible to manage well from afar. That's why 95% of all real estate investors go belly up within 5 years. I would suggest calling your mentor in Self-Storage and have him show you how to buy a small self storage facility for the same amount of $ as these rentals.

In addition, you can go here to learn more about the storage industry for free:  www.SelfStorageInvesting.com.  

As for Muncie, I no longer own my facilities in that town as the property taxes are higher than in any other county in the state - and one of the highest in the country.   So as the Sharks on Shark Tank say;  "I'm out".  That town is more anti-business than any other I have ever experienced - it's no wonder your friend wants out.  Besides, the town has been dying a slow death for decades, and continues it's decline - that's why taxes are so high - 30% of the population has moved, yet the city Goverrnment continues to grow - you do the math. 

At your service, 

  

I COMPLETELY agree with @Scott Meyers ....I'd be skeptic of GOOD properties in Muncie, much less the bad ones.

Muncie was rather affluent 100 years ago, but aside from Ball State being there, there's not much left...certainly nothing to be optimistic about in regard to a market turn in the next few decades.

IMHO, I'd pass, for no other reason than the market.

As you can tell from my profile, I live, work and invest in Muncie. I now have 3 rental properties in Muncie, having just completed a rehab on our 3rd and the selected tenant signed a year lease today. 

I agree with some of the sentiments expressed above concerning Muncie. However, with Indiana's property tax caps, property taxes on single family homes is quite reasonable. State law limits the property tax on rental property to 2% of the assessed value, annually. So that really is not a big expense for our properties. Before the tax caps, property taxes were, in my opinion, quite high. Contributing to that plight has been a declining tax base (due to industry -- GM, Borg Warner, for example) closing shop, growth in the non-profit sector (Ball State, IU Ball Health Hospital, Youth Opportunity Center), and the fact that half of this freakin' county is located in a TIF district. So, all of those property taxes from TIF districts go into a special fund and not to the general coffers of the county/city.

I will not contest that Muncie faces serious challenges. I have lived here for 11 years and we have not seen any meaningful appreciation since we purchased our own home. And we are not counting on appreciation for any of our rentals (however, we have fixed each of them up to the point where we have significantly increased their value). And Muncie has lost much of its manufacturing base. However, there is increasing investment in providing amenities for residents -- new sidewalks, new parks, an arts initiative downtown, and a downtown hotel being built to serve the convention center. Nobody will confuse Muncie with Fishers, Noblesville or even Pendleton. However, I would much rather be in this market than I would be in similar markets like Marion, Kokomo, Anderson, or New Castle. That being said, there are neighborhoods where I asolutely would not buy a house in Muncie (industry south/central, the old west end, and whitely come to mind). However, there are not areas in Muncie where it is perfectly fine to invest in, Unless you know the area where your are purchasing the property, you can easily get burned buying what seems like cheap houses in Muncie. In fact, we picked up our first rental from a former out-of-state former owner (it was a foreclosure when we purchased it).

If I or the other posters have not scared you away from investing in Muncie, I would be happy to give you my (unexpert) opinion of the properties in question by doing a drive by. I would be happy to tell you whether I would personally invest in the properties and that particular neighborhood. It is kind of what I do for fun anyway. Just send me a personal message with the details of the properties. 

One additional thought. Our first two properties are located in what I would categorize as a Class C area -- mix or working class owners and rentals; homes built primarily in the 1940s; most 2 br but some 3 br. Some houses fixed up and others where I would not let my dog live in. Our strategy has been to fix up our rentals to the level where we would like them if they were our own residence. So, we have put in stainless steel appliances, tile backsplashes, new cabinets and bathrooms, along with new Allure floors. They look really good and it cuts down on maintenance and repairs. Then, we price them slightly below market. Consequently, we get a flood of high quality applicants. We probably average 20 inquiries within the first 24 hours of posting. Then, we can be very selective as to who we choose. So, we have only had minor repairs to any of our properties. And, to date, we have not had a month where we have been unoccupied. This last house, we listed it last Wednesday at 10 pm, showed it all day Sunday, and have a signed year's lease today. And we have dozens and dozens of new inquiries and requests from qualified potential tenants to keep them on our list should any of our other properties open up. I guess my point is that you can get good tenants who respect your properties in Class C neighborhoods. You just have to be picky as to who you rent to. I would rather give up a couple month's worth of rent in order to secure the right tenant. So far, we have not had to do that. But we put too much time and money into our properties to see them destroyed by a crappy tenant.

Good luck!

@Drew Wiard Thank you!

@Account Closed  With your comment, I'm realizing how valuable these forums are.  Thank you very much for your insider opinion.  Should I decide to explore these unites further, I'll pm you.  Much appreciated!

Probably because I know it better and I am more comfortable in Muncie. I feel like I know where to invest and where to stay away from. 

Additionally, Muncie has turned much more into a service economy than a manufacturing economy (though Muncie still has Magna, Progress Rail, Maxon, Keihn,Spartech and a number of other manufacturing facilities. Where the manufacturing in Muncie used to be almost exclusively tied to the automobile industry and, to a lesser degree, home canning, manufacturing is more diversified now.). Muncie has Ball State, which is either the third or fourth largest university in Indiana. The hospital is really the only major health care facility in East Central Indiana. Sallie Mae has a loan servicing facility in Muncie as well. So, I like the diversity of the Muncie economy. That is not to say that everything is a bed of roses in Muncie -- far from it. 

When I think back on 2008, Kokomo suffered to a much greater degree than Muncie. By 2008, most of Muncie's automobile manufacturing (GM/Allison Transmission and Borg Warner, in particular) had already either shut down or was on the verge of shutting down. As the auto industry has come back, so has Kokomo. But as an investor, I would rather be in a community where the economy is not relying on one single engine as a driver. I would rather have lots of little, independent engines. And I am more comfortable relying on Ball State as an economic anchor than I am relying on Chrysler as an economic anchor, going forward. Plus, I think with the university here, we have more cultural amenities than exists in Kokomo. 

But when it comes down to it, it may just be my bias. Muncie, for better or worse, is my adopted home town at this point. It is not shangri-la (nor will it ever be). But because of low cost of living (we moved from Chicago), we are able to afford a very nice 4 br, 2 1/5 ba home in a great, safe neighborhood, living on one very moderate income. One of my kids gets violin lessons from a professional violinst associated with the university. My other child gets coached by high level soccer coaches associated with the university. In a larger community, we could not afford these sorts of opportunities for our children. I get home from work at a reasonable hour. I can sit out on my front porch with my wife and enjoy a nice glass of wine at the end of the day and after we put the kids to bed. Though it sounds awfully strange, our quality of life is much higher in Muncie than it ever was in Chicago. Chicago is great. But it took all of our income and time to make a living there. By the end of the week, we were too exhausted and too stretched for cash to enjoy the wonderful amenities Chicago had to offer. For all its faults, moving to Muncie has been the best decision we have ever made.

No problem, Jake. And if your mentor is wanting to unload those houses (and you are not interested), I would certainly take a look. However, since we have pretty shallow pockets at this point, we are very particular as to what we buy and at what price we purchase.

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