Residential Real Estate Broker · Indianapolis, IN · Member since 2009 · 477 posts · 304 votes
10y
Couple of things I forgot to mention.. Small multifams, in most cases, you are going to need to take care of the lawns.
You need to make sure utilities are separated, otherwise you will end up paying them.. That may be why the rents were $550, because you end up paying some of the utils.. In most cases your paying utilities is NOT something you want to deal with.. Water is the easiest for you to pay for, after that I start to get twitchy on the "don't buy" button...
When owner pays the utilities, you get tenants who crank the heat up in the winter, and when they are too hot they open a window to cool down... Ask me how I know!
Lastly, those taxes were DIRT cheap... I would bet money they will double. Someone probably had exemptions filed on them, or the appraised value is really low... Appraised value would be nicer, because it generally takes a while for the appraised value to raise, but it will at some point.... Taxes for investors are 2% of appraised value for investors of residential properties(less than 4 units typically)... 3% for commercial properties(4 units or more typically).
Flipper, landlord, investor · Coronado, CA · Member since 2014 · 158 posts · 41 votes
10y
You're looking at $13,200 in annual rent. Minus the tax you end up with a 28% cash-on-cash return in one year, based on the numbers provided. To me, that is a deal, but there is much more to it: What about insurance and any other holding costs? If you are in Washington and the property is in Indiana are you going to need to pay a property manager? Are you looking for cash flow or appreciation? What type of neighborhood is it in? Will you have high tenant turnover?
Simple questions like yours are difficult to answer succinctly due to the number of variables involved.
Redmond, WA · Member since 2016 · 55 posts · 17 votes
10y
It will be managed by property manager with 10% fee on the monthly gross income. My concern is also the vacancy rate, since I am not familiar with the area. The wholesaler said it is roughly 5%.
Rental Property Investor · Gary, IN · Member since 2015 · 10 posts · 0 votes
10y
What is the ARV? Are the rent estimates potential rent's or current rents?, Are the repairs based on you performing the work yourself? I would say no deal at 35k if the comps show 21k. Its hard to say without all the information. I am located in a different part of IN but a 1Ba, 1Bd Apt rents for $$375-$545 max if in good condition. To me turnkey is a property already rented in good condition.
Manville, NJ · Member since 2015 · 140 posts · 59 votes
10y
if rehab is required it is not turn key. I am not sure this one is a deal. The cash flow is ok. However, I would make sure to budget plenty for repairs and don't forget to calculate in your management fees. How old are the mechanicals? Make sure you get the drain pipe scoped and a thorough independent inspection.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
10y
@Grace Wang, if the offeror said it's "turnkey" when it's clearly not, what else are the exaggerating? If you have to arrange everything remotely, your profits might quickly be eaten up!
Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
10y
@Grace Wang Unless you have a trusted partner on the ground, operating in this market at that price point, when you are going to have to run a rehab from out of state is just asking for trouble in my view. I don't know what neighborhood this is in, but multis in Indianapolis can be really tricky, and that rental rate it would suggest to be this could in a less desirable neighborhood where it is hard to get reliable tenants. Are you planning to go out to view the property before you buy it?
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
10y
@Grace Wang It's only a deal if you don't mind constant tenant turnover, lack of rent payments and high turn over costs. As much as I like the Indianapolis market, it can be extremely challenging for multifamily. Most of the multifamily are very old units in rough parts of the city,, and although you didn't mention where this one is, I have a pretty good idea based on rent and price. Another strike against this one is that it is 1Br per side. That reduces your tenant pool significantly to more transitory types of tenants. 5% vacancy is not realistic at all. That would be a good vacancy rate even for a single family. You'll be lucky if it's only double that and probably closer to triple.
Rental Property Investor · Fishers, IN · Member since 2013 · 381 posts · 69 votes
10y
@Grace Wang I think what other people are saying is relevant and all. But they also do not know the location of this property (neither do I). To toss out generalizations about what the property would be like to own isn't fair. As @Mike D'Arrigo says, multifamilies can be tricky in Indy, but that doesn't necessarily mean that the right property in the right location wouldn't work. Verifying the numbers and getting others' opinions is always a good idea, though. It would be helpful to provide more information regarding the location of the property. If you don't want to provide the exact address, you could at least provide the street, closest intersection, neighborhood, etc.
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
10y
@Rodney Kuhl Although I don't know the location, the rent tells me a lot about the property class which is what I'm going off primarily. You're right, in the right areas, you can do pretty well but even then there are more challenges with a MF tenant over a SF in general. What concerns me most is the projected vacancy of 5% which is entirely unrealistic.
Redmond, WA · Member since 2016 · 55 posts · 17 votes
10y
Thank you all for your input. I am so glad I post this question on the forum.
@Chris Anderson It was brought to me as a turnkey deal by a turnkey company who said they have a team to do the rehab for 10,000 and manage the property for 10% of gross monthly income fee. However, I was hesitated to take the deal since I am not there, hard for me to evaluate the cost for rehab, rental rate as well as vacancy rate.
@Tyrell Comer the property is in Graceland (selling for 21K, but Zillow estimated at 41k). I don't actually know the ARV (the houses around that area is selling between 100-300k depends on the condition) You have good point that turnkey should be a property already rented in good condition.
@Larry Fried I don't know anybody there. It was brought to me by a turnkey company. After hearing advise from you all, I don't think I will move forward with this.
@Mike D'Arrigo I was also wondering the 5% vacancy part too, especially with the 1bed and 1 bath. This property is in Graceland. Looking at google bird eye view, it is not a very nice neighborhood. At first, the cash flow looks appealing, but after hearing from you guys, I really don't think I will move forward with this now.
@Rodney Kuhl Although I don't know the location, the rent tells me a lot about the property class which is what I'm going off primarily. You're right, in the right areas, you can do pretty well but even then there are more challenges with a MF tenant over a SF in general. What concerns me most is the projected vacancy of 5% which is entirely unrealistic.
Possibly a fair assumption, but you just never know. I agree on the 5% vacancy being a concern for sure. I wasn't trying to say you were wrong or anything - hope it didn't come off like that. Just saying there is probably more info we'd need to know in this market to help.
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
10y
@Rodney Kuhl no I didn't take it that way at all. I agree that we can't make generalizations but sometimes you just know when it's not going to be in a good area.
Rental Property Investor · Long Beach, CA · Member since 2015 · 623 posts · 155 votes
10y
Hi @Grace Wang, it may not be turnkey but that is the way many deals are these days, people buy the house and pay for the rehab so when it's done it's "turnkey". I don't consider that turnkey but to each their own. If you were to supply cross streets that would help a lot. As far as I know Indy and I don't know it really well... $35k for a duplex that needs $10k worth of work or even $20k worth of work sounds too good to be true... but in Indy it isn't always.
I exclusively invest in Indianapolis, if you want to chat on the phone about this property I'd be happy to. I'm looking at a nearly rent ready duplex for $45k right now. It's not a great neighborhood but that's ok with some people.
Redmond, WA · Member since 2016 · 55 posts · 17 votes
10y
@Jeb Brilliant Thank you for the offer, I am planning to learn more about the area before considering any deals. It will take me some time to do some research first. Any pointer as far as which areas I should be looking into?
Investor · Indianapolis, IN · Member since 2015 · 393 posts · 116 votes
10y
I agree with @Rodney Kuhl, I wouldn't personally want to invest there. But that's me, and different people have different investing criteria and tolerances.
Investor · Herndon, VA · Member since 2015 · 185 posts · 74 votes
10y
I don't intend to hijack this thread however I am also analyzing a property in little flower. It is 3/1 on Grant ave close to Brookside park. What are experts opinion on that street/area? Is it B or C class and what do you think 3/1 would fetch average rent?
Residential Real Estate Broker · Indianapolis, IN · Member since 2009 · 477 posts · 304 votes
10y
I have a duplex at 3433 Graceland.. My company manages quite a few lower income properties.. We are well versed in the clientele and finding good tenants for these types of properties...
1 bedroom duplexes rent for $450 a month.. $550 I would want to see the application, lease ledger, and want to see/run recent credit checks cause I am pretty sure they were cash in hand, no credit check required to place at $550...
Duplexes take longer to rent. A nice one can be rented in typically 4-8 weeks. If you get good tenants they will stay a long time, especially if they look out for each other..
Generally the smaller multifams are $450 a month 1 bedroom, $500 a month 2 bedroom, and $550+ for 3 bedroom.. Prices can change with amenities available, etc.
@Mayank S. What's the address? Does it have a garage and or fenced yard? Really depends on the amenities with the house.. I am going to say probably $650-750 a month for 3 bedroom in that vicinity.. Probably closer to a solid to lower C class.. Nothing to be afraid of, but just make sure your manager is versed in the lower income tenants.. Or get with us and we will take care of it.. /tease
Residential Real Estate Broker · Indianapolis, IN · Member since 2009 · 477 posts · 304 votes
10y
Couple of things I forgot to mention.. Small multifams, in most cases, you are going to need to take care of the lawns.
You need to make sure utilities are separated, otherwise you will end up paying them.. That may be why the rents were $550, because you end up paying some of the utils.. In most cases your paying utilities is NOT something you want to deal with.. Water is the easiest for you to pay for, after that I start to get twitchy on the "don't buy" button...
When owner pays the utilities, you get tenants who crank the heat up in the winter, and when they are too hot they open a window to cool down... Ask me how I know!
Lastly, those taxes were DIRT cheap... I would bet money they will double. Someone probably had exemptions filed on them, or the appraised value is really low... Appraised value would be nicer, because it generally takes a while for the appraised value to raise, but it will at some point.... Taxes for investors are 2% of appraised value for investors of residential properties(less than 4 units typically)... 3% for commercial properties(4 units or more typically).
Residential Real Estate Broker · Indianapolis, IN · Member since 2009 · 477 posts · 304 votes
10y
I really need an address, or at least a block number.. I doubt anyone is going to steal your deal, so might as well list it.. Or shoot it to me in a PM...
Couple of things I see:
I see everyone throwing out this 10% number for property management.. Don't you pay like first months rent to place a tenant and then 10% of each additional months rent? So doesn't that make your PM fees more like 18-20% a year? Also they all seem to charge a renewal fee of some sort for later years if the tenant stays... I'm not trying to nitpick, just want to make sure we are looking at true numbers.
Property taxes seem low. Can't tell without address though.
Central Air and Fence? So what, $1500-1800 for central air and 1.5-2k for fence? So 7k for other stuff? Are you looking for other bids on your rehab? I manage multiple rehabbers for people. I can give you a bid as well if you like...
I'm not really sure Central Air is needed in that area, and will take several years to pay for itself ( IF you get $50 increase p/month in rent, it will take 30 months to pay for the AC, if you get it for $1500). Why not make sure all the windows open and have screens, and offer to rent them a portable AC for $25 a month additionally($300 portable unit pays for itself in 1 year).
Fenced yard may get you additional monthly pet fees. We generally charge $15-25 a month per pet.. So hopefully you will get 2 pets to pay for the fence in 30-36 months. Hopefully the additional pets don't trash the house though too.. hehe
If you are comfortable with the numbers, run with it! It seems like a pretty standard deal to me. Just might be some ways to tweak your returns.