Indianapolis Deal Analysis - is this a good deal?

19 Replies

Hi All,

Would love to get your thoughts on this potential investment - it's a duplex in Indianapolis - 68K

Property is rehabbed and each unit is 3 bed and rents for $550 and $475

Asking price: 68k

Yearly Tax - $536

Insurance - $600

Owner is willing to finance with 10% down at 9% amortized with a 5 year balloon payment - see my analysis:

https://www.biggerpockets.com/calculators/shared/7...

I would love to get your thoughts on if this is a good deal for buy and hold?

Cash on Cash is 21.37%, is this good? I'm still trying to understand this cash on cash return.

It appears to be cash flowing $165.58

What would one do when the 5 years is up - do they owe 61,200 as the payments appear to be going directly to interest for the 5 years.  I was thinking if I refinanced after a year but that would just refinance @ 70% of value so I would still owe the remainder....

Appreciate your thoughts on what you would do?

Hi Dolores,

I'm curious about this too. I've heard through some of the forums that duplexes in Indianapolis don't really check out that well. Apparently, the numbers supposedly look great but most duplexes end up needing a lot of work because they're in C class neighborhoods and have high tenant turnover. I'm super new to REI but I'd definitely like to hear what others have to say. Good luck!

With those rents I worry about what kind of a neighborhood it is in. What is the ARV of this property.

I would only pull the trigger on this one if the ARV was at least 90k and it needed no repairs. I am betting this one is a 40-60k ARV being oversold by a turn-keyer. Probably not a good deal.

Also, I think you have underestimated maintinance costs.  Probably 100-200 a month for an older duplex with low rents.  Renters tend to not take good care of them.

So, that wipes out your cash flow, but even with a cash flow of 160 a month that is about 2k a year.  Would it really be worth the time, hassle, and risk for 2k a year?  You could get 1 renter to wipe out all those profits with one tirade.

So, it is tough to definitively say without knowing everything, but I would personally pass on this deal.

Brett Snodgrass has a better deal on a duplex than that...

@Snehann Kapnadak

Indy duplexes are good or bad but really depends on what part of town you buy them. If you avoid areas where ARVs are under 50k you can get a good duplex with a great REI.

I have one right now that even if I put in a sump pump I will still be getting a pre mortgage REI of about 15%. Post mortgage it will be even better.

You just have to get into the right areas.  Places where rents are 500 a month are usually bad areas unless it happens to be way under rented.

Whether or not it is a good investment is going to depend 100% on the location in this case! Forget about the cash flow analysis for a moment and ask yourself this simple question ... Why is a 3-bedroom at this property renting for only $475/month?

Hi, Thank you for taking the time to respond.

Property is currently being rehabbed and will be sold with a full inspection report of detailed repairs and rent payment history so ARV is 68K and is the asking price.

Yes, I am not sure about this neighborhood - if it's an A, B or C...

Tenants are long time tenants and a rent history will be provided.

@Matthew Schroeder ,  yes good question - I was curious myself - tenants have been there for a few years and they have not raised rent.  - good question though

@Dolores Waldron If you provide cross streets or general neighborhood (don't need specific address!), locals can & will chime in on the grade/quality of the neighborhood. I wish you much success, but with the information we have to date, I see 'red flags' and I have a hypothesis on some of the neighborhoods in which the property is located. About a month ago, there was a California investor who had a similar situation /property - he lucked out because someone else beat him to the "deal" - good thing for him, because he saved himself easily $10,000, if not $20,000!

@Dolores Waldron

If the asking price is the same as the ARV I would avoid it. There are plenty of wholesalers in Indianapolis that will sell a duplex with plenty of meat on the bone.

@Dolores Hi feel free to let me know the location I will let you know if this is a Good Deal or Not we have good Properties in the Indianapolis Area that might be a Fit for you.

@Dolores Waldron I live and work in Indy and am curious to know its whereabouts because I'm thinking along the same lines of Matthew and Edward. Indy is seeing a lot of gentrification continuing in certain hotspots but there are still plenty of slums. Even with a buy and hold I'd still want to be in a path of progress. The current rental rate isn't a good sign.

Freshly rehabbed 3 bed for $475 is in a rough area period. Rents haven't changed that much so even if the tenant has been there 10 years (which is unlikely as you said rehabbed) it would be in a rougher area. What's the address? Or at least near cross streets?

Hi Everyone,

Your feedback has been brilliant - real eye opener.

The street address is River Ave, IN 46221 - some cross streets surrounding are:

 W Mc Carty St, Oliver Ave, W Ray Ave

Not sure how it is being rehabbed with tenants inside - some rehab work that's currently being done- gfci outlets, repairs to chimney, moisture intrusion prevention and as mentioned a full scope will be provided.

Thank you for your very helpful advice.

@Dolores Waldron

You are being taken for a ride big time.  The houses in that area are only worth 30-40k (I actually live not too far from that area).  They are turnkeying for double its market value based purely on the rent.  It is not a great area.

I would not do business with that turnkeyer.  Find a good wholesaler like Shawn Holsapple or Brett Snodgrass.

@Dolores Waldron

I am not totally familiar with that area. However. 3 bedroom doubles in "ok" areas. Should command 600-700 a month. The fact rents are 475 should be a red flag. You can't even get a decent 1 bedroom apartment in indy for 475.

I would keep looking.

Thank you all, really appreciate it.

On another note - if it was a good deal with the numbers is the seller financing a note at 9% with a balloon payment in 5 years good - how do you get out of this as the 9% just goes to interest only payments - correct?

Depends how the note is structured.  It may be interest only payments, but it could also be set on a 25 year amortization schedule so you'd be paying off part of the principal each month.  The remaining balance would just be due at the 5 year mark.  Commercial loans work like this (but with the intent that the bank will refinance the remaining balance at market interest rates)

Thanks Mike, these are questions I should ask..

A couple of assumption you are making;

1) The seller will let you out of financing you are taking (double check!)

2) That you can get an appraisal for the property that is (68K * 90%) / 70% = 87K. Do you really think the property will appreciate about 19K (~ 30%) in one year! Even in 5 Years?

Also, putting GFI's, Chimney Repairs, etc is not rehabbing. These are normal, maintenance work that probably should have been done a long time ago. Tell me that there is a new heating system, all the plumbing has been replaces and there is a new roof and then we'll start to talk.

Other posters have already strongly suggested you pass. I would say RUN don't walk.

Oren

Thank you again for all the feedback, this one has too many red flags and I will not be pursuing.

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