[Calc Review] Help me analyze this deal (Indianapolis)

8 Replies

Background: Up front - working numbers daily to get in the routine of analyzing deals. This is part of that. At this stage, I'm not ready to buy. Having said that, I'm trying to approach this using @David Greene 's model of finding 2BR units with 1000+ sq ft in an effort to buy low, convert into a 3BR, then ultimately cash out refinance. This unit in Butler Tarkington area of Indianapolis seems to fit the bill (though that square footage seems unbelievably high... are they including the unfinished basement in the calculation?) Keep in mind at this stage I'm guessing on repair cost and ARV (yes I know they are important. It's just playing with numbers at this stage) The attached report is based on the 2BR numbers, as posted to MLS.

Those of you familiar with Indianapolis, any knee jerk reactions to this? Thanks for all you do!

View report

*This link comes directly from our calculators, based on information input by the member who posted.

@Jason Howell there are a few things to consider on this home.

1. Taxes. In Indiana, absentee owner properties are taxed at 2% of the assessed value. Your taxes on this property will be $1,725 annually.

2. I always figure property management at 10%. Sure there are outfits that run for less than 10%, but they make it up elsewhere. Property management fees are too slim to run 20% below everybody else. 

3. From the pictures, this home doesn't appear to be tall enough to do the loft conversion. I believe that finished square footage has to have at least 7' clearance. You will be looking for taller bungalows for this.

4. $15,000 is not much of a rehab budget and certainly could not include the loft conversion (which will likely run $15k-$30k depending on what you are doing.) My preference is to add a master suite in the loft with a 3/4 bathroom. $15k will likely cover everything else though.

I think that's about it. Seems like there may be possibilities with this property though.

Originally posted by @Ross Denman :

@Jason Howell there are a few things to consider on this home.

1. Taxes. In Indiana, absentee owner properties are taxed at 2% of the assessed value. Your taxes on this property will be $1,725 annually.

2. I always figure property management at 10%. Sure there are outfits that run for less than 10%, but they make it up elsewhere. Property management fees are too slim to run 20% below everybody else. 

3. From the pictures, this home doesn't appear to be tall enough to do the loft conversion. I believe that finished square footage has to have at least 7' clearance. You will be looking for taller bungalows for this.

4. $15,000 is not much of a rehab budget and certainly could not include the loft conversion (which will likely run $15k-$30k depending on what you are doing.) My preference is to add a master suite in the loft with a 3/4 bathroom. $15k will likely cover everything else though.

I think that's about it. Seems like there may be possibilities with this property though.

 Awesome, thank you so much! I thought $15k might be light on rehab (esp if converting from a 2BR to 3BR). I'm in the bay area where literally anything you ever want to do to a house costs MEGA dollars, so I'm trying to learn how to estimate roughly the costs of basic repairs versus major repairs. Sounds like $15k might be a generally safe bet on houses that look "pretty good"... and obviously upwards from there if adding an additional room.

Property management fee: Yes, 10% was my starting rate there, but I have 4 properties in the area currently and my management company has a portfolio rate of 8% once you reach 3+ properties through them which is a nice little bonus.

I should have caught the property tax difference! I see where I went wrong while pulling numbers from the listing.

Would you mind expanding a little bit on the loft conversion part of your post? 2k+ sq ft seems REALLY high for a 2BR house... I have to imagine that they are including the basement in the square footage number... but that would imply that the basement is finished, right? If that's the case, kind of strange it's not mentioned in the posting. But from what I understand from your comment, it's unlikely that the basement itself has a clearance of 7' or more and that's what would keep this from being converted to a 3BR?

Thank you for your insight! 

I just looked at the information on Redfin. The total Sq Ft is 2083. Basement is 989. Main level is 1,094. I am guessing against the loft based on the exterior picture. Usually, the bungalows that can easily have a loft conversion are going to be taller homes.

It is normal for basements to have 7' clearance, but unless it's finished, it shouldn't be listed as living space... and I wouldn't consider finishing a pre-WWII basement. They were engineered as a more mechanical/maintenance space in the home. Most of them have water that trickles in and goes to a floor drain. Some will have sump pumps that were installed at a later time as well if there were problems in the past, but I recommend against finishing these types of basements.

He just purchased this home a year ago for $19,000, so there may be more room to negotiate.

@Jason Howell with that one you can expect to keep around 60% of the rents.

That said I would stay away from anything that rents for less than 900 a month.

@Jason Howell I also own property in that neighborhood, and my understanding is that the more available investor area is north of 42nd St, which this is not.  But maybe I am not getting the best info on that.  @Ross Denman may know better.  I agree with his analysis about everything else on that property.

Originally posted by @Larry Fried :

@Jason Howell I also own property in that neighborhood, and my understanding is that the more valuable investor area is north of 42nd St, which this is not.  But maybe I am not getting the best info on that.  @Ross Denman may know better.  I agree with his analysis about everything else on that property.

Larry is right. South of 38th St is Crown Hill Cemetery. The Northeast corner around the cemetery is riddled with crime. The crime reduces after 40th St and almost disappears after 42nd St. This is an actual example of Indianapolis being "block by block". This home is exactly in the middle of a high crime area and a pretty nice low crime area and these two areas are 4 blocks apart. I consider anything north of 40th St to be viable as I feel that it's "up and coming," but the numbers have to work... Period! Speculation may tip the balance for me, but the actual decisions are made with the actual numbers at hand, not speculation. If a home at 40th and Byrum has good numbers, I would investigate further.