All Forum Posts by: Ross Denman

The websites listed by @Ernesto Hernandez and @Lydia S. are always where I start and I use Niche.com and Point2Homes.com as well. You do have to know the difference between types of crime though. If you're looking at Indianapolis, look for the blog on "Grading Indianapolis Neighborhoods" as it has a color coded map that may help.

The "war zones" that I am hesitant of right now are:

• Anywhere on N Sherman Dr and 3-4 blocks east and west... The gentrification along rural has pushed a lot of the problems out to Sherman and compressed issues from various areas. We see shootings, sexual assaults, home invasions, car thefts, etc. in this area.
• Southern Lawrence Township. Locally, it's usually referred to as 42nd and Post Rd. There are several problematic apartments in the area that are rife with gang activities. Violent crimes, black market enterprise, etc. The actual area that I'm very hesitant to be in is the rectangle bounded by 42nd St, 38th St, Post Rd, and Mitthoefer Rd.

Being in the Downtown/Urban Core can be misleading though. The more urban the area, the more likely that there will be some kind of crime, but it doesn't make people stop living downtown. Just because a drunk throws a beer bottle at a car it doesn't make it a warzone.

There are also areas with lots of blighted homes and streets as well. These are really tough to get any tenants in right now, much less good ones. Many of these homes are held by the city because they can't even sell them at the tax auction. You can see the inventory here... https://public-indy.epropertyplus.com/landmgmtpub/app/base/propertySearch?searchInfo=%7B%22criteria%22%3A%7B%22criterias%22%3A%5B%5D%7D%7D Anywhere that there is a large amount of homes is still a heavily distressed area. There are some ongoing initiatives by the city that is trying to tackle some of these areas, but when a wholesaler says "up and coming" they really mean "give me your money and hope you get a return before you get tired of handling the headaches."

I am carefully watching the near west and near northwest side right now to see how the King Common Initiative, Riverside Park Project, and Waterside Project are going to impact those neighborhoods. There are some amazing homes near riverside in some areas, but you can't sell them or rent them right now. I've seen homes that rival the most amazing homes in Bates-Hendrick, Fountain Square, and St Clair Place, but they are located in "ghost towns" right now.

Other things to consider are:

• Median Household Income
• Education level
• Median rent ranges for an area

You can also check the city permits and enforcement database to see how many enforcement citations are issued on particular blocks of streets and how many permits have been pulled. That can give you some insight to problematic or up and coming areas. The city database can be found here. https://accela9ca.indy.gov/citizenaccess/

Lastly, walk the street on Google Earth (or physically if you're local.) Make sure that you're not across the street from the local trucking company, trailer park, landfill, water treatment center, etc. Flood zones, train tracks, industrial areas, etc. tend to suppress land values which means that the other residents are likely to be in a lower income and education demographic. We see this in Mars Hill, Ravenswood, and The Valley (West of Harding between Kentucky Ave and Morris St.) We have 2 large rivers, a big creek, and several reservoirs in Indianapolis and you may want to familiarize yourself with them and their flood plains. You will see that home values are lower and the areas usually have poorer reputations (nuisance crimes, poverty, distressed housing, etc.)

That should get you started.

@Daniel Mendez I do think that Indy is a great place to start, but finding a market where you can build a great team is more important than finding the "best" market.

I recommend finding something will very little risk when starting, which usually means MLS deals. Right now, the MLS is very competitive, but I am constantly networking with brokerages to get access to off-market, pocket listings that are great for investors but difficult to sell on the traditional market. You can follow the wholesale market, but you have to be more careful as there are many pitfalls to avoid when dealing with wholeasalers as they often have very skewed numbers. You will find the same things on MLS properties, but realtors are held accountable to a code of ethics with a license at stake.

Building a team and network is usually going to be the best place to start. One more recommendation... if you haven't ready David Greene's book, Long-Distance Real Estate Investing... I really recommend it. It's easy to digest and laid out really well. Most of my clients have read it and love it. The information is very parallel to what we teach our clients, but it's very nicely packaged.

Best of Luck! Feel free to reach out if you need anything.

@Wei Jie Yang For the most part, 38th St is going to be the township dividing line so anything S of 38th St is going to be Center Township or Warren Township. The only place that I'm aware that there is a 31st St outside of Center township is just E of Arlington Ave. If the home is in Center Township, it will be Indianapolis Public Schools (IPS) which are considered by most people to be the least desirable schools in the area. If you are in the small stretch that crosses in to Warren Township, those schools are better, but not what I would describe as "Good." You can view the school systems for the areas here http://www.stats.indiana.edu/maptools/schooldistrictsmap.asp

That area of Warren (Arlington and 31st St) still has a bit of crime there as well. I wouldn't consider it to be the "worst" part of town by far, but there is a bit of nuisance crime in the area like vandalism, theft, etc.

@Daniel Mendez at the moment the MLS is very competitive, but there are deals out there. We've only had 2 MLS closings this month with clients, whereas most months are 4-6. We have a network of Realtors who call us with pocket listings for certain types of properties, which gives us an edge, but it's still pretty lean out there.

I'm not a fan of most wholesale deals I see nowadays as most are way overpriced and pretty distressed.

As far a SFR's VS MFH's it really depends on your goals. The way I have most of my clients invest, they usually yield about 100% ROI in 5-6 years, but cash flow is only a fraction of that, the payday comes at refinance or sale.

As a whole, I prefer SFR's because they're simply more predictable... But that's not any SFR, but ones that meet certain criteria. There are plenty of people who like investing in small MFH's as well though. There are benefits either way.

If you're investing out of state, I recommend properties that allow you to be as passive as possible. Don't believe the hype, rental property investing is not altogether passive.

@Kelsey Outram I used to find it strange, but it's not that uncommon... we actually have several owners who rent and own rental properties. Sometime renting makes more sense in some markets.

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Conventional loan vs refi depends on LTV. Most banks are only going to loan 75% of LTV but you can find some conventional lenders who will lend at 20% down. It may vary in different markets as I know that @James Wise said expect to spend 25% down. Be aware... many turn-key providers are selling homes above what they may appraise for and you may have to bring even more money to the table to close the deal. Basically...

Home value - $110,000

Purchase price - $95,000

Conventional loan (at 20%) = $19k down

Conventional loan (at 25%) = $23,750 down

All cash and refi 75% of FMV = Purchase $95k cash. Refinance (probably 6 month seasoning) $82,500 back out (75% of $110k) leaving $12,500 invested. Probably a little more as there are going to be closing costs as well.

While it seems that it makes sense to do the refi... you still have to figure that your money will be tied up for 6 months or longer. If you are very active, you probably prefer to stay more liquid.

You also have to understand... the more you finance... the lower your cash flow. You may find yourself in a cash flow negative situation if you pull all $82.5k out on a refi if your rent rate is not high enough. Personally, I price my refinance to have a mortgage of no more than 45% of the rent rate... this is just the finance rate... not the escrow for property taxes and insurance. If you're debt service is higher than 45% of the rent rate, you're probably not going to cash flow. We've managed hundreds of properties and the 50% rule is a solid rule of thumb. There certainly are variances, but if you look at a 5-10 year snapshot of most portfolios, you will see the overhead usually ranges from 45%-55% when you have actual numbers for vacancy, maintenance, and capex. Some years you may net 75% (without a mortgage) and other years will net negative 30%. This is why you have to have adequate reserves... especially when you are working with financed properties. Most people recommend at least 6 months of rent for reserves and I actually prefer even more. I keep about 10 months worth of rent available at all times for my homes... and trust me, the $1,000-$2,000 of annual cash flow is likely not going to build fast enough to handle your first vacancy.

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To address a previous question... HELOC are for your personal residence. I do have lenders that will give you a line of credit against your investment portfolio, but usually you have to have 4 homes or more and if they are not paid off... they will pay them off and apply the balance to the LOC to ensure that they are in the first position lien. Those LOC's are more flexible than mortgages, but the terms are not usually as favorable (usually higher interest and lower LTV's.)

@Ryan Carter I am an investor and work as a business developer for a property management company in Indianapolis. We have almost 150 clients and over 100 are out of state/country investors with the majority of them being from California. There are multiple markets that investors find that will meet their needs and goals. Personally, I think that building the right team is more important than finding the perfect market as the wrong team can kill a portfolio in the best of markets.

As mentioned above... Kansas City, Memphis, Columbus Ohio, Cleveland, Birmingham, and Jacksonville are very common alternatives as well. There's a lot of activity in NW Indiana right now as many people are migrating across the border from Chicago where they are still close enough to work in the big city, but live in a more affordable and less regulated environment. I've seen Pittsburgh, Grand Rapids, and some smaller Texas markets on some investors radar as well. Personally, while I love Indianapolis, I'm keeping my eye on some Michigan markets myself as I am seeing some changes in the landscape and already have several trusted contacts in the Detroit area myself. As I said... having a good team is everything.

Here are some recommendations to help your research.

1. Business friendly laws. Many of you bigger city markets have become more tenant oriented than landlord oriented. Many of them also have excessive regulatory burdens (mandatory city inspections, extra taxes on investment properties, etc.) In Indy, we can usually get a tenant through the eviction process in 4-8 weeks. In CA and NY I've heard that it can take 6-12 months to regain possession of a property. As long as your PM has followed all of the steps and operated correctly, Indiana judges are very much of the mindset of "No Pay... No Stay."
2. Understand how property tax works in your chosen markets. Some markets have exceptionally high taxes that can kill a deal that looks great otherwise.
3. Growing population and employment base. Desire has the biggest impact on your ability to succeed and if everybody is moving out of your market your home will stay vacant longer, have a less desirable tenant pool to pick from, etc.
4. Cost of living. The midwest tends to be considerably less expensive than the coastal areas. This creates better rent ratios (cost of the investment vs the ROI created by rent.) This is exactly why so many CA, CO, NY, WA investors are putting their money in these markets.

There are a lot of metrics that people will review, but I think that the above ones are some of the more important ones. I'm a big fan of understanding your risks... especially when managing out of state. Most people want to sell you the dream without educating you about all of the things that can go wrong and how to manage those potential liabilities. Just because you can pick up a home in Gary, Detroit, or Cleveland for $20k that will rent for $500/mo doesn't mean it's going to be a great deal. It's probably located between the local crack house and the abandoned home that all the squatters stay in. Probably not going to work out the way it looks on paper. It's important to build a team of knowledgeable professionals to help guide you in to the right areas and help you to understand what to expect.

Best of Luck! Feel free to reach out I can help with anything.

@Daniel Mendez Indy isn't a "bad" place for MF investing, but most of the older MFR's in town are in lower income or more distressed areas. In general, MF housing is more similar to apartment investing which typically means more turnover or higher vacancy rate. It makes the cash flow inconsistent. This is especially true of many duplexes but is much more sustainable with 4+ units. Duplexes can be cash cows until your tenants move out and if both units are turning tenants every year or two, it never feels like you're getting ahead.

Also, in Indy, single family homes are usually a more desired lifestyle so most MFR residents are younger, in some sort of transition, or have more limited means. With that being said, about 15%-20% of our multi's do have older, long-term residents which plan to live in the home until they need more of an assisted living lifestyle.

The areas in Indianapolis where you can do well with multi's are typically going to be more expensive to get in. The areas we see the most consistency and demand are probably Irvington, Emerson Heights, Mapleton-Fall Creek, Herron Morton, and Broad Ripple. Also, any 3 bedroom duplexes or larger outside of Indianapolis Public School district do pretty well. Decent duplexes in these areas usually start at $90k+ though.

Duplexes can also be slower to appreciate if you don't purchase them in the right areas. They are usually in areas with a higher concentration of investment properties and investors tend to suppress the pricing market (go figure... everyone wants them cheap.) They can be difficult to appraise well which will impact your ability to refinance the majority of your capital out. I've seen it go both ways though. I've seen appraisers look at the income and appraise a duplex higher than I expected and I've seen them get very poor appraisals because there is less inventory to compare them to and they are usually purchased at lower price points. I imagine that a lot of markets are going to be like this unless you have a high population density making MF lifestyle more of a common place (NYC, DC, etc.)

In order to successfully pull off a BRRRR you have to have a decent appraisal which isn't always easy. MFR's are just a different product. Not good or bad, just different metrics that impact the cash flow and equity differently.

@Kevin Kim Thanks for the shout. Woo hoo... we've finally pulled you through those two homes and have a tenant for the second one. Hopefully it's smooth sailing from here.

Our property management company doesn't offer large scale rehab/remodel services as we specialize in property management, not construction or project management, but I have helped several clients build teams to do larger projects for retail flips and BRRRR's. We have clients doing larger projects throughout the year with trusted GC's in our network and I don't have a problem following up occasionally to ensure that the work is quality and getting done in a timely manner.

@Marcos Gonzalez I think that you are going to have to decide how to best invest your money. You are not likely to BRRRR a property with just $20k, but if you can find reasonable private money, you can leverage that money for a BRRRR, but I wouldn't recommend it for a first deal with limited capital. There's too many things that can go wrong and you will likely be upside down with the holding costs from your borrowed money.

You can purchase a home with a conventional loan (20% down) but you want to ensure that you have around $5,000 available for reserves as you will go in the hole on your first vacancy with mortgage payment, taxes, insurance, maintenance costs, holding costs while vacant, etc. before getting your 2nd tenant in. 

My recommendation would be to look for properties that you can purchase with $15k down ($75k property) with no work needed or a $50k property with $10k down and invest about $5k in repairs/value add. I would recommend trying to target a home that will rent for at least $900/mo. I find homes that meet these criteria (or close) in the Cumberland, Devington, and Eagledale neighborhoods mostly. We've had clients purchase 3 Devington rentals, 1 Cumberland rental, and 1 Eagledale rental so far this year.

Hope that gives you some insight. Feel free to reach out if you need help with anything.

@Brian Chen I am an investor and the business developer for a property management franchise. Feel free to reach out and I'd be happy to answer any questions.

I also might recommend looking at listed properties on Zillow or Trulia

• Look for homes that meet your desired criteria (rents of $850+, 3 bedrooms, no basement, garage, 1.5+ bathrooms, built after 1942, etc.)
• Look at the listing description and determine if it's being marketed by a PM or a landlord/owner. If it's a PM, evaluate the pictures and listing description. Write down the PM's name and contact information.
• After finding all the PM's you can find, start calling their leasing departments. You'll be surprised how many will not answer and even more surprised to find that most of them will not even call you back.
• If/when you do get to speak with someone, try to schedule a showing at an inconvenient time and see how flexible the leasing agent is. I always recommend telling them that you are relocating from out of town and will be in town Sat and Sunday and would like to see it sometime Sunday between noon and 3 PM. Good Luck!

Next, after evaluating the types of homes that they manage and their leasing team/staff... call them about their PM services for investors. Steve has a lot of great questions above. 

As far as NARPM goes, we've tried to decide whether or not to join for years. We have an A+ rating with the BBB, members of a couple of local Chamber of Commerces, part of a national franchise with 300 offices, been members of Business Networking International, local REIA's, etc and the franchise itself has a major role with NARPM, but local office is not a member. Unfortunately, there are dozens of associations that PM's can be a part of to grow their expertise, network, visibility, and credibility but nobody can be in every one as they are all time consuming and expensive. NARPM is certainly a valid directory, but I don't think that it makes one PM better than another... just willing to spend more money with another organization.

Best of Luck!