Purchased Rental Property #5 plus My New Real Estate Investment Strategy

For the past few years I have been on a full-fledged journey to try to reach financial freedom.  I realized that the only way for the average Joe to do this in the easiest way possible is to invest in real estate.  It doesn’t take a genius to invest in real estate, it only takes good fundamentals about what a good deal looks like and a motivation to succeed.   It also helps that I have really good credit and already have a well-paying day job to help me accumulate these investment properties.   🙂

In late 2014 to fall of 2015, In a span of less than one year I was able to acquire 4 rental properties to propel my journey to financial freedom.   I was able to do this by purchasing turnkey rental properties in Midwestern cities and obtaining financing on all of them.  The city I lived in at the time (Austin, TX) had proved to be too expensive to buy cash flowing properties.  I specifically chose Indianapolis and KC to invest in because all the research I had done led me to believe these up and coming cities were perfect for buying rental properties.   After purchasing my last turnkey in KC I was not able to buy another property anytime soon because of life changing events I was going through.  I got married which was the big one and then had set plans to move to Indianapolis which took months to plan and another few months to settle in.

During my one year hiatus of not purchasing a new rental property I was able to grow my net worth by about $83,000.   It was a combination of appreciating real estate, growing stocks and a big effort to save money that I was able to accomplish this.   Now that I am all settled in to my new life in Indianapolis, I am happy to report that I have finally purchased another rental property.  This is now my 5th rental property.  Well technically its the 6th but I converted one of my old rentals into my primary home.  Anyhow, I now have 6 real estate investments generating me passive income.  This is counting the self-generated performing note I own from an owner finance sale I did years ago.    I am very pleased with my new rental property and have different plans for this particular one as I want to dive into a new real estate investing project which you will read about below.

Cash Flow Diaries living in Indianapolis

Loving my new indy life. Biking through downtown.

My New Property Buying Strategy:

Now that I am living in Indy I have decided that I no longer am interested in purchasing turnkey properties for the time being and would rather buy fixer uppers in highly desirable areas.   I would like to buy and hold these properties assuming they cash flow however I am also willing to flip a property or even just hold on to it for a few years before I sell it if the appreciation gains are very good.   Depending on the deal I get will dictate how I proceed with the investment property.   I want to be more versatile in my real estate investing.   My reason for this is because I have experienced first hand seen what its like to own a property in a hot area and have made a lot of money by having this kind of asset.   I made over $130k profit on the house I sold in Austin TX and barely even owned that house 3 years.    Now that is real money and I would love to have the opportunity to do something like that again.    The cash flow numbers won’t be as great as the kinds of deals I was able to obtain in the past but the appreciation potential is far greater.   Don’t get me wrong though, I am not completely relying on appreciation gains for my new rental properties because I think that would be a bad idea.  All my new properties will still cash flow and provide passive income which is super important to me.     Now that I am living in Indianapolis, I know where these appreciation areas are and I am seeing for myself what is occurring in these types of neighborhoods.  There is one in particular that stands out a lot for me which leads me to my new point.

 

Where Is My New Rental Property

Well considering that I moved to Indianapolis to help me achieve early retirement faster, of course this one is in Indy.   Part of my plan for moving here was to give me a local perspective on the city, have my own boots on the ground and allow me to purchase fixer uppers at better deals than what an actual turnkey provider might be able to offer these days.  My newest property is in the Historic Bates Hendricks neighborhood located just south of downtown.  It’s literally just a few miles from dead center downtown Indy and a half mile from the heart of Fountain Square which is a super cool area of Indy on the rise.   In my opinion the Bates Hendricks neighborhood is exactly where I want to buy for an investment property.   At least for right now.  The market in this particular area is very popular and prices are increasing fast.  The neighborhood is in a full steam revitalization and on the rise.   The local residents are well aware and helping to contribute to this growth as well which I have learned by going to the Bates Hendricks Neighborhood Association meetings.     I am seeing first hand what is happening in this area and want to be a part of it.  As a matter of fact, one of the turnkeys I bought just a year and a half ago is in this same neighborhood and it had already appreciated over $25k just in the short time I had it.    Since I have moved into this house and put it an extra $30k of remodeling the house is now worth at least $180k.   Um yeah so I am all in on that house for about $100k so far.   That is close to an $80k appreciation gain.  HUGE WIN!!   This just happens to be the house I live in now so I have no plans on selling this one anytime soon.   I absolutely love Bates Hendricks for investing and living in!!   As I mentioned earlier though, it is not really easy to find good deals in this neighborhood.   All the local investors are far ahead of me and have been buying here for a while now.  Heck I mean when an HGTV show like “Good Bones” led by Two Chicks and a Hammer have already been flipping houses in this neighborhood for over a year now and helping to put this neighborhood on the map, it’s a little late to come in on the scene and find some good deals.    But the fact of the matter is that there are still dozens and dozens of boarded up houses in Bates Hendricks and wholesalers are sending deals out.   So it’s not entirely too late.   If I can find a cash flowing property here then its a no brainer to purchase it.  Not only will I get the benefit of a cash flowing property but the appreciation potential is far greater than the majority of Indianapolis.   Will have to keep my fingers crossed.

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Property Details

Rental property #5 is a smaller 2/1 house built in the early 1900s.  Most of it has been renovated and it actually came with a qualified tenant which was great.   My estimate is that it needs about $5k worth of work to make it a perfect rental property which isn’t bad at all.  I purchased the property for $50k and paid cash for it.    In the course of about a month of looking at properties in the Bates Hendricks neighborhood I knew that I was not going to find a better deal than this unless I start wholesaling myself.   I have been looking at and viewing wholesale deals and fixer uppers in this area and have found that just about all the houses I see going for about this price range in this area need a lot more work to make the house rent ready.   This property makes for the perfect starter fixer upper home for me to start with.     Plus I have decided to use this property as part of my newest real estate investing idea which I will share below.

 

Property Numbers and ROI as a traditional rental property:

 

 

turnkey rental property calculator

As you can see, the numbers above are not home runs in my opinion but considering the location, appreciation potential and the fact that is still cash flowing makes this a winner for me.  Not to mention this property is a perfect fit to turn it into a vacation rental property!  In which should provide far greater numbers.   The cash on cash return on this property does not really apply because I paid all cash for it.  In this case, the only number that matters is the cap rate.

 

Future Plans For This Rental Property – New Project –  Vacation Rental

I have decided because of the location of this property, being so close to downtown, fountain square and it being a 2/1, that this house would be perfect to convert it into a vacation rental house.  I have done some research on this area with AirBnb and can see there is a lot of potential profit to be made that would provide even better returns than if I were to just rent it out monthly.   If I have the house rented out for only even half the a month I can make close to about $1800.  That is more than double the normal rent amount and in only half the time per month.    And this is not including hiking up the rents for when there are actual big events occurring in the city.  It looks like there are homes listed on these vacation rental sites from $300 to $500 per night during events like the Indy 500.   Which is insane!!    I think it would be a fun project and side hustle for my wife and I to manage while we are living here and I think the new returns would make this a home run after all.   I have yet to calculate all the expenses yet on turning this into a vacation rental but have plenty of time because I can only convert this to a vacation rental if and when my current tenant ever moves out.   For now, I will happily collect the monthly $800 rent.

Oh by the way, I have already started the process of buying rental property #6 as well!   Which you will read about in the coming weeks.   Happy investing everyone!




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23 Comments

  1. It is amazing how expensive rooms can get during the Indy 500. I live an hour south and my town’s hotels were 90% booked that weekend. Our AirBnb was also booked, but we didn’t anticipate the race being a draw for our town so we didn’t hike the prices up. We know better for next time 🙂

    One thing we didn’t realize would be a potential cost for our Airbnb is how often we have to replace bedding/towels. They’re washed after every visit so the wear on them is more, plus they get stained often and we have to take individual items out of rotation. Overall, we love running our Airbnb space and have a lot of fun flipping it and planning on upgrading our amenities. And we make a killing off of it.

    It’s good that you have a property that is so versatile! Good luck with property #6!

    • That is great you are doing well with your AirBNB, its very encouraging for me. I figured we would have to be washing towels and sheets after every turnover but I didnt consider having to keep buying new ones when they get messed up. Thanks for letting me know, there is still a lot for me to learn actually about the whole airbnb process that I need to research.

      Thanks bud!

  2. I’m curious as to why your image of your calculations has $0.00 for vacancy, repairs, and property management? Maybe I missed something as to why those numbers are zero, but that should affect the overall quality of the deal. Thanks for the clarification, love the blog.

    • Whoops!! Thanks for letting me know, I tried deviating from my normal image which didnt auto calculate the numbers like my normal spreadsheet so I just forgot to enter the amounts. I went ahead and replaced the image with my normal turnkey calculator that shows it all even the cash on cash return if I decided to use financing.

      Thanks for catching that.

  3. That is wonderful update Alex. I am glad you are taking full advantage of your Indy move and working well for you. Are you managing properties yourself now or still have PM who is looking after? What are your plan on taking over the management part of your buy & hold properties? Obviously it’s good to plug in PM # for self managed ones too.. Bates Hendrick is a great upcoming neighborhood with proximity to FS and downtown. I have one property there and it is by far the best performing one with no vacancy since I bought early last year…Great stuff and wish you continued success Alex…

    • Thanks Mayank! For this one I have it being managed by the property management team who already had it when I bought it. Once the tenant moves out and I convert it into a vacation rental, I will manage it myself. As for the properties I already had in Indy before I moved here, they are still being managed by my Property Manager and I will leave them be. I really do love Bates Hendricks and I think its great you have a property there, congrats!!

  4. Awesome stuff, this will certainly accelerate your portfolio. It is a lot more time invested, but I know that isn’t something that will keep you away.

    I’d be curious to hear how you tapped into the wholesalers in that neighborhood. Is it something where you have to take the whole feed and filter yourself? Is it personal relationships with the people you know are working in that area?
    Brian – Rental Mindset recently posted…There Are Two Types of Real Estate Investors …My Profile

    • Hey Brian!! Oh yeah I actually enjoy spending time doing this kind of stuff. About a month before I moved to Indy I searched online (google, biggerpockets,etc) for as many local indy wholesalers I could find and contacted all of them to send me thier deals. When I moved here, I also went to a local INREI club meeting and met a bunch more wholesalers. So that alone is generating a lot of deals to look at. But to answer your question, yes I have to filter them all out as I get them to see if I am interested. It takes me less then a minute now to rule any out I dont like. Which is almost all of them.

  5. Great stuff, Alex! It’s always a pleasure to read your articles. Thanks for putting up your numbers for all your TK/rental props. I often revisited your website to look up your TK financial figures, even it’s not apple to apple comparison, but I found them to be very good reference. Continue the good work!

    • Thanks so much Christine! I love looking at peoples numbers and comparing also. Makes you fight harder to get better deals. 🙂

  6. Hey Alex, that’ll be really cool if you can swing the vacation rental model! Congrats on another purchase. You’re racking them up. 🙂

    So at $50K, a cash purchase definitely makes sense. However, if you purchased another 4 or so, do you think a bank would finance the cluster a whole?

    BTW, too bad you weren’t able to make FinCon this year, but hopefully we can meet in person next year!
    Michael @ Financially Alert recently posted…FinCon 16: The Ultimate Recap from One Blogger’s PerspectiveMy Profile

    • Thanks Michael!! Commercial lenders do package up multiple houses into one loan however they only provide ARMs and at higher rates. The whole ARM thing turns me off at this point. Im thinking once I hit 10 mortgages, ill start paying them off or purchase houses cash only. But I wont worry about that until I cross that b ridge.

      Next year Ill definitely be hitting up FinCon, ill be sure to look you up.

  7. Have you considered buying an apartment building rather than houses? With your available funds you could buy a bunch of units in one purchase, benefit from economies of scale, and get even closer to FI. Curious to hear your opinion. Thanks!

    • I have thought about apartment buildings but I just dont have enough knowledge quite yet to dive into those. I don’t even know anyone who has one which would really be helpful in acquiring my first one. Later down the road if it makes sense, I may cash out on the SFHs and get one big apartment complex.

    • Thanks FS!! Education is key but I agree having a built up cash reserves should be a top priority. Good luck bud!

    • Thanks Derek. I think the airbnb thing would be a great new experiment to try out and also to write about. Probably wont be for awhile though as I have to wait until the current tenant moves out.

  8. Great job! I do like Indy a lot – it’s a great city! I too think the AirBnb is an awesome idea. I hope it works out.

  9. I think that’s a good strategy…turnkey makes more sense when you’re investing long distance. Now that you’re local, you can manage the renovation and manage your own property if you want to. This strategy will cut out some expenses and also have more equity in the property

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