Three and half years ago I stepped up my real estate investing game when I started buying properties out-of-state. I was living in Austin, TX at the time where the market was so hot and the cash flow was extremely hard to find which is what led me to Indianapolis. Wow I can’t believe that was so long ago. Time has really flown by and so much has changed for me since then. Anyhow, I got caught up in purchasing turnkey rental properties because I was still in my early real estate investing days, the numbers looked amazing to me and I really believed these cities I was purchasing in were headed in the right direction. I ended up purchasing 4 turnkey rentals all within a 10 month span. 3 of these were in Indianapolis and one was in KC, MO. It was very exciting times for me but also a bit scary because well its just flat-out scary when you start buying rental properties so far away from where you live. Am I right!?
To this day, those turnkey rental properties in my portfolio have been cash flowing and appreciating. I have had very little problems with any of them and to date, they have been great investment properties. As of late lat week however, I have sold one of those off. The property I sold has been listed as Rental Property #4 in my net worth update posts from my May 2018 posts and earlier in case you have been keeping track of my properties through those posts.
Why I Sold One of My Turnkey Rental Properties
When I originally bought this turnkey property, I knew very little about the city of Indianapolis however I had researched as much as I possibly could and had even made a trip out to Indy to check out all the neighborhoods. This particular property was in a neighborhood called Devington which is in Lawrence township of Indianapolis. By all means, this is not really considered to be a desirable neighborhood (in my opinion) and I had never really planned on this particular property appreciating much. It was though a good blue-collar C class neighborhood with low crime when I purchased it. I bought this bad for cash flowing purposes only and it did just that.
A few months ago I noticed on Redfin (How to find sold comps for free) that a property of the same size and year in the very same neighborhood had sold for $100k. This was very exciting for me because I knew it meant my rental property had appreciated a lot more than I originally thought it did. I have been this property as rental property #4 in my net worth posts and estimating it to be worth $60k. Boy was I wrong about that price as you will see below. On top of that, my tenant (who had been there since I purchased the property by the way, yes that’s right, same tenant for 3 years!!) was finally vacating. I have also been noticing a trend in which it appears crime has been steadily increasing in this area for the last year or so. It seems to me that the gentrification occurring on the east side of downtown Indy might be pushing some of the crime out toward this area. It was not a trend I like to see so that also helped in my decision-making process to sell off this property. In a nutshell here are the 3 factors of why I sold this property.
1). Crime was steadily increasing and being pushed into this area. The property no longer fit in my rental property criteria. This property would no longer meet my criteria of today’s standards and if this crime trend continues, I know I will be better off selling now as opposed to later.
2). My tenant of 3+ years finally vacated. I never had a turnover in this property in the time I had owned it. It still had the same tenant from when I purchased the property from a turnkey seller. The vacancy gave me an opportunity to be able to sell this property retail to a traditional home buyer. Having the ability to list the property to traditional home buyers (non investors) is a huge advantage especially when trying to fetch top price!
3). The property almost DOUBLED in value since I purchased it only 3 years ago!! Woah there!!! That is a lot of appreciation for a rental property in C class neighborhood. It’s almost shocking to me really. I am telling you folks, what is happening here in Indy is amazing and real estate investors are making money!! Including myself!! 🙂 I mean as you may already know, real estate was the major determining factor in why I decided to leave Austin and move to Indianapolis.
How Much Did I Originally Purchase This Turnkey Property For
Read the following article If you want to read all the original details and info on when and how I purchased this property. However here are the original numbers
Original Purchase Price: $55,000
Closing Costs: $4070
Original Total Purchase Price: $59,070
How Much Did I Sell This Property For 3 Years Later
Sold Price: $105,900
Repair/Listing Costs: $11,434
Total Profit: $35,396
Considering this is a C class neighborhood that I had very little faith in appreciation for, I am extremely ecstatic about this. Wow! I just love investing in Real Estate and I am so happy I got in when I did.
How Did I Sell This Property?
Awhile back when I sold my first property in Austin, TX, I sold it For Sale By Owner using a flat fee MLS listing service. I had saved over $14k doing it this way. Was it harder? Yes but I wouldn’t say it was hard work, just a bit time-consuming. After selling a property that way I knew I would always want to sell using this method again. Well that is exactly how I sold this one too here in Indianapolis.
I used a flat fee MLS listing service and paid $700 to do this. The catch was I had to take my own pictures, write my own description and make my own decisions without consultation from a realtor. Well all that is actually pretty easy for me and it’s totally worth it for me to save thousands of dollars. The other catch which isn’t really a catch is I still have to pay a buyer’s agent if they bring a buyer but I set it so that I would actually only pay 2.5% commission instead of the normal 3%. The house was only listed for 7 days before I had multiple offers on it. It actually sold for above asking price. Talk about awesome!!!
At the end of the day, I ended up making really awesome returns from this property with the profit from the sale and not to mention all the rental income I made from it in the 3 years that I had it rented I haven’t even accounted for all that cash flow, the equity paid by the renter and the tax savings yet. I consider this to be a huge win in my world and I am very satisfied with how I handled every aspect of it from purchasing out-of-state, renting/cash flowing, then selling for sale by owner.
What do you think? Would you have sold?
Awesome Alex!
Super happy for you man! I’ve been following your journey throughout the years having bought my first out-of-state property in 2016. I’m still out of state, it’s definitely a little challenging, but with your blog I feel like I have another person “on the ground.” Thanks for everything you do and provide to the community!
Like I mentioned before, would love to meet you the next time I’m in Indy! Have a great day!
-Tyler
Thanks Tyler! You know I will always keep it real and show how it’s like investing in Indy from a local perspective whether its good or bad so I am glad you feel that way. Youre very welcome!! 🙂 Let me know next time youre in town and we’ll see if our schedules line up.
Wow pretty awesome since many naysayers on BP always argue that there is no exit strategy for turnkey properties as there is no appreciation and you’ll be selling at a loss. With my turnkey in KCMO, I was pleasantly surprised that it appreciated also. I did a cash out refi to buy another property. In your case though, I guess it makes sense to sell since you saw the crime trends move there. What accounts for the appreciation in that area though…or maybe all properties have appreciated in the hot Indy real estate market? Also, are you doing a 1031 exchange or just paying the capital gains?
Ha! Yeah there are a lot of haters out there and I obviously know for sure that all what they say is not true because of my own experiences. Unfortuantely my KC property hasnt appreciated as much as I would like but I dont see the crime getting any worse there so I am okay with it for now as long as its cash flowing.
Im glad to hear you were able to do a cash out refi on your KC property, that is really awesome that you used it to buy another property. Very smart my friend!!
As for the appreciation in Indy, I definitely would not say all properties have appreciated as much as this one did but there has definitely been a steady appreciation through out all of indy over the years with some neighborhoods appreciating tremendously. It really depends a lot on what part of town it’s in. I was really surprised to see though how much this particular house appreciated. I would have never have guessed that. I am not doing 1031 exchanges, just planning on paying the 20% capital gains. I already set the money aside from the profit to pay for it. Oh well! Just part of the game you know.
Hello Alex,
Great job – congratulations on the purchase and profit of your turnkey properties. I wish our 1 turnkey was profitable. The cash flow is fine, but property appreciation does not exist. If we try to sell it we will be in the red. Unfortunately, we will hold it for another year.
I have been reading your blog and monthly net worth analysis for the past two years and your story is very motivating. Thanks for sharing your experiences and keep writing.
From Nancy
Hi Nancy, Where is your turnkey at? In Indy? You know when I first purchased the turnkeys the plan for me was always just about the cash flow, I feel I got lucky this one in particular appreciated so much.
After I stopped buying turnkeys though, my new properties were all purchased in areas I felt there would definitely be appreciation. The location is SUPER important when buying turnkeys unfortunately most are in high crime areas it seems like these days.
Was there a lot of depreciation during those years? I figured it wouldn’t be that much since you owned it for 3 years. With one of my rentals, I’m debating whether to sell it or not. It’s just now barely cash flow positive, and the expenses help offset my other rentals. But I’ve owned it now for 12 years, and I now have some equity in it. I’d like to just liquidate it and put it into something that’s more cash flow positive
Hi SF! I only had the property for 3 years so I would think there is not “a lot” of depreciation but this is the first rental I have sold so I am not sure how the depreciation recapturing is going to work. I guess I will have a new post to write about next year when I see the hit!
It sounds like you need to get rid of that rental, if its barely cash flow positive and you can use the money from the sale to get better returns then absolutely do it.