Flip vs. Buy and Hold — Indianapolis

The real estate world is in a constant state of flux, as we all know. After the collapse of the housing market in 2008, values plummeted and there were thousands of foreclosed homes, sitting empty.

Smart investors started snatching up those homes, at bargain prices. They knew the major dip in the market wouldn’t last forever. The collapse enabled them to fix up/rent out these homes, because the rental market surged, everywhere. I was fortunate to be interviewed by CNN online and USA Today about the phenomenon: click on this section to view the whole article.

Well, those days are over for the most part, as the housing market everywhere has had a nice rebound. Now, it’s a lot more difficult to find a home, do the updates/rehab, and make much money on the flip. Inventory is down, the market has tightened up. And on a flip you have to consider these cautionary tips:Most of the time, you run into unforeseen issues after you start the rehab.

• It’s hugely important that you find a reliable contractor (if it’s not you) that will show up every day and complete the work on schedule.
• Don’t overspend on the amenities/updates. Stay above the surrounding homes, but don’t spend crazy money you’ll never get back.
• Be aware that the house may not sell immediately. And when the house sits, you continue to have all the carrying costs — insurance, taxes, utilities, maintenance , etc.

If you’re risk averse, flipping probably isn’t in your wheelhouse. Much safer to buy, fix up, rent out, and hold it for income and long term investment. Although I’ve flipped a couple along the way, I never depended on those “big returns” you hear about on HGTV and informercials. (They make it look way too easy!)

My best advice? Buy and hold here in Indy. Our market is super stable, and growing. Investors from all over the world are very interested in what Indy has to offer, with good reason!

So, You Want to be a Flipper?

Yes, it’s all the rage … reality TV shows like Flip This House, Flip or Flop, and even the one filmed here in Indy, Good Bones … they all make it look so easy, right? And the reality celebs reap incredible profits on all the sales. It’s no wonder I get approached fairly often by new investors who want to be flippers. I mean, what could go wrong????

When asked, I tell people the harsh reality of the flipping world:

• When you estimate repairs/updates, there are always unplanned expenses and repairs that pop up. You should always pad your repair estimate to cover those unexpected surprises.
• What if you can’t sell it immediately? What if it sits six months, or even more? You’re still carrying all your holding expenses, i.e. utilities, taxes, insurance, mortgage — slowly draining your eventual profit.
• In a really tight, strong market, like Indianapolis (and many others), there isn’t a lot of wiggle room between what you can purchase a fixer-upper for, and what you can sell it for on the “flip side.” Bargains have gotten much harder to find.
• Several of the HGTV celebrities have started programs/seminars you can purchase, where they’ll lend you money, teach you, get you set up, etc. How well do you think they know YOUR market? And many of their programs are 30K+ — crazy! I’m attaching an article that addresses the “business” of flipping and the pitfalls. It’s a good read.

Flip, Don’t Flop

My best advice would be to contact an experienced local flipper who might be willing to mentor you if you’re super serious about pursuing this route. Flipping houses isn’t guaranteed, steady income, and it isn’t for the faint of heart!

Is Indy Cool Enough for Amazon?

Are you kidding me? How could “IndiaNOplace” be in the running for Amazon’s coveted second national headquarters? How could this former sleepy “Naptown” even be in the conversation? An article appeared in the New York Times recently addressing that very question.

Well, we’re non-partisan about promoting business, with a favorable tax structure.  That, coupled with a reasonable cost of living/housing market enabled us to make the final top 20 list of candidates. Here’s the full article that appeared in the New York Times:

Is Indy Cool Enough?

Our award-winning airport makes travel easy, and our traffic patterns are ridiculously smooth compared to other 2M+ metropolitan areas. Fed Ex, who already has a major presence here, has just announced a 1.5B expansion over the next seven years. And we continue to attract hundreds of national conventions each year.

As a local Realtor/Broker, I get inquires from all over about our city. Our market is strong and very stable, and there’s no end in sight.

We may not be the final choice for Amazon, but we’re definitely — finally! — “on the radar.”

The Case for Investing in Low-Middle Income Rentals

Since the collapse in the housing market almost 10 years ago, we’ve seen a steady increase in the demand for rental properties. Here are some startling facts:

• In this time frame, the number of rental units has soared from 34 million to 43 million, in 2015. By 2025, it’s expected to top 46 million.
• The largest percent of that growth — 80%! — has come from the conversion of single family homes into rental properties.
• Demand has grown in all income ranges, but particularly in households earning less than $100,000/year.
• Because of the rising demand, rents are going up, while incomes are not keeping up. Renters are spending a larger percentage of their take-home pay toward their rent payments than ever before. But even so, we’re expecting continued growth in our rental markets throughout the US.

With no end in sight for the continuing demand on rental properties, investors are diversifying their portfolios and putting their monies in real estate. Indianapolis is a very desirable rental market; our economy is growing, yet our prices are reasonable compared to the rest of the country.  We have investors from all over the world who’ve decided this is the place to be … especially in the low/middle income markets, there are still great returns to be made.

Onward and upward!

 

Renters and Social Media

Many employers today turn to Facebook, Instagram. LinkedIn, and Twitter to get the “inside scoop” on applicants. Those social media sites provide a broader view of a person than the bare facts of job history/performance.

Property managers also go to those sites to learn more about potential renters. Facebook, for example, can verify some of the info contained on the rental application. These sites also can provide insight into they type of renter the applicant might be: are there pets not reported on the application? Is the person into throwing wild parties? Are there other lifestyle concerns?

It’s important to know that if you choose to use these sites to help you in your tenant selection, you must use them equally with all applicants, so that you’re not in violation of Fair Housing laws. And another thought — can you be fair about your opinions after you’ve checked out someone on FB or Instagram? It’s very possible their taste/opinions/political or religious beliefs may be drastically different than yours. That doesn’t mean they wouldn’t be fantastic tenants. You have to remain neutral if you decide to use these extra means of screening. If you can’t, maybe just stick with the written application!

I’m pretty open-minded, so I’m going to start using social media as an additional screening tool, if the applicants’ accounts are public. Better screening can help me find better tenants, and I’m all for that!

Onward and upward … 😌

Indianapolis Tops Another List

I came across this Zillow article today and was pleasantly surprised. Yes, we know our rental market is strong and will continue to flourish. But for many would-be homeowner/investors who’d like to rent their homes, they find the costs associated with owning that house aren’t covered by the rental income they receive. This is especially true on the east and west coasts, and in many larger cities. But not so with Indy! Here’s the article:

Return on Rent: In Most Major Markets, Most Homes Can Be Rented Out For A Profit – Zillow Research

As this article shows, more than 98% of homes here can be rented out for more than their monthly expenses, i.e. mortgage payment, insurance, taxes, maintenance, major improvements, etc. So, more and more homeowners are considering jumping into the world of real estate investing. And, what better time than NOW?

Onward and upward ……  🙂

 

HUD News ….

Elizabeth Gibson at EZ Landlord Forms contacted me with this somewhat alarming news from HUD, so thought I’d share her article with other landlords who might be impacted by the effects of what’s written/implied in this proposed rule change:

proposedfederalrulechangehaslandlordsfeelinganxious

Every quality rental property owner upholds the fair housing and anti-discrimination guidelines espoused by HUD, and makes those clear to tenants who rent from them. But making discriminatory actions (by tenants) the responsibility of the landlord seems unfair and unrealistic …

Definitely an issue that needs to be followed!

 

Surprising Trend

When everything collapsed in the housing market here in 2008, US investors took advantage, knowing the situation wouldn’t last forever. But foreign investors also took note and jumped in.

The surprising player was China, however. Prior to 2010, investment from there was negligible but between 2010 and 2015, Chinese buyers spent around $93 billion on homes, condos and other investment properties! And finally, in 2015, those buyers surpassed Canadians as the predominant purchasers of investment properties here. I was astounded by this fact. (Springer, R. (2016, Sept-Oct.) Staying Power, Think Realty, pp. 12-14).

Interestingly, they tend to buy in our more expensive markets like New York City and California, although Texas and Florida are also high on the radar. And the trend is expected to continue. Why China?

• I didn’t realize this, but the government there doesn’t allow their people to own homes — they can only “lease” them from the government. (Ugh!)
• People there with extra monies see our dollar as more stable than their yuan, and also see our social and political landscape as much more stable than theirs.
• They like the rebound our real estate market has made in the past few years and expect that to continue.

China now has the highest number of billionaires in the world, and is second only to the US in the number of millionaires. They’re sending their children to universities here because they feel the education is superior, and there’s a federal program available (EB-5 Program) whereby a number foreign investors  can immigrate here if they’ve bought real estate. Some of them purchase homes and have their children live in them while attending school.

So, it all makes sense on a number of levels. If you’re a Chinese national, have the extra cash and want to improve your investment portfolio … the US market holds a lot of opportunity.

(P.S. This isn’t a commentary on immigration! I don’t do political stuff on this blog, just real estate related content. Politics drives me crazy, especially right now … )

Welcome, Felons?

In a recent phone call from a prospective tenant, Robert’s last question of me was, “So, do you rent to felons?” When I asked what his felony was, he replied, “Strangulation.” I told him I’d have to talk to my owner, and suggested he call me back in a couple days. (I’m the owner, of course, but keeping that fact private has saved me time, stress and hassle through the years.)

HUD Secretary Julian Castro recently released a 10-page statement, warning property managers, agents and landlords they can be held liable for discrimination if they deny tenancy because of criminal records.

He wants to protect the fair housing rights of people who are re-entering the housing market after leaving prison. He claims that colorblind policies — like screening all applicants for criminal background checks — have a discriminatory disparate impact on minorities that are arrested at rates higher than their proportion of the general population.

So, even though barring tenancy to felons serves a nondiscriminatory, legitimate purpose for our neighborhoods, we may be putting ourselves at risk to do so!

And although Robert never called me back, let’s assume I had rented to him, and three months later, he fought with and strangled my tenant on the other side of the double. Was it my responsibility to protect the neighbors? Would that tenant have the right to sue me for negligence?

Although I’ve given second chances to some who’ve had run-ins with the law, I’ve always had a policy of not renting to people with felonies. I’m a single woman, I work alone much of the time, and I care deeply about my neighborhoods and tenants. With this new missive from HUD, maybe a conversation with my real estate attorney is in order …

Rents Are Up …

Across the nation, rent prices took their highest jump (over the past year) since before the recession that started easing up somewhere around 2009. According to a recent Wall Street Journal report, they went up 4.6% last year, to an average of $1,179/month. But — good news for renters — apartment construction is way up, so this may create an oversupply in some urban areas, and those rent prices may even out a bit.

And as you might imagine, given the above statistic, homeownership is down. As of the third quarter of 2015, it was at 63.7% — a 30-year low.  The percentage of first-time buyers is also at a 30-year low.

So, what accounts for the shift? I think there are a couple major factors at work here:

• The collapse of the housing market in 2008 scared the crap out of everyone. Many potential homeowners are still scared, and expect this may happen again. They imagine buying a home, having the market tank, and finding they owe more than the home is worth.
• People are much more transient now than ever before. They change jobs frequently, and are transferred with their work more often. They don’t want to be “tied down” by homeownership when they know there’s a good chance they’ll be moving in a year or two.

Personally, I still feel real estate is a good investment. I don’t believe we’ll see another 2008 debacle, and owning real estate — whether you live in it or use it as a rental property — is a great addition to other assets in a balanced portfolio.