ROOTS DEAL SHEET (8.21)

If you own real estate in Indianapolis, or you are seriously thinking about it, this email was written for you.

Roots Fam,

Indianapolis just came through the worst flooding this region has seen in decades.

Parts of central Indiana took more than eleven inches of rain in three days starting August 11. The White River crested at 24.93 feet at Anderson on the 14th and 24.60 feet at Noblesville on the 15th, both past records that had stood since March of 1913. Seven people died across Indiana in the storms. Hundreds of families evacuated. On Saturday the President signed an emergency declaration covering 53 counties. It was simply devastating.

Ravenswood took the worst of it on our side of town. About four hundred people were evacuated and it was still unsafe to go back on Tuesday. Rocky Ripple was the near miss, and the reason it was a near miss is the part worth sitting with.

One thing worth knowing if you were hit. The federal declaration that came through is emergency aid to local government. It is not individual assistance, which means it does not put money in a homeowner’s or a renter’s hands. The state has asked for the larger declaration and expects an answer within a week or two. Until then the city has put every available resource in one place at indy.gov/activity/flood-resources.

And if you own something that got water in it and you do not know what it does to your value, your insurance or your next move, etc: reply to this email. We are searching for real ways to help and just want to offer anything up we can, real offer with absolutely no pitch attached.

—Max

THE DEALS

Six on the board this week, plus two we ran and would not put in front of you.

Every one is run on the same model so you can compare them honestly: 25% down, 6.67% on a 30-year (Freddie Mac, week of August 14), $2,000 closing, and real reserves at 5% repairs, 5% capex, 3% vacancy, 10% management. Four of the six are ours.

One thing before the cards, because it decides three of them. Indiana caps property tax at 1% of assessed value for an owner who lives in the house, and 2% for a rental. The tax line on a listing is whatever the current owner pays. If it is under about 0.8% of the asking price, that is an owner-occupant bill and it roughly doubles the year after you close. We reset every one of those before running the numbers, which is why some of the figures below are less pretty than what you would get off the MLS.

$140,000 · $1,410/mo on a lease through July 2027 · 7.01% cash on cash · +$216/mo

The best number in the email, and the one deal here where the rent is not a guess. 884 square feet, built 1938, in Bean Creek, blocks from Garfield Park. There is a tenant in it right now paying $1,410 a month on an executed lease that runs through July 31, 2027. We have read it.

The play: you buy income that already exists. No lease up, no turn, no vacancy gap. You close and the money is already coming in, and you inherit a tenant with a track record instead of screening one.

And the number nobody asked us to run. The $1,131 tax bill is already a true non-homestead bill, so it does not double the way three other properties here do. But a sale can pull the assessment up, so we re-ran the whole thing at the 2% cap, $2,800 a year. It still cash flows: 2.49% and $76 a month. It passes at today’s number and it passes at the bad number.

$166,500 · $1,800/mo · 4.96% cash on cash · +$180/mo

This one is ours, and we are going to tell on ourselves. It listed in January at $189,900. We cut it to $177,500. Still no sale. On Sunday we cut it to $166,500, which is $23,400 off where we started and 190 days on the market.

At $1,800 a month it now throws off $180 at 4.96%. Gimber above is the only thing on this list that beats it, and nothing else clears 1.2%.

The play: the price finally came to the numbers. The tax line is what most buyers will miss. It reads $1,139, which is 0.68% of the price and an owner-occupant bill. We ran it at the 2% floor, $3,330, which is what you will actually pay, so the 4.96% above already has that reset in it.

$319,900 · $46,869 in bookings over the last twelve months · former short-term rental

We told you about this one in July and said we would send it the moment it was for sale. It went live Sunday. An 1886 house near Fletcher Place, 3 bed 2.5 bath, running as a short-term rental: 117 stays, 59% occupancy, a $235 average nightly rate, $46,869 gross and $29,991 net to the owner after platform fees.

Now the part nobody else will print. That $29,991 is before a single operating expense. Utilities, cleaning, supplies, insurance, tax, none of it was separately recorded, so we are not publishing a cap rate or an NOI, because we would be making it up. The tax line reads $1,716.50, which is 0.54% of ask. Reset to the 2% floor it is roughly $6,398, about $4,700 a year more than the record shows.

The play: you are buying a proven revenue history and a house already set up to produce it, not a stabilized income statement. Build the expense side yourself. The packet below shows you exactly which lines to fill in.

$169,900 · vacant · the renovation play

Bates Hendricks, 1920, 3 bed 2 bath, vacant. It came on at $179,900 on August 1 and it is now $169,900. The mechanicals are solid, which is the expensive part already handled. What it needs is the finish, and there is a known sewer issue. Sold as is, no repairs.

The play, and the honest version of it. Put $40,000 to $50,000 in and you are around a $250,000 house on this block, off renovated comps, not an appraisal. All in at $214,900 against $250,000 is about 86% of ARV. A cash-out at 75% gives you back $187,500, so you leave roughly $27,000 in the deal.

That makes it a hold or a house hack, not a flip at ask. To flip it you buy materially under. We would rather tell you that than show you a spread that only exists if nothing goes wrong.

$309,900 · $2,565/mo in place · 1.06% cash on cash · +$70/mo

Meridian Kessler, Washington Township. The location is the best thing about this deal, and it sits six blocks from the nine unit we bought for ourselves this month.

Both sides occupied, at $1,200 and $1,365. The comps say you are in at the right number: 728 E 55th closed at $315,000 and 4409 N College at $350,000, against a $309,900 ask.

The play: at $70 a month this is not a cash flow deal, it is a rent-gap deal. One side is at $1,200, the other at $1,365, same building. About $18,600 of cosmetic work in this same pocket this summer moved one unit $413 a month. Do that to the $1,200 side and the whole thing changes.

It is also 1940, not 1920. Knob and tube wiring and galvanized supply lines are far less likely here than in almost every other urban duplex on the board this week, and that is real money on a value-add.

One constraint going in. No showings until an accepted offer, contingent on a walkthrough. The tenants are not to be disturbed. That is the trade for buying something already occupied and already producing.

Rents above are as stated on the MLS. We have not read the leases.

So there is no cash-on-cash number here, because any number would assume a rent on a building nobody can move into. That is why the listing carries no rent figure. If you see this written up anywhere else this week with a yield attached, that yield was invented.

The play, if you want it: a gut rehab in a corridor that is genuinely moving, where the math has to work on the renovation, not the purchase. You need three numbers we do not have: a contractor’s scope, an ARV off renovated comps on that block, and a real answer on why it was boarded. Reply CAPITOL and we will go get all three with you. And $199,900 is not obviously cheap for a boarded-up shell, so make the renovation math clear it first.

WHAT WE BENCHED, AND WHY

We ran more than this and two of them did not make it. Here is what killed them, because the reason is more useful than the listings were.

522-524 W 23rd St, $399,900. A purpose-built side-by-side double, 1910, and the nicest looking thing we saw all week. The tax line reads $922 a year, which on $399,900 is 0.23%. That is not an investor bill, it is barely a homestead bill. Reset to the 2% floor it is $7,998, and the deal goes from something you would want to see to losing about $1,282 a month.

6135 E 13th St, $249,000. This one hurt more. Built 1969, the newest urban duplex on the board by two decades, so it very likely skips the knob and tube and galvanized plumbing. Real in-place rents of $1,000 and $800, and an honest tax line at 0.84%. It still runs about $139 a month negative at today’s rate. Good building, wrong price.

THE PACKET

Every deal above, with the numbers, the purchase play step by step, what executing it actually costs, what it looks like on the other side, and who each one is wrong for. Including the expense lines you have to build yourself on the Alabama short-term rental.

WASHINGTON: TWO EIGHT UNIT BUILDINGS, NOW SOLD SEPARATELY

We have had 2008 and 2012 E Washington on the market as one 16 unit package at $1,899,000 since April. The buyer pool at $1.9 million is thin, and it showed. So we split it. Each building is now its own listing at $949,500, which puts both under a million and in front of a completely different set of buyers.

They are identical adjacent buildings, eight units each, all one bed one bath, every unit renovated under current ownership, electronic locks throughout, shared rear parking. Seventeen months of seller actuals behind the expense numbers.

They are not the same deal, and that is the point.

2012 is the income building. Eight of eight leased, $9,170 a month from the closing table. No lease up, no turn, no waiting. Rents run $1,130 to $1,175. Operating expenses about $35,300 a year, so net operating income lands around $74,700 before debt on day one.

2008 is the value-add building. Six of eight leased at $6,740 a month, and the two vacant units are turn-ready with no renovation required. Lease them at the $1,175 the building next door already gets and it runs $9,400 a month, or $112,800 a year. Operating expenses about $27,300. Filled, net operating income is around $79,900. That is the entire value-add and it costs nothing but a lease up.

You can still buy both. The 16 unit package is still available at $1,899,000.

Rent roll, profit and loss and the full deal package are ready for qualified buyers. Reply WASHINGTON.

Unit rents tie to the seller’s rent roll and the MLS unit detail. We have not read the individual leases.

FROM THE ROOTS CHANNEL

Roots Pod #64, The Truth About America’s #1 Cities (Carmel and Fishers). Posted August 18.

Carmel and Fishers just took the top two spots in the country. We spend the episode on whether they are thriving on the back of the city that built them. Worth your twenty minutes if you are deciding which side of 96th Street to buy on.

WASHINGTON MANOR, THE ONE WE BOUGHT FOR OURSELVES

Four of the six deals in this issue are ours. This is the one we bought for ourselves: the nine unit at 4901 N Washington Blvd, built 1920, in Meridian-Kessler. We closed on it August 4. Here is the first footage from inside.

Different building, different deal from the 2008 and 2012 E Washington listings above. Those are for sale. This one is not.

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EVENTS

Summer Real Estate Masterclass. Thursday August 27, 6:00 PM, Guggman Haus Brewing Co., 1701 Gent Ave. Free, and we do three of these a year. Two Indianapolis community experts on commercial development and investing at scale, plus the whole Roots team in the room. If you have been reading this email for months and quietly wondering what half the numbers mean, that is exactly who this night is for. Nobody is going to make you feel behind for asking.

September Coffee and Connect. Tuesday September 23, 7:30 AM, 6338 Westfield Blvd.

If any of the above made you realize you cannot yet read a rent roll or a cash on cash figure without squinting, that is the entire reason we are standing up in front of a room at Guggman Haus on August 27.

Plant roots, build wealth.
Max

P.S. The house we could not sell for six months is now the second best cash on cash in this email. There is a lesson in that and it is not about the house.