Owning rental real estate in Indianapolis, or anywhere for that matter, is one of the most exciting and successful ventures you can undertake.
But, it can also be stressful and frustrating if you aren’t equipped with the right tools and knowledge. If you’re jumping into this thinking you’re about to get rich overnight, you need to take a step back.
As we’ll discuss further, real estate is a long-term investment and you need to have that mindset from the get go.
After you’re through reading this content, our hope is that you will walk away with a greater understanding of what it means to own rental property in Indianapolis.
Click any of the links below to read more about that topic.
QUALITY PROPERTY MANAGEMENT IS JUST A CLICK AWAY!
SHOULD I HIRE A PROPERTY MANAGEMENT COMPANY?
If you are a new Landlord, I’m certain you’ve asked yourself, “Do I really need to hire a Property Manager?”
Should everyone hire a Property Management Company?
In fact, the vast majority of rental homes in the United States, as high as 70%, are self-managed. Here are a few reasons why you may not need a Property Manager for your rental home.
The answer is: “It all depends on your investment goals.”
Like most larger cities, Indianapolis is very diverse.
We have very old neighborhoods and we have newer neighborhoods. Some areas in Indianapolis offer better cash flow than others, some offer better appreciation potential, and some neighborhoods are more speculative in nature.
In general, Indianapolis is a great city and so is the rental market. Finding the perfect investment property can sometimes be tricky and, because it’s so big, you’ll need to do your research to find a property that aligns with your investment goals.
We can help with that. Especially if you’re an out of state investor, we can be your boots on the ground and provide you with research and our expert opinion.
WHAT KIND OF INSURANCE DO I NEED AS A LANDLORD?
As an Indianapolis real estate investor, insurance is VERY important. You hope you never need it, but you absolutely must ensure that you have the proper insurance in place.
Quite often, we get questions from some of our new investors that surround insurance. Generally, they ask: “What type of insurance do I need as a Landlord?”
At the end of the day, there’s not a big difference in the policy you have on your personal home and the policy you’ll need for your rental property. And in many cases, you can use the same insurance carrier you currently use for your personal residence. This is especially helpful if you are converting your personal residence into a rental home.
The policy you receive for your rental home is called a “Rental Dwelling Policy.”
These types of policies usually cost a little more than a standard Homeowners policy and they contain three basic coverages:
- Lost Rents
Consult your insurance agent or even a financial advisor, about the proper deductible for you. The amount of deductible you choose will greatly impact your annual premium. As you probably know, the higher the deductible, the lower the premium. Whether you choose a high or low deductible completely depends on your individual needs and wants.
REGISTERING YOUR RENTAL PROPERTY WITH THE STATE
Landlord registration is an ordinance that the City of Indianapolis, after much debate, established in 2015. It requires all Landlords and Owners of residential rental properties in Marion County to register with the City of Indianapolis’ Department of Code Enforcement (DCE).
If you are an out of state Owner, you are required to appoint a local representative for your property. This could be a Property Management Company, or just someone you trust enough to be responsible for your asset should something go wrong.
It only costs $5.00 to register but you could be fined up to $500.00 should you fail to register or forget to renew your registration by January 1st of each year. You have 30 days after you take ownership of a property to get registered.
Click here for a step-by-step guide to the Landlord Registry.
HOW MUCH WILL IT COST TO GET MY PROPERTY MOVE-IN READY?
Whether you’re considering a new purchase that needs work, or you’re faced with turnover costs between Tenants, money — and how much of it — is always an important consideration.
We understand that maintenance costs are some of the most frequent and largest expenses you’ll face as a property owner, and turnover and make-ready are large subsets of that.
As an Indianapolis Property Management company that handles all of our Clients’ turnovers and make-ready work, you can imagine how many times we get asked about these costs.
In an effort to stick to our core value of “Always Educating and Advising”, we have decided to put together a guide for Investors outlining average costs for some of the most common make-ready expenses that you will encounter.
Note: This list is by no means comprehensive or definitive. There are other costs that may occur and a multitude of factors that can impact the final costs of these items.
Our goal is to give you a general idea of what you can expect to pay in the Indianapolis market.
These estimates come from contractors we trust, work with frequently, and have long standing relationships with.
INDIANAPOLIS’ SEASONAL RENTAL MARKET
Having rented homes over many, many years, you could say we have a pretty good handle on the Indianapolis rental market.
It’s our business to understand it, to track it and to plan for it.
And we do.
If you own or plan to own rental real estate in Indianapolis, it’s critical that you, too, understand one inherent truth about the Indianapolis rental market: Seasonality.
Seasonal meaning there are times of the year when it’s really, really good to rent your home and other times where it can be difficult to rent your home.
We understand that our market isn’t necessarily unique – many, if not most, markets throughout the United States experience the same thing – but it’s important to understand this important reality.
SHOULD I TREAT MY RENTAL PROPERTY LIKE AN ANNUITY?
Annuities are annuities.
And rental real estate is rental real estate.
Yes, both are investment vehicles and you can even purchase an annuity backed by real estate.
But, let’s be very, very clear… they are not the same.
The textbook definition of annuity is:
“A fixed sum of money paid to someone each year, typically for the rest of their life.”
If you do a simple Google search, you’ll find numerous articles on the pros/cons of buying a rental home vs. buying an annuity.
The KEY difference, however, is that while an annuity guarantees a fixed amount of income each month or each year, a rental property does not guarantee any such thing.
In fact, rental properties can oftentimes cost you money each month.
A new HVAC system is expensive, and almost always more than any monthly rent you’ll get in Central Indiana.
A new roof could easily wipe out any cash flow for a year or more.
No, they are not the same at all.
INDIANAPOLIS LANDLORD TAX DEDUCTIONS
While owning rental real estate can be a great way to build wealth, it most certainly comes with its fair share of expenses.
Taxes are one of those expenses.
For every dollar you earn, you’ve got to give a few cents – or maybe more than a few cents – back to Uncle Sam.
No one can escape it.
Well, you can try, but that’s called tax evasion – a federal offense – so I wouldn’t recommend it.
Even though the IRS invokes fairly negative feelings by taxpayers, it isn’t all bad. In fact, the IRS offers rental property owners a hefty amount of tax breaks.
You just have to know where to look.
Here are a few to start:
- Home office and operating expenses
WHAT MAINTENANCE AM I LEGALLY RESPONSIBLE FOR?
While Indiana Landlord-Tenant laws are not the most cut and dry, this issue is pretty clear.
In general, you are required to provide a safe, clean and habitable living space for each Tenant. Meaning the unit or property must meet all Health and Housing Codes and this mandate cannot be disclaimed or restricted by a Lease Agreement.
All rental homes must have:
- Working smoke detectors at onset of Lease,
- Safe and functional egresses,
- Electrical systems,
- Plumbing systems with sufficient hot and cold water supply,
- Sanitary systems,
- Heating system that provides adequate supply of heat at all times.
In addition, any major component of the rental property that is present at the time of move-in, is your responsibility to maintain.
That goes for:
- Ventilation and air conditioning systems,
- All provided appliances or amenities that are considered inducements to rent.
Yes, if you supply a washer and dryer, it is your responsibility to fix or replace them if they break.
If the HVAC system goes down, it’s on you to pay for it to be serviced.
If you think hiring a property management company means you can completely wash your hands of responsibility, think again.
It’s still YOUR property, and you need to be extremely careful who you turn it over to.
When you are conducting research to determine what company to hire – and you should conduct research, copious amounts of it – one of the major questions you will want to ask them is,”how do you handle maintenance?”
You will want to uncover their processes, if they have in-house technicians, how big their Vendor network is, how and when they will communicate with you, etc.
As I mentioned, it is still your property, and a PM may need your permission and input for various issues to be taken care of. This means you need to be willing and available to communicate so that they can do the job you hired them to do.
So, whether you are your own Property Manager, or you hire a third party, you need to make maintenance a priority.
Everything you need to start your rental property ownership journey!
3 REASONS THE CONDITION OF YOUR RENTAL IS IMPORTANT
Is condition really important?
If you are an experienced Investor – someone who has rented several homes or a home several times – you already know the answer, right?
Of course condition matters.
And while the answer seems simple, we occasionally have to remind some of our Clients that condition does indeed matter.
It matters, most importantly, to your bottom line.
Gone are the days when Landlords could simply offer a house that didn’t leak, provided heat and, attracted a good Tenant.
Today’s Tenant is demanding and, if you don’t react accordingly, you’ll find yourself with a worn out property.
A worn out EMPTY property.
Let’s start by saying you don’t need to overdo things. A desirable rental home need not have granite counter-tops, stainless appliances, or a wet bar in the basement.
However, a desirable rental property does need to be clean, safe and attractive.
Smudged walls? Nope.
Overly stained carpet? Nope.
Known defects? Nope.
Think of it this way: You are selling a product. The better the product looks and performs, the better your financial outcome should be.
There’s a reason car dealerships continually wash the cars they place on the lot and there’s a reason all used cars are detailed.
Below are 3 reasons why the condition of your home really does matter…
- Tenant Quality
- Vacancy Time
- Rent Rate
MOST COMMON LEGAL MISTAKES LANDLORDS MAKE
In the rental property industry there are always two sides of the coin – Landlords and Tenants.
In a perfect world, everything would always go smoothly, everyone would get along, and both parties would see eye to eye.
Unfortunately, we live far, far away from that world.
Every state has laws in place to protect both property Owners and Renters and there are certain requirements expected of each. You’ve heard the saying: “with great power comes great responsibility.” Well, as a Landlord, you hold a great deal of power in your hands and so you have a greater burden of expectation.
After being in business for over 10 years, we’ve made our fair share of mistakes and we’ve seen the pitfalls that other Landlords have fallen into as well.
The bottom line is, it’s on you – not your Tenant, not your lawyer – to ensure you’re complying with state, federal, and municipal laws. Ignorance will not hold up in a court of law.
INDIANAPOLIS RENTAL PROPERTY EXPENSES
There are numerous reasons you may be thinking about becoming a Landlord, or maybe you have already made the decision.
Perhaps you want a way to make some extra income or maybe you are being forced into it due to some extenuating circumstance: house won’t sell, need to temporarily relocate, etc. Whatever the reason, you’re probably curious about the costs involved with owning rental real estate.
Unfortunately, there is no set expense budget. There’s no magic formula to estimate what your yearly costs will be.
The fact is, the Real Estate industry is dynamic. You never know what issues may arise in a 12-month period. The best thing you can do is educate yourself and prepare the best you can to handle whatever gets thrown your way.
INDIANAPOLIS FAIR HOUSING LAWS
You would probably be shocked to know how many Landlords and Property Managers have been sued over housing discrimination issues due to ignorance of the law and what all it entails.
Violating Fair Housing guidelines isn’t as cut and dry as refusing to rent to someone because of the color of their skin.
There are numerous caveats and subtleties that you should be aware of to avoid an embarrassing and costly lawsuit.
There are 7 federally protected classes which are:
- National Origin
- Familial Status
There are also additional protected classes at the state and municipal levels in Indiana.
The state recognizes Ancestry as a protected class and Marion County recognizes 3 additional protected classes which are:
- Sexual Orientation
- Military Service Veteran Status
As you can see, just knowing the national laws is not enough, you must be aware of your local ordinances as well in order to fully comply with Fair Housing guidelines.
DETERMINING HOW MUCH TO CHARGE FOR RENT
If you are considering renting your home, one of the first questions you might ask is:
Pricing is very important. You want to ensure that you don’t price it too high, or the home will sit on the market; and you certainly don’t want to price it too low, and leave money on the table.
First, no matter what method you use to determine your property’s rent rate, make sure you compare apples to apples. In the real estate industry, this is simply referred to as a Comparative Market Analysis, or a CMA.
There are several factors to consider such as location, bed/bath count, amenities, etc.
THE PROS AND CONS OF ACCEPTING SECTION 8
A hot topic in the world of Real Estate Investing right now, is whether or not Landlords should accept Section 8.
Or rather, if they have to accept Section 8.
Many municipalities across the country are opting to make “source of income” a protected class.
What does this mean for property Owners?
Basically, it makes your decision for you.
This increasingly popular trend ensures no Tenant is turned away due to being on a housing assistance program. In essence, you’re required to accept Section 8 vouchers.
So far, the state of Indiana has yet to implement this new protected class, but I’m sure it’s only a matter of time.
For now though, if you own rental properties in Indianapolis, you still have a choice.
The Section 8 program has a relatively negative connotation in the rental property industry, and not without warrant.
The system is far from perfect and there is no shortage of horror stories out there, but then again, there’s no shortage of Tenant horror stories period. Section 8 or not.
For some Landlords, accepting Section 8 vouchers can be very beneficial and there are some definite perks, so you shouldn’t automatically rule it out.
HOW DO EVICTIONS WORK IN INDIANAPOLIS
Nearly every time we speak to new Landlords, the subject of evictions comes up.
It’s a hot button topic.
A topic that creates anxiety.
And an issue that pushes many Landlords into hiring a Property Manager.
You can file for an eviction whenever the Tenant breaches the Lease Agreement. The most common reason Landlords file for eviction is for non-payment of rent.
When you can file eviction really depends on what your Lease says. Most Leases spell out when rent is due and when it’s considered late.
Technically, if the Tenant doesn’t pay by the due date, you can file. Unless your Lease specifically provides for certain notices in the event of default, you need not provide any “please pay” letters before filing.
This is just one of many reasons why a strong lease is vital to a successful rental property experience.
HOW TO EFFECTIVELY SCREEN TENANTS
But, you might also decide to self-manage.
And to perform your due diligence, you need to screen potential Tenants thoroughly.
You’ll need to conduct a background check, run your own credit report, and talk to current and previous landlords.
But before all that, by simply conducting a series of pre-screening questions, almost like an interview, you can get a good feel for the individual before they even see the property.
This pre-screening interview helps reduce wasted time showing properties to unqualified prospects.
HOW TO EFFECTIVELY SCREEN TENANTS
We always advise our Central Indiana Investors to consider vacancy as an associated cost of owning a rental property and to budget accordingly. A general rule of thumb is to expect your property to be vacant for at least one month out of the year or, at a minimum, 8%.
Most industry experts will argue that 10% is a better number.
Fortunately, vacancy is currently at a cyclical low nationally, and Indianapolis is set to see a vacancy rate of 6.9%, which is down 70 basis points from 2016 according to homeunion.com.
Even though single family home vacancy rates are on the decline, it’s critical to be prepared for when your property sits vacant longer than you anticipated.
- Drain on cash flow
- Security risks
- Emotional decision making
Here are a few tips to help minimize vacancy time for your rental property:
- Know your market
- Optimize your marketing strategy
- Allow Pets
- Hire a property manager
- Understand seasonality
HOW TO HANDLE SECURITY DEPOSITS
Security Deposits are extremely important.
Important to you as the Landlord, and important to your Tenant, because it’s their money… until it isn’t.
In fact, my guess is if you polled Property Management Companies and Landlords around the country, the majority would say Security Deposits generate the most friction in their businesses.
So, you need to have strong processes around Security Deposits, understand your state and local laws and still be prepared for some battles along the way.
Indiana has no ordinances dictating how much you can or can’t charge.