Flipping houses in Indiana is one of the things serious real estate investors are considering. But is it truly worth it?
If you’re one of those folks who are thinking about flipping homes in Indiana, you came to the right place.
Let’s take a look at the Indiana housing market and how investors can make a profit from house flipping in the Hoosier State.
House Flipping in Indiana: An Investor’s Guide 2022
House flipping is a great real estate investment strategy to bring in a good return on investment. Of course, its profitability still depends on several factors but generally, especially in hot markets, flipping homes can be quite lucrative.
For the uninitiated, house flipping is one of the many investment strategies in real estate that lets investors earn by buying undervalued properties, renovating them, and then putting them back on the market to sell for a profit.
In a lot of ways, it is quite similar to the BRRRR strategy. The main difference is that house flippers intend to sell the house while those who choose to go down the BRRRR route mostly intend to have the properties rented out and eventually refinanced. However, unlike the BRRRR method, those who flip houses are not faced with the burden of worrying about meeting the requirements for refinancing.
Why Should Investors Get Into Flipping Houses in Indiana?
Flipping houses in Indiana is a very promising investment venture for investors. Here are some of the reasons why buying income properties in the Hoosier State is a good move:
According to Mashvisor’s data as of February 2022, Indiana has a median property value of $367,227, which is significantly lower compared to the national average of $529,354. Although the homeownership index value of the state went down by 13% from 141 (January 2021) to 122 (August 2021), an index value of 100 and above still indicates home affordability for households with median income.
The Hoosier State is known to have some of the lower state taxes in the country. The state has a low flat income tax rate of 3.23%. This means that regardless of tax brackets, everybody pays the same income tax. The same rate goes for capital gains taxes. While Indiana property taxes are low (with an average of $1,263 at a 0.81% rate), they still vary as they are determined at the local level. Indiana does not have any inheritance or estate taxes. We recommend consulting with local tax professionals to get a better understanding of how taxation works in the state.
Property Appreciation Rates
Smart investors know that a good real estate investment is one where the property appreciation rate consistently and steadily goes up. From Q2 2020 to Q2 2021, the appreciation rate of a real estate property in Indiana was at 17.5%, which is more than a full percent higher than the national average of 16.5%.
Mortgage rates across the US are at historically low numbers at this time. A 30-year fixed-rate mortgage is only at 3.7% as of February 2022. There may have been a slight increase from 2021’s 3.0%, but the fact still remains that we are seeing some of the lowest mortgage rates in recent history. However, real estate professionals and experts predict that the rates will continue to go up in increments throughout the year. Those who are serious about flipping houses in Indiana should take advantage of rates while they’re still low.
Indiana’s population has consistently gone on an upward trend since 2010. At the end of the previous decade, the Bureau of Census data showed a 4.7% population growth for the state breaking the 6.8-million mark. Although the numbers dropped a tad compared to its growth from 2000 to 2010, the steady incline of in-migration indicates how popular the state is to a lot of out-of-state residents.
Cost of Living
Indiana ranks as one of the top ten states in the country for its low cost of living. Indianapolis, the state capital, is easily one of the most affordable big cities to live in the country. The other cities and towns found throughout Hoosier State are found to have low living costs, especially since its median housing price is way below the national average. This is why more and more people are considering moving to Indiana.
Best Locations for Flipping Houses in Indiana in 2022
Given all the advantages of flipping houses in Indiana, investors should take into consideration one important factor to help them make the best possible profit on a fix-and-flip property. Before you fix and flip a house, you need to ensure that the math checks out. Making money in real estate requires due diligence. In this case, potential investors need to know how to compute potential profit for fix-and-flip income properties.
The 70% Rule
One of the most common rules investors observe when they’re flipping houses in Indiana or anywhere else in the US is the 70% Rule. This rule basically states that one should never spend money beyond 70% of the property’s after repair value, less the cost of repairs.
For instance, a property’s after repair value is $120,000 and it needs about $20,000-worth of repairs, the 70% Rule tells an investor not to spend more than $98,000 on the said property.
House flippers should understand that the total cost of flipping a house includes the property’s acquisition cost, the cost of repairs and updates, carrying costs, and selling costs (including marketing). The 70% Rule is handy in ensuring investors don’t overpay.
How We Determined the Top Indiana Locations for House Flipping
Generally, investors look for specific criteria to help them weigh whether a property is worth investing in or not. To help investors determine property profitability, we took into consideration the following real estate data:
A market’s median property price helps determine how affordable real estate is in a specific location. Generally, real estate professionals use this number instead of average property prices since this is more accurate. This is the market price midpoint indicating that half of the properties listed in that market are cheaper, while the other half is pricier.
Average Price per Square Foot
The average square-foot price is also used to determine how affordable properties are based on how much they cost by the square foot. The cost per square foot is then multiplied by the total area of a property to determine its overall cost.
Traditional Rental Income
The traditional rental income is the average monthly rental income of landlords in a specific location. It is one of the things real estate investors look at when considering which rental strategy to go with for income properties.
Traditional Cash on Cash Return
One of the most important metrics used by rental property investors to see how big of a return on investment they can make is the cash on cash return. In this case, traditional long-term rental property owners take into consideration the cash on cash return rate to see how much profit they can make in a year when counted against their initial cash investment.
Price to Rent Ratio
A property’s price to rent ratio helps investors identify which markets are worth investing in for fix-and-flips and which ones are more suitable for rental strategy. A low price to rent ratio of 14 and below means that folks are better off buying a property than renting it. A ratio of 20 and up means that renting makes more sense in a specific market.
Airbnb Monthly Rental Income
For those who are interested in converting properties into vacation houses and starting their Airbnb business, the market’s Airbnb monthly rental income gives them an idea of how much they can potentially make.
Airbnb Daily Rate
This number indicates the average daily rates of similar rental properties in an area. This helps rental property owners determine how much they should charge for one night’s stay to determine the Airbnb income potential.
Airbnb Occupancy Rate
The Airbnb occupancy rate in a rental market shows how often a property is booked compared to the time it is available for booking as a vacation rental on Airbnb and other similar websites.
Airbnb Cash on Cash Return
Like the traditional cash on cash return, the Airbnb cash on cash return allows investors to determine how much profit they will make in a year by dividing their net operating income by the total amount of cash they used to purchase the property. Most industry professionals agree that good cash on cash return rate falls anywhere between 8% to 12% but realistically, properties that offer that good a return are few and far between. As long as you don’t get a property with a 1% and below cash on cash return rate, you’re good.
Days on Market
Days on the market, or DOM, gives buyers an insight into whether a particular location is a buyer’s or a seller’s market. The higher the DOM number, the more favorable the market is to the buyer.
While a Walk Score doesn’t necessarily have anything to do with profitability, it somehow affects a buyer’s decision-making process. A Walk Score determines how accessible important city facilities and amenities are on foot. A low Walk Score of 0 to 24 means that living in an area will require dependence on vehicles to get around. A high Walk Score of 90 to 100, on the other hand, indicates that almost everything is walkable and almost everyone has no need for a car.
The Top 5 Locations for Flipping Houses in Indiana in 2022
Now that we’ve established the different criteria investors should consider, we have come up with a list of the best markets for flipping houses in Indiana this year.
1. Fort Wayne
- Median Price: $303,612
- Average Price per Square Foot: $155
- Traditional Rental Income: $1,142
- Traditional Cash on Cash Return: 2.44%
- Price to Rent Ratio: 22
- Airbnb Monthly Rental Income: $2,610
- Airbnb Cash on Cash Return: 5.79%
- Airbnb Daily Rate: $98
- Airbnb Occupancy Rate: 73%
- Days on Market: 66
- Walk Score: 32
Fort Wayne is located in the northern part of Indiana, just a few hours away from Chicago. The low real estate taxes, affordable housing, and low crime rates make it a great place for those living nearby in Illinois to migrate to.
- Median Price: $273,218
- Average Price per Square Foot: $133
- Traditional Rental Income: $853
- Traditional Cash on Cash Return: 1.32%
- Price to Rent Ratio: 27
- Airbnb Monthly Rental Income: $2,667
- Airbnb Cash on Cash Return: 6.21%
- Airbnb Daily Rate: $100
- Airbnb Occupancy Rate: 70%
- Days on Market: 77
- Walk Score: 65
As the region’s economic hub, Evansville is a great place for folks to live and raise their families in. The suburban vibe makes it attractive to folks who are looking for a quieter and more peaceful life.
- Median Price: $375,945
- Average Price per Square Foot: $171
- Traditional Rental Income: $1,057
- Traditional Cash on Cash Return: 1.76%
- Price to Rent Ratio: 30
- Airbnb Monthly Rental Income: $2,616
- Airbnb Cash on Cash Return: 4.85%
- Airbnb Daily Rate: $157
- Airbnb Occupancy Rate: 57%
- Days on Market: 95
- Walk Score: 32
The Indianapolis housing market remains one of the most profitable and hottest markets in the entire state. Flipping homes in Indianapolis is, perhaps, one of the most profitable things out-of-state investors can do when considering investing in the Indianapolis real estate market. Indianapolis’s population continues to grow as migrants flock to it because of its low cost of living and its high supply of job opportunities.
Whether investors decide to resell their properties or rent them out, the demand for housing in the city will not go down any time soon.
- Median Price: $485,014
- Average Price per Square Foot: $236
- Traditional Rental Income: $1,335
- Traditional Cash on Cash Return: 1.48%
- Price to Rent Ratio: 30
- Airbnb Monthly Rental Income: $3,130
- Airbnb Cash on Cash Return: 4.39%
- Airbnb Daily Rate: $211
- Airbnb Occupancy Rate: 57%
- Days on Market: 184
- Walk Score: 32
One of the best reasons why folks should consider moving to Bloomington is its Livability score. It ranked 21st in Livability’s Top 100 Places to Live in America list in 2021. For six consecutive years, the city has garnered a perfect score of 100 on the Human Rights Commission’s Municipal Equality Index.
- Median Price: $306,405
- Average Price per Square Foot: $153
- Traditional Rental Income: $822
- Traditional Cash on Cash Return: 1.58%
- Price to Rent Ratio: 31
- Airbnb Monthly Rental Income: $2,308
- Airbnb Cash on Cash Return: 5.91%
- Airbnb Daily Rate: $122
- Airbnb Occupancy Rate: 59%
- Days on Market: 46
- Walk Score: 53
With a median property price of over $300,000 and low tax rates, Lafayette is one of the best places to look for undervalued properties to fix and resell.
Indiana Fix-and-Flip Business: How to Get Started
If this is your first time to venture into the fix-and-flip business, we have listed the steps you can take to get started:
Step 1: Search for a Profitable Market
One of the very first things any real estate investor should do when flipping houses in Indiana—or anywhere else for that matter—is involved is to look for the best market that will meet their investment goals and match their criteria.
Nowadays, investors rely heavily on different online platforms to locate the most ideal properties that line up with their goals. Mashvisor is one such platform that allows investors to search for and analyze investment properties. Mashvisor subscribers have access to its massive database of real estate markets across the country. The site regularly updates its database to give users the most accurate and relevant market information.
Step 2: Gather as Much Information and Data as You Can
Once you’ve found a location that you like, the next step is to conduct a feasibility study and gather essential information about the market. Performing due diligence will largely help investors avoid regretting their investment decisions.
That being said, when looking for information and data, you need to ensure that they are updated and accurate. As already mentioned above, Mashvisor allows its subscribers to have access to the most updated data in almost all real estate markets all across the US.
On top of that, the website also has several real estate investment tools that allow investors to quickly analyze data of multiple markets simultaneously. This significantly decreases the amount of time spent on research and analysis. The real estate heatmap lets investors identify the most profitable neighborhoods in any given location. Mashvisor’s investment property calculator makes crunching the numbers easy. For those unable to pay in cash, the mortgage calculator lets them compute a property’s profitability while taking into consideration the mortgage rates that go with the property acquisition.
Extensive due diligence ensures that all your bases are covered, which helps in identifying the best strategy to take.
To learn more about how Mashvisor can help you find profitable investment properties, schedule a demo.
Step 3: Identify the Best Financing Method
Once all the homework is done and you’re satisfied with the results and the numbers, it’s now time to look for the best financing method to purchase the property.
Out-of-state investors might have a harder time shopping for financing options. It is recommended that they get in touch with a local real estate agent to guide them through the process.
Don’t just settle for one option. Come up with several options to choose from since most lenders and mortgage companies have different products to offer. This is still a part of your homework.
Step 4: Buy and Close
When you’ve already chosen a financing method you’re comfortable with, it’s time to seal the deal. Once the final property inspection is done, buy the property and take care of all the financial and legal concerns with your agent. In most cases, closings go without any hitches, but if something important comes up that could delay the process a bit, go over it with your agent and the seller. Talk it over with the seller and see how you can address the concern. Make sure everything’s in order and to your liking before you sign those papers.
Step 5: Remodel and Update the Property as Needed
The next step of the fix-and-flip strategy is to fix the house you just acquired. If you think the pre-purchase process is tedious, wait until you get to the renovations.
The main idea behind house flipping is to take an undervalued property (mostly fixer-uppers) and make it a lot better to sell at a decent profit.
Understand, however, that remodeling and updating a house can be expensive. It will depend on how much fixing is needed. That’s why you should refer to the 70% Rule before deciding to buy a property to resell.
Generally, the necessary repairs are determined during the inspection process. However, in most cases, inspections are done to ensure that the property meets the city’s structural and health standards. At the very least, house flippers should address every concern brought up during the inspection. Any aesthetic improvements are left to their discretion. And while a designer house might seem to get a bigger return, if the property’s after repair value far exceeds the neighborhood average, you might have a hard time finding a buyer.
So when it comes to home improvement, it is really important to be very discerning about which updates to do and which ones to pass on.
Step 6: Put It Back on the Market to Resell at a Profit
After all the remodeling and renovating, once the property has met—and hopefully, surpassed—the city engineer’s standards, it’s time to have it listed on the market. Work with your agent to cut through all the hoopla and make the sale as fast as possible.
The Bottom Line
Flipping houses in Indiana, just like anywhere else, is a lot of hard work. It may be exhausting at times but it is also exciting, especially when you start to see your goals being met one after another.