When real estate investors hear “affordable cash flow cities,” they may think of Detroit or Cleveland. But I think one of the best cash flow cities in America right now is Indianapolis.
This graph shows each metro’s job growth:
While Detroit (blue line) may have more jobs, it actually hasn’t yet recovered from the job losses it suffered from the pandemic. And neither has Cleveland (red line). But Indianapolis (green line) is actually growing its number of jobs at a relatively impressive rate.
According to BLS.gov, the average job growth across all MSAs over the past five years was 4.2%, while Indianapolis experienced 9.1% growth (the highest was St. George, Utah, at 21.9%, and the second-highest was Austin, Texas, at 20.4%).
But I was curious: Of all the Rust Belt cities, why does Indianapolis have the highest job growth?
What’s Driving Growth in Indianapolis?
It turns out this answer was harder than I thought to find, simply because there isn’t just one answer. The economy is relatively strong and diverse. While technically the highest concentration of jobs is in transportation and logistics (13.4%), other sectors have seen a slight uptick in jobs added, such as financial activities and construction, as well as strong growth in education and health services and a category titled professional and business services, which can basically be thought of as general white-collar jobs.
The only sector that is shrinking is the information category, which can also be thought of as software engineering jobs.
If we ignore the loss of “soft tech” jobs, Indy has had healthy job growth in virtually every other sector. Because this growth is so diverse, I can’t pinpoint it to any one reason, besides my personal opinion that “the economy appears to be diverse enough.”
There are colleges there (and nearby is highly regarded Purdue University), which may be helping to attract businesses due to the educated workforce.
Indy also remains one of the last affordable “growing cities,” with a median house price of just $309,900 (about 23% cheaper than the national median of $402,502), according to Realtor.com.
What is also interesting is that most of the growth is occurring in the outer suburbs of Indy, while the core city has actually lost population. This article from Axios shows the population growth (or loss) by county in detail. I heard one demographer call this the “donut effect,” where people leave the inner city for the outer ring of suburbs.
The Broader Indianapolis Market
The Indianapolis metro is made up of a collection of counties, each with their own towns. Marion County sits at the center, and its geographical area is almost identical to Indianapolis’s city bounds. One could approximate “Indianapolis = Marion County.”
When looking at the map, check out the outer suburbs. These have been steadily growing in population, and it appears the “path of progress” is happening along the north and northeast corridors of the region (Carmel, Fishers, Westfield, and Noblesville). Of course, other regions are seeing growth as well.
I wanted to hear what a boots-on-the-ground expert thought about the different markets, so I reached out to a local property manager, Edwin Watson, from Triple E Realty & Property Management. Here’s what he had to say:
“As an active investor, real estate agent, and property management owner for nearly 25 years, I have seen areas adjust considerably. [Picking a market] truly depends on your overall goals as an investor.
If you’re seeking positive cash flow, the Indianapolis market offers greater opportunity than its surrounding areas, like Fishers and Carmel. This is solely because the higher sales value in those areas (Fishers and Carmel) do not proportionally correlate with the home’s rental values.
What the investor loses in cash flow, they make up in overall appreciation, as homes in the Fishers and Carmel market tend to appreciate at a much steadier rate. We coach our investors to have a mixture within their portfolio to be able to ride the highs and lows as they come.”
I also asked Watson what he thought about some of the less-popular markets that aren’t as well known:
“I am a fan of Lebanon for long-term buy-and-hold, with the Eli Lilly project coming that way, as well as Anderson, Indiana. Anderson is a place where you can potentially purchase more fix-and-flips or buy-and-holds because it has not been as flooded with investors over the past 10 years.”
For those curious, very exciting things are happening near Lebanon at the LEAP Innovation District.
The Underlying Fundamentals of the Broader Indy Market
I also wanted to take a look at the underlying metrics of the towns within the Indianapolis MSA. With so many factors to take into account, like population growth, median price, and vacancy rates, I decided to give my own weights to each metric, then rank each city based on these metrics alone.
Greenfield (east of the city) appears to have a good combination of a number of factors, including solid population growth (11%), an affordable median price ($205,000), an acceptable percentage of renters (38%), and a relatively high median income ($75,000). Like Westfield and Noblesville, it’s a little further out from downtown, the city’s core economic center. But everything is relative; it’s only a 30-to-40-minute drive, offering a slightly longer commute to jobs if you’d like to live outside the city.
Greenwood (south of the city) has very similar metrics to Greenfield. Plainfield (west) looks like it has similar metrics as well, but there is a large warehouse district and a nearby prison.
Carmel (north of the city) offers many financial services and insurance jobs in the area, and has a high median income ($134,000). Anyone looking for appreciation may want to consider this market.
In summary, Greenfield and Greenwood may be good “mixed” markets, which offer acceptable cash flow and positive (but not great) appreciation, while Carmel may offer excellent appreciation (but a lower rent-to-price ratio).
But are there any individual neighborhoods within Indianapolis proper that may be good for investors?
The Best Neighborhoods for Investors Within Indianapolis
Because Indianapolis has many different neighborhoods, I thought it might be best to get an opinion from another boots-on-the-ground expert. So I reached out to investor-friendly real estate agent Peter Stewart. Here are the neighborhoods he thought investors should know more about:
The Old Southside
The OSS is a small pocket neighborhood that abuts the south side of downtown Indianapolis and the west side of the very popular Bates-Hendricks neighborhoods. It is an up-and-coming area that is following the same path we saw with areas like Fountain Square and Bates-Hendricks.
We are starting to see a good amount of new construction there and a ton of remodeled homes. The area is a mix of single-family homes and residential multifamily for the most part. There are a few smaller apartment buildings scattered around too.
Pros:
- Location: It is positioned just south of downtown, and you can walk to Lucas Oil Stadium from the north side of the neighborhood. Indy’s downtown has undergone a massive transformation over the past 25 years, going from a scary place that you only go to if you work there, to a world-class destination. This is causing all the areas near downtown to experience a ton of revitalization.
- Cost: Because the area is still up-and-coming and is not well known like some other similar locations (Fountain Square, for example), the price points are a bit lower here.
- Strategies: Due to the location and the revitalization, you can do just about every strategy here: long-/short-/medium-term rentals, flips, BRRRRs, development, etc.
- Appreciation and cash flow: This is an area where you can get a mix of cash flow and appreciation, and usually it’s one or the other.
Cons:
- Track record: The neighborhood has only been improving over the past four to five years, so they don’t have a long track record compared to other areas (like Fountain Square: 20 years).
- Train tracks: There are two train tracks that run along the neighborhood—one on the E side that runs N/S, and one on the S end that runs E/W—so depending on where you are in the neighborhood, you can often see/hear the trains.
- Revitalization mix: Because it has not been revitalizing for that long, there are still a decent amount of run-down homes sprinkled around, so some blocks just aren’t that attractive yet.
Butler-Tarkington
The BT neighborhood is a very interesting area located on the N side of Indianapolis, about 4 miles north of downtown. What is interesting is that it’s a mix of old-school, established A classes and up-and-coming C/B classes.
It is home to Butler College, which is a small private college that has a beautiful campus filled with limestone buildings. It is also home to Hinkle Fieldhouse, which is pretty famous and was designated a National Historic Landmark. The governor’s mansion is also located in this neighborhood.
The north side of the neighborhood has been A class for a very long time, and there are a lot of expensive homes there ($500,000 to $800,000+). The south side was historically C class, but over the past five to seven years, it has turned a corner and really started to improve. I have been seeing more new builds and a lot of flips, prices rising, etc. Today, I consider the S end to be B class.
Pros:
- Location: It is positioned on the N side of town, right in the center near two major thoroughfares (38th St and Meridian St), so you can get anywhere in town in about 15 minutes. Within five minutes, you can get to Broad Ripple, the Art Museum (Newfields), the Children’s Museum, the State Fairgrounds, the Monon Trail, and more. It is also right next to the Meridian-Kessler neighborhood, which is one of the most well-known and established neighborhoods in Indianapolis (A class, lots of $1 million+ homes).
- Strategies: Due to the location, college, and price points, you can do every strategy here: long-/medium-/short-term rentals, flips, BRRRRs, development, student housing, rent by the room, etc.
- Appreciation and cash flow: This is an area where you can get a mix of cash flow and appreciation.
- Stability: Although the southern end of the neighborhood is transitioning a bit, overall, this is a very well-known area that is surrounded by other very well-known neighborhoods, all of which help contribute to the stability of prices here.
Cons:
- Price points: Because this is an area that has a mix of A/B class properties, the price points are high enough to where it is hard to cash flow when doing long-term rentals (unless you do Section 8), and to cash flow, you really need a residential multifamily property (two to four units). SFRs most likely will not cash flow when doing an LTR strategy.
- Location: Part of the SW side of the neighborhood abuts the Crown Hill Cemetery. While the cemetery is very nice and has some famous people buried in it, it can also be a big turnoff for some buyers/renters as well.
- Multifamily mix: The area is predominately filled with SFRs. Two-to-four units do exist here, but they are few and far between. We see a much higher concentration of two to four units in the C-class locations like the near eastside.
Riverside
This neighborhood is a popular up-and-coming area located just NW of downtown Indianapolis. It’s a small, historic neighborhood that is primarily made up of older bungalow-style homes built in the early 1900s. Historically, it’s been on the rough side, but over the past five years or so, it has turned a corner and is full of investor activity.
Like other up-and-coming locations, we are seeing a lot of new builds and flips, and prices are rising. It is considered to be a C+ location. You can find cash flow here, and there is a good chance for appreciation as the area continues to improve.
Pros:
- Location: It sits on the NW side of downtown, and proximity to downtown is key for investors. Downtown is driving a ton of growth and development in the surrounding areas.
- Two big drivers for this location are the 16 Tech campus (www.16tech.com) that has the popular AMP food hall (https://theampindy.com/) and the proximity to the IU Health Hospital (off 16th St, so it’s a stone’s throw away), which is undergoing a $4.3 billion expansion. There are three other large hospitals downtown that are no more than five minutes from this location (VA, Eskenazi, Riley). It is also very close to Marian University, and you can get to the Indianapolis Motor Speedway in under 10 minutes. Lastly, it sits next to the Riverside Park and Coffin Golf Course.
- Strategies: Due to the proximity to downtown and the downtown hospitals and the fact that the area is starting to revitalize, you can do just about every strategy here. Prices are still lower, so you can do long-term rentals, and the proximity to the hospitals makes it a great area for furnished mid-term rentals. Once the area improves a bit more, I think it’ll be a perfect location for long-term rentals too. You can also do development (build new construction) and flip here.
- Appreciation and cash flow: This is an area where you can get a mix of cash flow and appreciation.
Cons:
- Risk: The area still has a ways to go—it’s just starting to revitalize. Because it is not as well known and not as investor heavy as some other locations, properties can take longer to sell, and the price points are not quite as high as some other similar locations. So, there is a bit more risk when you invest here.
- Train tracks/industrial buildings: There is a train that runs N/S along the E edge of the neighborhood, and along that track, there are a decent amount of commercial/industrial buildings, which detract a bit from the residential feel of the other side of the neighborhood.
Final Thoughts
Indianapolis is affordable and growing. While I also like Columbus, Ohio’s similar (but not necessarily better) job growth, Indiana has a lower property tax rate, making properties in Indy arguably easier to cash flow.
The outer ring of suburbs appears to be growing at a healthy rate with solid fundamentals, such as Greenfield, Carmel, Fishers, and Lebanon. And there are quite a few good up-and-coming neighborhoods in Indianapolis as well, such as Fountain Square, Old Southside, and Butler-Tarkington. Investors may be able to find good deals on-market in these locations, depending on their strategy.
Also, please keep in mind that there may be good deals out there regardless of whether a market has “good” or “bad” underlying metrics. I would simply prefer the location to be safe and growing in value, which should theoretically improve the rate at which my property appreciates.
Are there any other “Rust Belt/Great Lake” cities you’d like me to cover next? Let me know in the comments below.
Discussion about this post