Are New Construction Duplexes Worth It in 2025? Here’s the Math

Welcome back to another episode of the Roots Podcast. I'm Max Moore joined with my co-host Tyler Lingal. And today it is just an internal episode. It's Tyler and I talking about new development duplexes. We had on Ed New Ryan Cheek uh over at New Development Group, Keen Development, whatever they're called. They're building these, you know, brand new properties all across the city. They've got 60 of them. Footprint RDN. Tyler and I want to cut the BS. Is it worth it? Should you buy something new? Let's talk about the macro effect it has on the, you know, micro little tiny pockets in the city. Is it good or does it hurt? And we also want to talk through like um you house hackers out there, is this a good option? Is it affordable? Can you actually house hack a new brand new property spec home fresh off the block? Uh or are you going to be underwater and not be able to afford it? So, let's jump right into it. I want to get in and talk about the old properties that exist. So, like when you and I jumped into the marketplace, we're like, "Let's go buy a duplex." Hopped on Zillow and we're like, "Ah, there's two of them. We can buy like two properties available." 100-y old, you know, turds. How much do those go today for value? Like what? Same neighborhoods that New Group is building in. Uh, price ratio. What's the difference? Yeah, I would say let's just stick to duplexes for purposes of this conversation. And so I mean I think you can get a distress duplex for say uh 200,000 to 250 uh maybe 150 to 250 and then for turnkey we're probably in the like 225 to what 350. Yeah. And then you go class A and like obviously you can go up to like 500 600 and those are just stupid price assets that don't cash flow right. They're they're for the you know as turnkey best areas that you can buy. You're buying for the area. So, you know, 100-y old property you're buying for 250. Like, let's just think about the life cycle of uh capital expenditure that happens. You know, foundations they say 80 to 120 years. Uh roof's been replaced 15 times over by now. It's got the it's on its 17th furnace hopefully if it's been wellmaintained. It costs a lot of money. They're built not the same. Some people say they're built better. I'm not going to I will argue I think they are built better. I'm on that side of the team. Uh, but the expense is like I'm a new rookie novice investor jumping into the marketplace. I'm going to be met with some expenditures even on turnkey in that first year that I'm just not expecting. Mhm. Might be saving on the front end. But in comparison to like buying something brand new that has some warranty that can, you know, has some protection. Mhm. It's worth doing that like math looking at it from that. How much of a headache is this going to be? Simply I want to talk about a guy that so I had two house hackers early this year. They closed some properties. Uh very similar locations uh near like Monanon yard area. One bought a property that was maintained okay in the 303ish price range. He was able to get in there uh we got some got like 20k in inspection credits, you know, cuz stuff needed fixed. It's an old home. This this house is 70 plus years old. Mhm. He gets in, some knob and tube wiring has to be replaced, some foundation things, some plumbing things, like the the whole nine yards that you have to fix for capital expenditure. He spent brand new first- time home buyer. He spent 3 to four months fixing all this up, learning a lot, right? How to negotiate with contractors, how to keep them accountable. We're having conversations back and forth and like uh he's, you know, one contractor says the other one screwed something up. He's getting into the thick of it. Just absolutely every headache possible as a homeowner. I love it for him. He's equipped. Like, that dude should go flip homes now cuz he's done the thing. Compared to the other guy up the street, 450. Mhm. Brand new duplex. Mhm. I've called him, talked to him, asked how it's going. The only struggle he had was uh deciding if he wanted to long-term or medium-term rent, and he went with medium-term, and he's not had a problem. He's had the thing occupied. His mortgage has been paid for. He's like all the way paying his mortgage, living for free up in the top unit, just pousing it out. Mhm. Perfectly fine. No headaches. Mhm. He paid 75 grand more or 100 grand more for the property, which on a monthly payment is both three and a half%. $500 more a month, something maybe, maybe less. Right. But it's a wash. It doesn't really matter because rents are higher. Yeah. On the new build. Right. And the older duplex once he finally put it up, no problem. He got it rented long-term rental. He just had to do the front leg work, but it took a few. But he doesn't have a warranty, right? It's still on him. And there's he didn't do the water heater, right? He didn't do the this and that. No. And I like there's still going to be things that pop up and he knows that, right? We we compared apples to apples and this is the this is what he wanted to go with. So, who made the smarter move? I don't know who made the smarter move. I It seems like you were going the direction of obviously the new the new construction, right? Where would you rather be in that situation? Okay. Okay, in Indianapolis when we get into micro markets, location, location, location matter. 2, three, four, five streets makes a difference. Like, full disclosure, it makes a difference. I think with that being said, Pulk Stables, Co-Hatch, like right there. Uh, it's that foundry coffee shop. Please don't hate me. I don't drink coffee. Um, Max is an energy drink type of guy, right? Find him at the GNC, the local GNC, not the cool down in a coffee. I don't know. Like location matters to me that compared to the person a couple streets away. Well, I think they both made a good move because they both bought in good location. Here's what grinds my gears. It's all the Arizona, California, Florida investors that didn't know a lick about Indie that just thought this street is the same as that street when it's in fact two different worlds, right? Local. and they chased the cash flow and they went to what class C price C minus area and they found the triplex or the quad that like pictures looked wonderful new LVP new this and that fixtures but it was really just lipstick on a pig right and then woohoo wideeyed we just closed on it and I'll be honest I was a lot of these people agents and I was excited too I was like yeah the spreadsheet looks great this is great these can work right if you're in it for the long run and manage it very well. However, a lot of them got 6 months into it and things started breaking. They realized this was not rehabbed correctly and then a year in the tenant left and then they're like, "What? We've been on the renter market for 3 months. We're losing money." And guess what? They're calling Maxmore and saying, "Tyler sold me this property. It sucks. I want to sell it." And that's literally 2025 is like all these people that did not know exactly what they were getting into and chased. We talk about all the time chasing the spreadsheet. But I guess my question to you is like you do that or there's this new group duplex. It's 475. Well, that that's 150 whatever 125 down versus this. What do you pick? Yeah. What do I pick? Uh what I say is the character. This is what I was what you what you bubbled up with me as you were going through that. When I go back to the the two first-time home buyers, I say the both of them got exactly what they should because one of them needed that experience of talking to the contractors and getting into the thick of it. The other one needed the ease. He was deployed. He was traveling back, moving to Indie, like was out serving our country. He needed easy, right? He needed to come home to easy. He was just doing hard. The other client wanted that big step. He wanted to learn it all and he wanted to get into it. And so they bought exactly what they should. that out of state investor. I mean, I'm I I can't imagine that. Uh, full disclosure, everybody knows what they're buying. It gets hard because they bought a real estate investment. Well, you pay for what you get, right? You buy. Real estate investing isn't easy no matter what. It all has its problems and its trials, right? If you are out of state, I don't know how the headache free simple route. So long as you can afford it. If you're out of state, go buy a new group. get on a buyer agency agreement with Roots Realy Co. and have us help you find a great lot, negotiate a great great terms, maybe if you're lucky, some credits or whatever, no promises, it's new construction, and go do it and it's going to be 6 months and you're going to be very, very grateful versus that beat up, you know, property that's like, yeah, it's low and so it says 15% cash on cash return. Let me find someone that's getting 15% cash on cash, right? Where are they? I don't see them. Yeah. Nobody's coming knocking. And And you're not just putting smoke in mirrors. You're talking from personal experience. Your your quadplex that you invest in. You did this. You went to C-class property that was lipstick on a pig, right? How did what is the mere comparison to the new group duplex you own, right? Cuz I just closed a new group. Disclaimer, I have not rented it. It's up for rent right now for $1,950. We went somewhat aggressive. 1,800 we probably would already have inquiries and be signing a lease, but went a little more aggressive 1950 uh cuz we're in a class A area. Um so I don't have that actual experience of having it rented and you know cash flowing or whatnot. But I do have the experience of Tacoma which was a class C quad. And that really the P&L really is defined by three very large issues that everyone that I've asked that bought small multif family in Indie and Classy area especially has run into which is one vacancy, two uh maintenance and three capex. Mhm. And those are like the three horsemen of cash flow. It's like you knock out all the maintenance and it's like great I'm finally ready. And then it's like guess what? These people were just staying there as a year to hold over. They don't actually want to live in this triplex in a one-bedroom 500 foot apartment sharing the walls with a lot of people with barely any Yeah. Yeah. Exactly. That had a combined HVAC all this crap. Like the staircase going up the to the other unit was scary and it's like you feel like you're going to get shot. My favorite story is we're out at Bottle Works like pens having a good time. Here's Tyler over here fresh. I'm like, "Dude, what's going on on your phone?" He's like, "Stupid tenant is complaining that it's like the amount of hours put into that." Yeah. It's like on a Friday. Look at the net cash flow be not just zero, but often times negative. Yeah. Thankfully, it helps the taxes, right? Uh you can offset some of that if you know what you're doing. Making money is still important. But yeah, we're not even making money doing it. It's like these people get in that and you're making these calls and you're like, "What the hell am I doing? Why am I spending time doing this? So yeah, I mean I every time a tenant would stay, they would leave the next year. No one maybe one renewed one out of like the six I had renewed. That's a terrible hit rate. And then it's like I get the tenant turns and it's like $1,200 to turn this unit. That was all the margin gone, right? And then you have three of those a year. It's just like this is a joke. So the goal with the new group is one, these are um these are new construction, right? So it's like the first 10 years is a warranty. So the maintenance should be negligible to none. The capex should be absolutely none because it's covered. And then also a rental that's $800 a month versus $1,800 is a world of difference with who is renting that. Yeah, we have right working professionals that have stable lives, right? and that actually communicate. You text them and it's a blue bubble, not just like a bounced back, which would happen to me. These people like literally their phone numbers would go, it's like, yeah, are you getting into this for charity, which is okay if you're doing that, like know what you're going into, or are you getting this to make money, right? And the new group is like higher hurdle to get in, but much more just a downhill process for who's going to actually rent rent that. And they're also going to take care of the property better, right? Like this isn't a person that they don't want to have an eviction on their record. They don't want any mispayments. It's gonna affect their credit score, whatever. Like they care about their reputation and livelihood. And that's who you're dealing with. And all these other people who got into this, they find they're dealing with a cost population who they This is going to be offensive to some people they they would never associate with. And they're like going to outsource it to the property manager who guess what? Those people don't care about their jobs at all. They're also trying to get out of their jobs. So, you're dealing with a bunch of people that don't like what they're doing, which is not that's not how to make money, guys. It's not how to build wealth, right? You just find yourself arguing all the time, right? It's not pleasant. Let me tell you, we know this, right? Me and Max know cuz we pull our hair out with these some of these properties. Yeah, we've we've been through the thick of it because it's like you go with what is available and opportunity. And right now I think that there's a grand opportunity in New Group. There was something that like Ed New really really harps on and prioritizes and and kind of prides himself on which is being able to chase the micro markets of where the city is investing money and putting a lot of uh intentionality into. He hit it big early on. Fall Creek Place uh alludes to that. And like what were some of the key metrics even I mean not just Ed but like what do you look for as the city is is pouring money in? I thought it's fascinating that he said he sold a duplex on Ruckle for 65 grand and it's now worth what 320 and then where is it? I think it was even a single family, wasn't it? It was a single family I think. And I I believe that it was Fall Creek Place, which is it's just so ironic. Like literally the person that bought it, his buddy that he was trying to get invest said, "Oh, Dodge City, I've got there was a gunshot there while I was training in the police academy. Got shot at." And now it's like I have friends who are like, "Oh, I can't afford fall creek place." Literally, I have people that want to move there. Right. So, it's just like that's the story of real estate, right? Uh, I think it's fascinating to see someone We've We had Jeremy Tolman on the podcast, too, right? And he's seen some of these cycles and lived through it and gotten to the other side, right? We haven't, right? But I think it's fascinating to hear him just tell those tales. And it's like, well, no duh. That's how he's doing all this new development. It's like the amount of wealth created in that generational shift in a neighborhood is enormous. hundreds and hundreds of thousands of dollars. So, where are you um where would what would be on your list of where you're seeing some of those micro shifts? Yeah, Monon Yard I I talk about very frequently. Uh I I was telling my dad about Monon Yard, like trying to raise some capital. I've I have a client who it's not working with New Group. They actually went out and bought their own lot. They're very passionate about having side by side. He said, "This is a passion project. spending way too much money on it. I'll never cash flow. That's okay. He's like, I really want to build one of these. So, he went out and did it and that's great. He actually will come back around and buy a new group when that project's done. Um because for those of you that don't know, uh the city requires 65 frontal feet for sidebyside proper duplex multif family, but for multi-use housing, they only require 35 frontal feet. So, like across the curb in a metropolitan, very very hard to find 65 ft of frontal lot. It is nearly impossible. It's a giant lot. Yeah. And I know because I looked for this client for ages and finally found him one in Monon yard on Carolton. Great spot. I was like harping on this to my dad. He's like, "Oh, when I was growing up, no, no bueno. Can't go on that street. Like can't go near there." That he's like referenced a gas station there. He's like, "Yeah, I stopped there once and it was sketchy. Very scary." He he was like scared that I was down there walking around like like what are you talking about? Go down there. Go go go check it out. Um because the city has come through and paved streets. Yeah. Yeah, like black top on streets. And you know who is moving there is actually a lot of doctors, medical professionals. Absolutely. Like a a lot. All the residency like they're either renting or they're buying those Onyx and East. I mean just look at where Onyx and East is building and it's like it doesn't take a rocket science to know if they're deploying millions of dollars, right? You don't have to place that you should invest in. Uh another one uh that I think is interesting is uh they just put up 11 of these new duplexes. It's practically an apartment building over on Mont Column. Mhm. Um over by Gooman House. And I think one of the reasons they did that is cuz there's a new bike trail that went from Fall Creek Trail um on the northwest side down to um Indiana A which is being connected to the cultural trail. Right. I love that strategic play because it's like right now you talk about Mont people like Mont what? I never literally I never heard of the street, but it's like they're connected. They're in these areas that have strategic um just connection points to live, work, play, right? And so I think about Mont Column and that little subpocket over there and the near part of Riverside. Um think about just anywhere where the cultural trail is. I mean, it's expanding very rapidly on the south side. Um, but then we haven't talked about, but like the blue line and the purple line and it's like, yeah, there it's kind of sketchy and a lot of people will look at you, you know, crossey like you would really invest near the Washington street downtown. But it's like we've talked to our mentor Rex who's saying he's buying millions of dollars worth of real estate along these lines cuz every data point, every piece of data he has says there will be a drastic lift in the real estate value. Yeah. Because of the interconnectedness. Mhm. So, I think just staying right because why wouldn't you put commercial real estate near where transportation is, right? Like it it makes sense and to have that connectivity in a city that has never had it before because guys, we're a commuter city first. We have more parking lots than we do houses. Like uh I make the joke you can park your car more easily than you can go find a home because we just have a lot of surface area of park parking lots because people commuted into our city. That culture shift is ginormous happening in Indianapolis right now. People moving in here from from other places or from, you know, our generation wanting to be in the city and wanting that culture. It's huge. It's a it's a big shift and it's a need. Uh, one of the things that I noticed is like this isn't micro pocket specific with New Group, but I love the fact they figured out a way to do quads and tries. It's going to be ginormous. Mhm. 600 plus whatever for a quad. It's very expensive. I'm not even going to worry about what the numbers are on that. Just the simplicity of like what does our city need? Our city needs that. They need a new quad that can provide um the stable housing, right? I think it's very important. Yeah. Well, the investors that will make insane amounts of money doing that will also probably furnish one or two units, right? And of all the people that have bought new group duplexes, some that are renting them longterm are struggling to rent them. I might be tier two. Um, and that could change come next spring. It could be flying off the shelves, but all the people that have done midterm rentals completely booked. And so, uh, I hate to let the secret out because I hope people don't start rushing to go furnish units and disrupt the supply demand, but I think those quads, yeah, you got to put 200k down, but it's like you're going to be pulling in 7,500 a month fairly predictably doing that. Uh, providing a much needed housing source. And a lot of people want a one-bedroom unit, right? And so if you're buying that in some of these areas that we're talking about that have those micro pocket lifts, you know, on that uh, you know, Monon yard area or, you know, Brookside or whatever parts of the West, like you're just going to look people will be saying you are a genius in 10 years and it's like it's just the fundamentals, right? So yeah, they've got something going in Bates and it's just going to be it's it's going to change a lot. the the very last thing that was a key takeaway that I want to hit on is the house hackability. And by the way, like through this guys, if you want to know where uh lots are available and how to build, first stop is Tyler or I. Uh whichever one you think is, you know, more handsome, you can reach out to and we can work on say that they all go to me. No, kidding. No, no, I'm joking. Uh no, whoever's uh smarter with the numbers, which is definitely Max. That's fair. Um the house ability is what I wanted to hit on though. Uh yeah, they're amazing. Like next, no. No. Uh swads of young people who think they have to rent or they want to be downtown, right? They want to be close to the action and so they go lease out the 1,500 per month unit. Great. Okay. I'm all for that. There's a time and place for that. Low uh responsibility, all that. However, the minute you're ready to take that leap, it's like, oh my gosh, like these new construction, no way that's possible for me. It's 400k. I don't want 400k. You know, no one in my family's 400k. What's like 5% down? What if you or three and a half% whichever one you want to go for? What's a monthly payment roughly on that? Three grand plus. It's going to be Yeah, it's going to be about $3,000 and 5% down and about 425. But right, you can count, this is what we were underscoring on the podcast with uh them is you can count that rental income up to 75% as your income. Even the projected with lenders, we know, not every so long as it's vacant. If it's occupied, you have to go with a lower amount. Correct? So long as it's vacant, you can have an appraisal done. They'll do a rent uh cost estimate and be able to apply that. So like if it's say say it's 75% at like 1,200, 1300, you take that off the principal and it helps with your debt to income ratio, which makes it much more affordable. So, like if you could get a $300,000 preapproval for a single family, my guess is the math probably bumps you up where you can get into the door of one of these. Um, and I think honestly, I mean, uh, Trace that works for us, he's out looking for duplexes and like just keeps sending me the ones in the most crummy areas. I'm like, "Ah, you just moved here." But like, yeah, we're gonna send him this podcast. He's gonna have to edit it or he'll be the one posting it. I just can't help but not push new group for him so long as they come up with a spec cuz that's the one caveat is somebody has to back out. So like if you're an investor listening and you want to buy a new group property, you have to put 25% down before they uh break ground once they have permits and all that good stuff. So you're writing a check for, you know, 125 plus uh on the front end. If you back out of that deal, they then will go and, you know, open it up for us to bring in an FHA buyer. It's a little bit harder for them to spec on the front end without having uh true buyin. Tyler, you know, he has a horror story with it where somebody did do that and they backed out and yeah, they got burnt. New group did. So, uh, for that, but they still do allow FHA, which is great. I think if you're I don't know. I went back to the old versus new 3. 5% down on 425. What is that? 12 grand. 12 grand. It's like, guys, this is actually within your reason. If you're making, if you're listening and you're making above 70 75 $75,000 a year, Yeah. and you want to get into investment real estate, stop looking for a flip. Stop looking for an apartment building or whatever this BS is that, you know, stop trying to start a syndication on YouTube told you. Seriously, these are lowmaintenance and amazing. I want to say you do need to very much take the um take seriously the end of the process. Just because it's new construction doesn't mean there's not errors, right? I have a number of little small errors like a wobbly door knob. Um you know, they missed the numbers on the window. They didn't wipe it off and it requires like a twotory ladder. take the blue tape seriously. Um, take the inspection. They will do an inspection on it. You can get your own if you'd like. Take those seriously, but then don't go alone. Like, seriously, use one of us as an agent to help you through that because just because new construction doesn't mean it's not a process that there is a decent amount of due diligence there, right? They're building something new from creation, right? And if you know anything about cooking, you know, it's so easy to burn dinner. So, like you need somebody in the kitchen that can help you be a master chef and get through it. Uh, I had a call 4 months ago. I'm sure he's watching this where he called and he's like, "Yeah, I just bought a new group property and I'm house hacking and I want to figure out how I can buy my next." I was like, "You just what? You just bought it. Dang it. You missed out." He just went straight to him. He didn't. And he found out about us after purchasing and he was like, "Yeah." And like there was just some of the process.