Over the past year, shifting population patterns put previously overlooked cities on investors’ maps. With quickly rising home prices and a record-low, fast-moving inventory, Indianapolis made Forbes’ list of top markets to watch in 2021. Here are some key Indianapolis real estate market trends to watch in 2021 and beyond as you consider investing in the area.

Kent Ritter is an experienced multifamily investor and operator helping you to build real wealth through real estate syndication. Learn More

The Big Talk in Indy: Home Prices

It is no secret that house prices have soared since we all became very acquainted with the shortcomings of our homes during lockdowns. Still, Indianapolis became a remarkable statistic in a year with significant property value increases across the country.

Between October 2019 and 2020, home prices in Indianapolis rose 10.5 percent. By July 2021, they were up another 7.9 percent. Despite a dazzling total 18.4 percent increase in less than two years, the median sale price remains only $219,000, making it one of the most affordable cities in the United States.

Indiana Population to Shrink—But Indianapolis to Increase

As with elsewhere in the country, Indianapolis’ skyrocketing home prices reflect a housing inventory shortage. Low interest rates make homeownership more affordable than ever, at a time when many face a new reality of their homes serving as a place of work, school, recreation, and rest—all at once.

As rural populations decline, Indiana’s state population is expected to stagnate, perhaps only growing by 700,000 in the next 30 years. However, during the same period, the 11-county Indianapolis metro region is expected to grow by 500,000, dominating the state’s growth through 2050.

Indy’s demand should continue to grow with such projections, meaning there is no turning back for property prices and rents.

Quality of Life and Cost of Living Drive Demand

Those who are not from the area may be left wondering how Indianapolis could have so much demand for housing. Simply put, it’s an appealing, affordable city.

The cost of living in Indianapolis is 2 percent below the national average—yet that does not come at the expense of life quality. On the contrary, Indianapolis regularly makes national “best places to live” lists thanks to cultural amenities like the Indianapolis Symphony Orchestra, sporting entertainment from the Colts and Pacers, several top-rated institutions of higher learning, and more.

In addition to having things to do, Indianapolis is a place where people can thrive in a strong economy. The unemployment rate is below the national average, and it is known as one of the best cities for creating tech jobs, especially for women.

Indianapolis Rental Trends to Watch in 2021

When evaluating multifamily opportunities for your portfolio, knowledge of Indianapolis’ unique features is crucial for success. The characteristics that make the city a great place for purchasing a home also make it a popular spot for renters. Those in the multifamily investing world know that buying is not for everyone. Whether it is an aversion to maintenance, uncertain financial stability, or a need to move frequently, there will always be a portion of the population who rents rather than owns.

Indianapolis Rents Are Going Up

Rental rates in Indianapolis are increasing. A 3-bedroom unit in Indianapolis rents for $1,

22 per month, up 18 percent from the previous year. On average, market rent per unit in the city is currently $989, representing an 8.8% increase over the last year. Average rates by unit size for 2021 are:

  • Studio Rent: $636
  • 1 Bedroom Rent: $857
  • 2 Bedroom Rent: $1,101
  • 3 Bedroom Rent: $1,311

Investors interested in class A properties will find more generous rents upwards of $2,600 per month in the downtown area.

Occupancy Rates High

Although the city scores well in affordability, 44 percent of households rent rather than own in Indianapolis. Over the past ten years, occupancy rates for multifamily housing have remained mostly between 92% and 95%, with a low of 90% and a high of 96.66%. Occupancy rates are currently near the 10-year period all-time high, at 96.61%

Vacancies are currently way down, with a multifamily unit vacancy rate of 4% in 2021, down from nearly 10% in 2019. More residential parts of the city have even lower vacancy rates, and investors should continue to monitor remote work status with major downtown employers.

New Multifamily Projects on the Horizon

More than two-thirds of the multifamily housing market is currently composed of 2-bedroom units (47%) and 1-bedroom units (36%). There are nearly 125 new units under construction this year, with delivery expected in 2022. These units provide an opportunity serve the city’s growing population and keep up with demand.

Takeaways for Investors

With rising rents, the amount of new multifamily being built is expected to increase. So, the key thing to watch out for is that supply outpaces demand and causes vacancy to drop in the future.

Still, with a growing population, increasing home prices encouraging more people to rent, and increasing rental rates, there is a great potential opportunity for investors interested in the Indianapolis multifamily housing market.

Earn Passive Income with Multifamily Investing

Kent Ritter is an experienced multifamily investor and operator in the Indianapolis area, helping you to build real wealth through real estate syndication. Learn More