St. Louis

Rehabbing, Fix and Flip, Rental Properties
1

It has been awhile since I’ve been here and the discussion Forum seems a little dead, but I’ll take a chance.

The area I live in has increased in price and mostly priced me out of rental investments. When I can find a decent deal, it becomes a bidding war with several other people and usually escalates to an above average price. I am lucky that I was able to get some great deals several years ago and I’m still doing very well with my 4 rental houses, my duplex, and my triplex. My equity has doubled or tripled on most of my properties so I’m pretty happy about that, I just am not finding anything additional I’m able to add to my portfolio at the moment.

So I’m looking outside my area and talking to a wholesaler. In St. Louis I’ve found a 12 unit apartment, 1 bed units, 100% occupied for $300k. After running all the numbers, figuring 10% maintenance, 7% vacancy, 10% management fees, average common area utilities, trash, insurance, taxes, and mortgage, it looks like a 42% cash on cash return based on 20% down on a 20-year note.

It sounds great, like a no-brainer, which is probably why I haven’t pulled the trigger on it yet. The neighborhood has average crime for St. Louis rated 46 out of 77, and lower family income. Other houses in the neighborhood sell very cheap, sometimes around $30k. I’m just very leery buying something out of state in an area that I don’t personally know. I don’t want to become a slum lord. Anyone have any experience buying in St. Louis, good or bad? Thanks

2

Hi,

 Typically a 5 unit or larger apartment complex operates on the 50 / 50 rule which means half of adjusted gross income goes to property expenses and reserves and half goes to debt service and positive cash flow.

I would probable use a 10% vacancy factor because it’s a generally excepted standard.

You probable won’t find apartment financing at 80% LTV, it’s probable more likely on an old building like this that the lender want’s to be at 65 to 70 percent.

Make sure to examine all the documents as you need to make sure your sellers buddy’s are not occupying 2 or 3 units month to month who will be leaving the day after closing.

So it sounds like this is a poor choice as it’s an older property, may have asbestos, lead based paint, galvanized water pipe, leaded waste pipe joints in a high risk neighborhood.

This property is priced at well below the cost of land and replacement cost and probable depreciating rather than appreciating.

St. Louis is much like Kansas City and may be worse!

                     GR