Considering Out of State Investing in St. Louis MO
New to Real Estate · Los Angeles, CA · Member since 2022 · 11 posts · 2 votes
Considering Out of State Investing in St. Louis MO
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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votesi strongly recommend that you not invest out of state unless you are willing to go there in person multiple times / as many times as it takes to build your team and look at properties.
way too much investors on BP buy a random house in a supposedly low cost market and then get crushed with deferred maintenance and high cost turnovers. there goes that 'cash flow' that was promised.
and with interest rates where they are, even those supposedly attractive low PP houses just won't cash flow very much.
can you house hack in CA instead?
14 Replies
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
i strongly recommend that you not invest out of state unless you are willing to go there in person multiple times / as many times as it takes to build your team and look at properties.
way too much investors on BP buy a random house in a supposedly low cost market and then get crushed with deferred maintenance and high cost turnovers. there goes that 'cash flow' that was promised.
and with interest rates where they are, even those supposedly attractive low PP houses just won't cash flow very much.
can you house hack in CA instead?
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes2y
I agree with Nicholas on this. I don't know anything about St. Louis. Wealth in real estate is built on appreciation over a long period of time (e.g many investors in Bay Area and LA) but on BP and social media, cash flow is constantly pushed in inexpensive locations which likely won't appreciate enough to make up for all the costs. A very honest property manager told me that investors who profit from cheap properties buy in volume (not your typical beginning investor) because the good properties offset the losers. Doing an OOS renovation is even more challenging - you can't physically check on the property unless you fly out there frequently. You place a lot of trust in a team that's 2000 miles away.
I talked to several CA investors who bought in Indiana: one lost $20,000 because the contractor didn't finish the renovation and disappeared, another one is seeking legal action against an evicted tenant and negligent property manager. The tenant stole the appliances and water heater and caused over $20,000 worth of damage, and more stories. If you decide to buy OOS, have lots of cash reserves and a high risk tolerance. I would leans towards Class A or B (going for appreciation and higher quality tenant but your price points will be higher) not Class C which I think is better suited for locals who are physically there to check on properties and see what tenants are doing to the properties (good or bad things) and what's happening in the neighborhood.
I have 3 properties in the Indianapolis metro area. Here's a brief summary of why OOS investing is difficult:
- Real Estate Agent · Myrtle Beach, SC · Member since 2022 · 33 posts · 30 votes2y
My wife and I looked at St Louis, MO as well when we started and ended up deciding to start in our own hometown in Myrtle Beach first. two main reason:
1. We read everywhere: You need to have a good team in the area you are investing (Real Estate agent, property manager, project manager/ contractor (if you do any rehabs). For us, to build a team like that on our first investment was too big of a step.
2. We saw a lot of cash flowing properties in St Louis, but it seemed that the neighbourhoods were very much hit and miss - and we decided then and there, if we have not visited the place at least once, we will not invest there.
Let me know if you have any questions!
- New to Real Estate · Los Angeles, CA · Member since 2022 · 11 posts · 2 votes2y
Quote from @Nicholas L.:
i strongly recommend that you not invest out of state unless you are willing to go there in person multiple times / as many times as it takes to build your team and look at properties.
way too much investors on BP buy a random house in a supposedly low cost market and then get crushed with deferred maintenance and high cost turnovers. there goes that 'cash flow' that was promised.
and with interest rates where they are, even those supposedly attractive low PP houses just won't cash flow very much.
can you house hack in CA instead?
Thanks for your input Nicholas! I do have some of the worries you mentioned with OOS investing. I want to house hack it’s just that the price of entry is too high in Los Angeles. Only way I can maybe do a house hack is with seller financing.
- New to Real Estate · Los Angeles, CA · Member since 2022 · 11 posts · 2 votes2yThanks Becca! This was very helpful. I will definitely look at the article you shared. The more I read about OOS investing the less appealingly it sounds.
Quote from @Becca F.:
I agree with Nicholas on this. I don't know anything about St. Louis. Wealth in real estate is built on appreciation over a long period of time (e.g many investors in Bay Area and LA) but on BP and social media, cash flow is constantly pushed in inexpensive locations which likely won't appreciate enough to make up for all the costs. A very honest property manager told me that investors who profit from cheap properties buy in volume (not your typical beginning investor) because the good properties offset the losers. Doing an OOS renovation is even more challenging - you can't physically check on the property unless you fly out there frequently. You place a lot of trust in a team that's 2000 miles away.
I talked to several CA investors who bought in Indiana: one lost $20,000 because the contractor didn't finish the renovation and disappeared, another one is seeking legal action against an evicted tenant and negligent property manager. The tenant stole the appliances and water heater and caused over $20,000 worth of damage, and more stories. If you decide to buy OOS, have lots of cash reserves and a high risk tolerance. I would leans towards Class A or B (going for appreciation and higher quality tenant but your price points will be higher) not Class C which I think is better suited for locals who are physically there to check on properties and see what tenants are doing to the properties (good or bad things) and what's happening in the neighborhood.
I have 3 properties in the Indianapolis metro area. Here's a brief summary of why OOS investing is difficult:
- New to Real Estate · Los Angeles, CA · Member since 2022 · 11 posts · 2 votes2yThanks Steven! I am going through exactly the same concerns. Knowing that others also had similar concerns does give me confidence that I am asking the right questions. What do you think about your decision now that it’s been some time?
Quote from @Steven De Lange:
My wife and I looked at St Louis, MO as well when we started and ended up deciding to start in our own hometown in Myrtle Beach first. two main reason:
1. We read everywhere: You need to have a good team in the area you are investing (Real Estate agent, property manager, project manager/ contractor (if you do any rehabs). For us, to build a team like that on our first investment was too big of a step.
2. We saw a lot of cash flowing properties in St Louis, but it seemed that the neighbourhoods were very much hit and miss - and we decided then and there, if we have not visited the place at least once, we will not invest there.
Let me know if you have any questions!
- Real Estate Agent · Myrtle Beach, SC · Member since 2022 · 33 posts · 30 votes2y
Quote from @Vaibhav Pandey:
Thanks Steven! I am going through exactly the same concerns. Knowing that others also had similar concerns does give me confidence that I am asking the right questions. What do you think about your decision now that it’s been some time?Quote from @Steven De Lange:
My wife and I looked at St Louis, MO as well when we started and ended up deciding to start in our own hometown in Myrtle Beach first. two main reason:
1. We read everywhere: You need to have a good team in the area you are investing (Real Estate agent, property manager, project manager/ contractor (if you do any rehabs). For us, to build a team like that on our first investment was too big of a step.
2. We saw a lot of cash flowing properties in St Louis, but it seemed that the neighbourhoods were very much hit and miss - and we decided then and there, if we have not visited the place at least once, we will not invest there.
Let me know if you have any questions!
I think we made the right decision for a couple of reasons:
1. The investments I have now are near my primary residence, so I was able to check in on the progress when we were renovating - and till this day I can swing by if I really have/ want to. Just the idea of it being nearby gives me some peace.
2. I believe you can invest in every market, everywhere are deals to be found. So unless you have an area where an expert can help you building a team, you should be able to invest in your own location.
3. Myrtle Beach is the one of the fastest growing cities in the country, so there is just a lot of opportunity for any type of investment here. We are known for STR, but we have found that househacking, MTR and LTR are successful too.
Let me know if you have any questions, and stay connected! Looking forward to read about you Real Estate journey.
- 2yBonnie LowPro MemberLender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
Quote from @Nicholas L.:
i strongly recommend that you not invest out of state unless you are willing to go there in person multiple times / as many times as it takes to build your team and look at properties.
way too much investors on BP buy a random house in a supposedly low cost market and then get crushed with deferred maintenance and high cost turnovers. there goes that 'cash flow' that was promised.
and with interest rates where they are, even those supposedly attractive low PP houses just won't cash flow very much.
can you house hack in CA instead?
I 100% agree with this advice. We invest both locally and out of state and we've been very intentional about getting to know the areas we're buying in out of state. There is simply no substitute for going there yourself and driving through (and walking) through the area. You should be able to pull up a property on the MLS, zoom in on the map, and feel familiar enough to know if it's in a good area, marginal area, or bad area because you have first hand experience seeing it. Also know that people's definition of the neighborhood classes of real estate is a bit subjective. Someone may think a property is "C Class" but you might think it's D-class or vice versa. It's not an exact science. What matters is how you see it. It takes time and you must be intentional when building your team. IMO the best way to do that is to seek referrals from people you trust. Going to local REIAs will help introduce you to people who will become valuable sources of local information. Many have an option to join virtually, but if you're going to travel to an area to scout it, plan your trip around some local meetups and attend while you're there. Especially in large metro areas, neighborhoods can change dramatically on a block by block basis so you really need to understand the lay of the land.
- Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes2y
Hey Vaibhav, seems you've received a lot of great input here already. I'll echo that most of these Midwest markets that skew toward lower purchase prices are similar.
Areas can be hit-or-miss and you need to really understand the risks and potential rewards before making the plunge. Having a strong team in place is a must and there are way to plug into existing ones without having to start from scratch.
If investing locally works for your goals & timeline, definitely do that. If not, take your time researching and find the market/team that makes sense for you to go OOS.
I'm big on Detroit not just for cash flow, but also for appreciation. The Midwest has a lot going for it from a macro perspective and some cities are pushing hard with investment and revitalization. It's going to be an interesting trend over the coming decades.
- 2yTravis TimmonsPro MemberRental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
It can work, but it's hard. I know Saint Louis well (used to live there and grew up just down the road). You can make money investing there, but it's a city with a declining population and a so so economy. It's very block to block, street to street. I would advise buying at or slightly above the median home price for the city.
You need to spend time there, though. @Travis Biziorek is a great example. He invests in Detroit, but the guy moved there and built up his portfolio of houses, team, and expertise as a local.
If you want my advice on areas for long term rentals, look at areas just outside the city/county line. Target people that commute to a job in the city but want county schools. Think Maplewood, Affton, Richmond Heights, Webster Groves...places like that. The price point is going to be higher than parts of South City (dutchtown, princeton heights, bevo) that are going to be tempting with the low price tag, but they are better and more stable long term locations.
- New to Real Estate · Los Angeles, CA · Member since 2022 · 11 posts · 2 votes2yThanks Bonnie, I really like the advice you gave, it’s full of action items I can implement. 😀
Quote from @Bonnie Low:
Quote from @Nicholas L.:
i strongly recommend that you not invest out of state unless you are willing to go there in person multiple times / as many times as it takes to build your team and look at properties.
way too much investors on BP buy a random house in a supposedly low cost market and then get crushed with deferred maintenance and high cost turnovers. there goes that 'cash flow' that was promised.
and with interest rates where they are, even those supposedly attractive low PP houses just won't cash flow very much.
can you house hack in CA instead?
I 100% agree with this advice. We invest both locally and out of state and we've been very intentional about getting to know the areas we're buying in out of state. There is simply no substitute for going there yourself and driving through (and walking) through the area. You should be able to pull up a property on the MLS, zoom in on the map, and feel familiar enough to know if it's in a good area, marginal area, or bad area because you have first hand experience seeing it. Also know that people's definition of the neighborhood classes of real estate is a bit subjective. Someone may think a property is "C Class" but you might think it's D-class or vice versa. It's not an exact science. What matters is how you see it. It takes time and you must be intentional when building your team. IMO the best way to do that is to seek referrals from people you trust. Going to local REIAs will help introduce you to people who will become valuable sources of local information. Many have an option to join virtually, but if you're going to travel to an area to scout it, plan your trip around some local meetups and attend while you're there. Especially in large metro areas, neighborhoods can change dramatically on a block by block basis so you really need to understand the lay of the land.
- New to Real Estate · Los Angeles, CA · Member since 2022 · 11 posts · 2 votes2yThanks Travis,
Quote from @Travis Timmons:
It can work, but it's hard. I know Saint Louis well (used to live there and grew up just down the road). You can make money investing there, but it's a city with a declining population and a so so economy. It's very block to block, street to street. I would advise buying at or slightly above the median home price for the city.
You need to spend time there, though. @Travis Biziorek is a great example. He invests in Detroit, but the guy moved there and built up his portfolio of houses, team, and expertise as a local.
If you want my advice on areas for long term rentals, look at areas just outside the city/county line. Target people that commute to a job in the city but want county schools. Think Maplewood, Affton, Richmond Heights, Webster Groves...places like that. The price point is going to be higher than parts of South City (dutchtown, princeton heights, bevo) that are going to be tempting with the low price tag, but they are better and more stable long term locations.
I really appreciate the input. I will take a look at the areas you suggested if I decided to go forward with this strategy. - 2yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
Choosing the right neighborhood in St. Louis is crucial for successful real estate investment, especially when you're investing from out of state.
Think about things like crime rates, employment growth, the caliber of the schools, and facilities while assessing neighborhoods. It may be quite beneficial to work with a local real estate agent who is knowledgeable about the specifics of the St. Louis market.
A realistic estimate for your financial breakdown would be to set aside 60% of rental revenue for costs. But conducting thorough market study and comprehending certain expenses in the St. Louis market are essential. Your investing selections should be informed by thorough financial analysis because markets can fluctuate greatly.
Joining local real estate meetings, networking with local real estate investors, or using internet platforms for contractor ratings may all be useful when looking for a trustworthy general contractor. Make sure the contractor is licensed and insured, ask for recommendations, and follow up on references.
Note that when investing out of state, thorough research and familiarity with the local market are essential. To make well-informed judgements, think about going to the region, assembling a local team, and utilizing local knowledge.
NETWORTH BUILDERS5237 Reviews - 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
just to challenge you a little on house hacking - how much are you saving? how many properties have you looked at? how many lenders have you talked to? say it takes 6 or 12 or 18 months to save up a DP. so what?
you're not going to get rich quicker than that by buying random properties out of state. they will take capital in the short term, not make it. and house hacking doesn't mean you can't ALSO invest in another market. it's your foundation, not your end state.
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