First Investment - Low Risk Low Cash Flow - Need Advice

2 Replies

First Time Investment Property:

Hey Bigger Pockets,

I bought a 2 bed 1 bath 2nd floor Condo in the DeMun area of Clayton, MO (Just outside St. Louis City) paid $210,000 for it. Probably paid 5-10K above mkt value, but I love this area and was willing to pay.

Owner in the unit below mine (also 2 bed 1 bath) is moving - needs to sell by April - has not put it on the market yet.

His unit has a more updated bathroom than mine, but otherwise, a very similar property.

I could likely get his for $200,000 or less due to no realtor fees.

Looking at:

$200,000 purchase price

Fully updated (which kinda sucks)

Likely get $1650/MO in rent.

20% down

P&I + Taxes + Insurance + $250 HOA = $1300/MO Which leaves me with $350/mo in cash flow.

I see there being very little maintenance/repairs because I have had little to no trouble with the unit I own.

 Area is upper middle class - has the best public schools in the St. louis metro area (many families rent here because they cant afford the homes and want to send kids to nice schools) Walking distance to Washington University - prestigious private university.

It is a very popular area and will likely sell pretty quickly, but I have a chance at buying before it goes on the market.  

I also know the building very well - New roof 5 years ago. brand new back deck put on 2 years ago - all around very well taken care of.  

I know I do not hit the 1% rule, or really any of the standard metrics, but it seems like a very low risk investment due to high occupancy rates, and higher class tenants.

Also, it will likely appreciate in market value at a greater than average pace.

Do you think this is a good deal? or should I back off until I find something with more cash flow potential?

I appreciate any advice.

- Joe

@Joe Heitz Sounds like you are amortizing this over 30 years and you are not including for vacancy, upgrades or repairs. And what if you can only rent it for $1500 some years and $1750 other years. Think about all the scenarios. I do like the idea that you know the building and its low risk and a great area and if you ever want to sell it at some point it will be easy. Plus it sounds like you can get it for perhaps 10% under market value if you buy direct from the owner. Your cash flow may be less than you think but the tax benefits of owning RE and the appreciation of RE over the long term along with the built in equity I dont think its a bad deal. I own a property very similar and its never made me a penny cash flow but I have owned it 8 years and it will be paid off in 7 more and the values have gone up significantly in the neighborhood and I got it at a great price so cash flow wise it wasnt good but long term it was excellent and I get great quality tenants.   I really dont think its a bad deal just make sure your numbers are spot on. 

Joe, 

I have a similar situation with a single-family home in Brentwood, it cashflows about $650 a month which is great, but my biggest regret is that in purchasing it I tied up $55K in cash to get my 80/20 for financing when i could've been using that cash for BRRRR investing instead. In addition to looking at the issue of whether you could just be getting better cashflow, you might also consider the opportunity cost of tying up that $40K to get your financing and whether you could be doing more with that money by putting it into other opportunities. Now that i'm doing a BRRRR on a separate property, I see what i could've done with that $55K instead of just having it sitting there as equity.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here