Hello BP community!
I'm hoping to get advice from some more experienced STL investors about a property we are currently under contract with.
We are under contract for $176k on a 4 unit, each unit rents at $600/month. The property is in Tower Grove South near Civil Life. We plan to live in one of the units and rent out our current home in Maplewood.
Overall the deal looked pretty good to us, good price and we like the location. The problem is yesterday we had the inspection, and more came up than we were hoping for. Some of the issues we already knew about, and some things were unexpected.
Things we'll have to fix:
The balcony is pulling away from the building, so we'll have to have an engineer come out and we'll probably need piering.
On the sewer lateral, one of the lines had 2 breaks, but it was on the city side. The other line had a blockage, so he was unable to see very far.
The wall in one of the upper units had slight water damage, due to the window sill being rotted out.
All of the windows are older, some are painted shut, some do not lock. (wondering how soon we will need to update these?)
There are some areas that will need tuckpointing. (could be another culprit of the water damage)
2 of the AC units are not cooling properly (might just need freon).
On the bright side, the inspector said the roof looks great!
So, what do you think, still worth it, or could we find a better deal?
I may need to write out Saint Louis for this to be tagged appropriately.
@Melissa Kaatman-Boettge With the items you're mentioning the prices for fixing those could go into the thousands for one item, so use that to negotiate the price down to whatever price you feel comfortable, or see if the seller will fix the issues brought up in the inspection. Without having seen the property and having actual bids for the work it's not possible to give an exact number, though, so if you move forward have an overage budget in mind, prioritize the list of repairs to save up for and re-run your numbers to see how the extra repairs affects your returns on the property.
Some of those items can be deferred (A/C in particular, as it's October and you wouldn't close until it's November proper), but items like being able to lock the windows are hopefully easy fixes (you can usually add locks to older windows here) that shouldn't require a replacement. Worst case if you don't want to budget for that now is to simply screw the windows shut if the units are on the first floor and you're looking at replacing them. Also keep in mind that if you do anything with the windows you'll want to repaint them for LBP compliance.
$600 in that area isn't bad for a 1 bedroom -- Civil Life is a border area that is lagging the rising rents a bit farther north in the TE South area but is also on the uptick. What you can get will depend on the season and the exact amenities and condition of the units. If they're 2 bedroom units you'll fare better on that end and then $600 is on the low side. Just remember, if you have vacancies, that you're entering into the slowest season for filling them.
Also, it might be wise to factor in the additional cost of living within walking distance of Civil Life since they have such good beer.
Run the numbers. Are you financing? Figure out what your monthly output will be including maintenance, insurance and taxes. Subtract that from your income to figure out your cashflow. If your living in it and it's covering your monthly rent it might be well worth it! Also decide what good cashflow looks like to you. Some people thing 100-200 is good. I like at least 400-500. Hope that helps.
Missing a lot of the house math.. which streets is the closest on tower grove south? How many sq ft? What does the house look like (as in how nice are the details of the outside and inside?)
I assume the property is probably about 3500 sq ft. Give or take 500ish ft. Idk where civil life is off hand. So idk which street.. the streets there make a huge difference.
Sounds like it is going for about $50 - 60$ sq ft. I guess not too bad. Though sounds like the place will need a lot of work to get $600\month a unit. Not only those problems you stated. I assume the units are a very old design. Which u may or should update that too as well.
How long was it on the market for? If for awhile. I would of probably offered about 20k less or more. Depending the street.
Amazing how the street makes a different there. Gun shots all night some nights surrounding the area.
Though, however, some parts of the tower grove area are a flippers gold mine. Maybe not so much a renters idk. Ik they are trying to convert the renter units into single families.
Thanks for the insights! We extended our inspection period so that we could get bids on fixing the issues that came up in the inspection. Problems sure do get expensive fast! We still really want the property, so we are hoping that the owner will fix/credit us for some things.
We had someone come give us an estimate for:
Piering the balcony, $14k for 6 piers, and to reslab the concrete.
Update all windows $16k with install
Spot tuckpointing and brickwork $18k
Overall the property looks really nice, which is why we were surprised when the inspection came back with so many issues. 2 of the units are already rented out, and the 3rd recently became vacant (looks like it was an eviction).
2 of the units should pay for the mortgage and monthly expenses. If we have to repair the above-mentioned things immediately, that's a good 2+ years that we wouldn't make a profit. Obviously, the property value would increase, but is that worth it?
All of these things could possibly be put off, but they will still be an expense at some point, so isn't it better to do them sooner rather than later so they don't cause other issues?
We're also trying to figure out If this property was in near perfect shape without these issues how much would it be worth? Another similar property went for 190k over the summer, and that's been the highest comparison, so after all repairs, we do not want to spend over that. The issue is the current owner paid 170k for the property in 2010, so it's likely she will not want to go below that.
I just hate the fact that we've now paid $1,200 in inspection costs, and we might have to walk away. I know that's all part of investing, but for a new investor, that's rough!
@Melissa Kaatman-Boettge I'm curious who you used for inspections; typically we're spending about $800 for multi-family inspections. That said, even $1,200 is a bargain compared to buying a property that falls apart a few months after you get it. Part of that is the price of education -- now you know what these issues cost so you'll know what to look for in the future.
About the price: There are two ways to consider the deal. You're either buying as a homeowner or as an investor. If you want to house hack and simply have a reduced mortgage payment, then the number of properties that will let you live for free as harder and harder to find these days. If you love the property and the area it's OK to buy it as a home, but that's a different goal than buying it as an investment.
If you show me a property that will take 2 years to turn a profit you'll see me walk away right after you finish that sentence. There are other options on the market that do make money, pure and simple, so if your goal is to invest then either offer a number that will turn a profit or find something else.
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