Looking to Invest in St. Louis

29 Replies

Hey there BP,

I've been considering purchasing a multi-unit (2-4) in the St. Louis area for some time. It appears that one can expect a decent cash on cash return of 12-15% in the area, which is MUCH greater than what I can expect investing in my hometown (I'm from Southern California). Understand that I'll be giving up appreciation for cash flow. 

One of the struggles I'm dealing with is the crime rate and the quality of schools in St. Louis. In Southern California, primarily in the suburbs, low crime rates and good quality schools are prime factors I would consider when investing in real estate. Are these factors I should be considering in St. Louis as well, or are the dynamics so different that maybe they don't apply when investing in the city? On another note, with such a high cash on cash return (read low market value / high rent rates), why is there such a strong rental demand? Is the average income in the city so low that the average person can't manage to save $40K to buy a $200K home? Also, any insight on vacancy rates/factors in the city? 

I appreciate any guidance and am happy to connect to discuss more. 

Many Thanks, 

Peter  

Hey Peter, I'm right here in Southern California as well.

Thanks for creating this post; I'm currently looking into the Kansas City, MO market and have a lot of the same questions.

@Peter Aziz @Carlton Francis Lotta people in the Midwest don't have the discipline to save up $15k for a downpymt on a home. Huge supply of lifelong renters. Sad but true.

Re: crime & schools - that's universal. Good schools & low crime drive rental demand. Be wary if someone tries to convince you that something's a great deal in an area with high crime and/or bad schools. Caveat emptor & best of luck!

@Eric P. whoa whoa whoa slow your roll on fly over states.  I know you are investing in these areas but still.  Plenty of people in the Midwest have the discipline to save the prerequisite down payments on homes.  The rate of renters in New York City is around 64%, sounds pretty high to me too. There are tons of renters all over, that's why we are all able to have a great forum like this where we can work together to make our lives better.  Sad but true is that you would make a comment like that.

@Peter Aziz being from St. Louis (which I'm sure is similar to other midstate markets) I can let you know that I typically can find investments that are around the 2% rule and cash flow quite well.  The price to rent structure that you are used to seeing is changed because we have a plethora of land still near city/job centers.  I live fifteen miles from downtown St. Louis and we pretty much have cornfields surrounding us.  Prices don't appreciate as much locally (except in pockets around the city) because new housing stock is plentiful and the land to build that housing stock is even cheaper.  We also have a very fractured government with multiple unnecessary layers that can slow and impede development.  

Other things to consider are that St. Louis City can be good to bad by neighborhood and even by street.  There are also a lot of areas where the schools can be terrible, but it doesn't make a difference because the typical tenant in that area doesn't have children but has a nice job and disposable income and the people that have children of school age and are in areas send their kids to private schools.

If you would like to have a conversation more about the area, feel free to connect and I'd be happy to let you bounce ideas off of me and to ask me any questions you have about the area.

Originally posted by @Eric P. :

@Peter Aziz @Carlton Francis Lotta people in the Midwest don't have the discipline to save up $15k for a downpymt on a home. Huge supply of lifelong renters. Sad but true.

Re: crime & schools - that's universal. Good schools & low crime drive rental demand. Be wary if someone tries to convince you that something's a great deal in an area with high crime and/or bad schools. Caveat emptor & best of luck!

 I currently live in New York City but grew up in North St. Louis county and this is where I am currently investing. My primary focus is flips but am also seeking to add properties to my rental portfolio.

To say that people cannot afford down payments on house due to the inability to save is asinine. Do you own your place in NYC? 

I don't have any issues with being able to save - yet, I rent an apartment in Manhattan....

Thanks for the responses. I suppose I should have articulated my question better. It appears that a mortgage on a home in STL (assuming 20% down), particularly in the south part of the city, is considerably cheaper than the going market rent on the same unit. Given that dynamic, why would anybody rent when they can own for cheaper (provided they have the down payment)? 

Jake, I'm going to take you up on your offer and reach out to you. Thanks for making yourself a resource. 

@Eric P. You can throw numbers out there all you want, but without back up or context they are just numbers. St Louis city renter percentage is 55% which is close enough to your 60% for me you give you credit for. Here's the rub, without knowledge of the local area you would miss the fact that the city and county are separate entities. The city's population is 315k to the county's 1M. The county has homeownership of 71%. That would give a blended rate of 35% renters in what out of towners consider "St Louis". The more you know.

Sources: 2015 US Census

I live in St. Louis and have rental properties in south city. Even though it is true that a mortgage would be cheaper than rent, most of my tenants would not have 20% down.  They are usually making $10 an hour or so and living paycheck to paycheck.  I do think buying a multi family in St. Louis would be a good investment. However, it is a lower income type of area so It will probably be more maintenance than if you were in a more higher in neighborhood. So good property management will be needed. The returns are great but it does come with dealing with a little but more hassles. So it depends on what you think you can handle. Great topic here. 

Great thread.  It seems to be a common thread around the forumns that most people investing for cash flow avoid areas with the best school and instead go after C type neighborhoods.  I own 3 4plexes on south city which have been a major pain trying to stablize.  You really have to understand the nuances of the city anf especially have amazing PM before jumping in.  Great opportunities exist, but there are also many pitfuls.  Due diligence is a must here.  I also think the rent to own ratio is pretty standars to other cities with similar economic conditions.  Just look at K.C., Cleveland, and Minneapolis.

I cant help but start out by acknowledging  sharing this chart with @Eric P.   showing that the Midwest has the highest home-ownership in the Nation by a long shot with New York and California having the lowest.

With that out of the way I will share some more charts I think will help @Peter Aziz question as to why the rental rate is so high when renting is cheaper than a mortgage in many areas of the City. 

Prior to the 1970s the majority of middle class and working class people lived in the City of St. Louis while the upper/business class lived in suburbs just west of the City. 

During the 1970s a large majority of the middle class moved to suburbs to the West and South of the City into classic suburban neighborhoods. According to Census home ownership rates in Arnold (40 minutes South) and St. Peters (40 minutes West) are all above 80%. This expansion outward has continued with most new homes being built directly west of the City. 

The City of St. Louis is not part of St. Louis County and the loss of property tax revenue hurt the City in terms of the school system and other infrastructure.  Communities on the South Side benefited from strong catholic diocese schools and the fact that their businesses were in between the suburbs and downtown business district and sports arenas. Many of the diocese schools have closed making it harder to raise kids in the South Side. However, many of the regions most famous restaurants and attractions remain in that area and convenient highway access makes it a good place for to live for a young professional. In these areas the tenants could probably afford to buy but chose to rent until they can buy in another area. The Cortex, Soulard, CWE and the Grove are all similar and are areas that have the potential for crazy returns.

The North Side of St. Louis was basically left in the dust and crime and unemployment ran rampant. There is not much opportunity in this area. 

The tricky part about St. Louis is the neighborhood can change in a block and without knowing the City or walking the streets yourself it is very hard to tell which area you are in. There are also literally 90 municipalities in St. Louis County with different rules and costs. I am currently staying out of the City all together and focusing on less profitable but more consistent investments in the suburbs

@Eric P. Why yes! You are absolutely right! A lot of people in the midwest do not have the discipline to save $15K for a down payment. That's why, if you are a rehabber or a lease options guy, you shouldn't even think about investing here. My goodness! If you are a realtor, don't come here! You'll starve to death!

You will probably find this overview of Tower Grove very helpful. Tower Grove Redevelopment

It is definitely one of those hit or miss areas but is getting more traction than most thought. 

I am almost 100% sure that re-occupancy permit is only in unincorporated St Louis County. 

I would not no where to begin regarding the municipalities. 

Hey @Peter Aziz , thought I'd throw in some information about the area you're targeting (Tower Grove South). It's a great area for a lot of strategies but it's also one that's seeing a lot of market pressure and a lot of price increases, with multiple offers coming above asking for any kind of property there, SFH or 2-4 unit multi. The city has seen a lot of development in the central corridor thanks to and around SLU and Cortex in particular. There's also a stretch of Grand, the main attraction road by Tower Grove Park, that's going to see some redevelopment fairly soon as the city has just blighted it, which will bring redevelopment from SLU.

Directly south of SLU/Cortex is Tower Grove Park, and the stretch of South Grand that's one of the city's main nightlife/restaurant areas. The typical renter in and around TG is either a grad student or a young professional, likely from that central corridor or downtown, from our experiences in that area.

The street-to-street story about crime here is true, but by and large the areas immediately around TG are pretty safe, especially in comparison to some other parts of South City/North City. With proximity to TG the "street to street" fact is less of an issue, but as you get a certain distance away from the park that becomes true, certainly.

As you go farther south rents decrease and you'll find tenants who work minimum wage jobs and are trying to get established, more blue collar workers, etc. Accordingly, in those lower income areas there is generally more crime as well. So, in those parts of the city you'll find renters who are limited by income, where the renters closer to TG might have sufficient income but student loans or not enough stability/desire to consider buying a home at this point in their life. 

On the occupancy permit, that's required after a year if you have turnover. So, ideally you aren't paying that meaning you don't have high turnover, but it's good for the course of an entire tenancy, however long that is. The cost is $93 and some change per unit, less if you're doing multiple units in one visit at a property.

I gather that you have a lot of questions, so feel free to reach out if you'd like more info.

Cheers!

Wow! Lots of useful information here. Thank you so much @Account Closed , it looks like one of the most premier areas here is South Grand. How far east of Grand Ave can one go and still be in a 'good' area? Is Louisiana Ave to far east? Does one want to stay away from Gravois Ave (Historic 66)? 

@Peter Aziz  

That a tough question to draw a picture with words. Here are the neighborhood we have property or that we manage property and a crude map that we feel are up and coming there for "good area".   Benton park, Benton Park west, Fox park, Tower grove east, Fox and Fox Park. 

Lots of great info here. Appreciate all the input. BP members have really gone above and beyond.

I just booked a flight to STL. I'll be in town from 12/15 - 12/18. I'm hoping to get a feel for the different neighborhoods and look at a few properties. I certainly have a lot of work to do before I get there, so will continue reaching out on this thread.

If anybody wants to meet up for a beer or a bite while I'm there, let me know!

@Peter Aziz I lived east of the river (i.e., worked at Scott AFB) for three years.  During that time, I acquired 3 properties (one while deployed to Qatar).  The properties were in 63118, which is a bit more "depressed" than south Tower Grove.  My issue has been mainly turnover, extended vacancy, missed payments, evictions, and tons of maintenance.  Keep in mind, these buildings average about 90 years old.  That, combined with lower income tenets with high turnover, turn a high performing pro forma asset into one that can really be a dog.  I acquired these properties over about a 1.5 year period starting in 2014.  I am just now starting to stabilize the units.  They are finally starting to cash flow, but not nearly as well as stated in my pro forma analysis. 

I think STL is a fantastic place to invest.  However, you really need to understand the market, and have a great team (mainly RE agent and full service PM if out of state).  @Peter MacKercher is a fantastic resource in the area.  Feel free to reach out with any questions you may have, and I wish you the best of luck going forward!

Originally posted by @Peter Aziz :

If anybody wants to meet up for a beer or a bite while I'm there, let me know!

 @Peter Aziz This real estate club (St. Louis Investment Property Association -STLIPA) meets for lunch at a restaurant in South City every Thursday. First attendance is free if you want to drop by when you're in town. Very informal and usually about a dozen or so people show up.

https://www.meetup.com/STLIPA/events/235606439/

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