Looking to Invest in St. Louis

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Looking to Invest in St. Louis

Peter Aziz
Rental Property Investor · Valencia, CA · Member since 2015 · 54 posts · 28 votes

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  

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Jake HottenrottPro Member
CPA · Belleville, IL · Member since 2014 · 255 posts · 269 votes
9y

@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.

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  • Peter Aziz
    OP
    Rental Property Investor · Valencia, CA · Member since 2015 · 54 posts · 28 votes
    9y

    Posted this elsewhere in the forums, but thought I'd add here as well. 

    Hello, BP! I hope everybody's doing well around here.


    In thinking through the 50% Rule, and modeling it out in my spreadsheets, I am finding myself very uncomfortable using it. Here is the hurdle that I'm mentally up against:

    • While certain expenses are in actuality directly tied to your gross rental income (vacancy and property management) some expenses are not (maintenance and CapEx). I'm currently looking at purchasing a multi-unit in St. Louis. In St. Louis, like most other cities, there are premium neighborhoods (A's & B's) and non-premium neighborhoods (C's and below). The premium neighborhoods obviously demand higher rental rates - however, the cost to replace a roof or snake a sink in an A neighborhood is not going to be different than the cost in a non-premium neighborhood. So, with that said let's assume that a building in an A neighborhood will fetch $2,700/mo in rent, while a building in a C neighborhood will only bring in $2,000. Most investors I've spoken to have advised to accrue 10% of gross rents for maintenance expense (and 5% for CapEx). Why on earth would I accrue $270/mo for maintenance in an A neighborhood and only $200 in a C neighborhood that could be as little as 4 or 5 blocks away?
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  • Rafael Porter
    San Francisco, CA · Member since 2015 · 6 posts · 1 vote
    7y

    I know this is an old thread but I have the opportunity to buy a few Bank Owned properties in St. Louis and I'm looking for a good PM since I live in the SF Bay Area, California.

    Can anyone here recommend a reliable PM?  I'm also looking for a General Contractor to manage some of the repairs.  I've heard of a few companies that do both.  Any help would be great.

    Thanks.

    0Reply
  • Zach Griffin
    Investor · Fort Lauderdale, FL · Member since 2014 · 24 posts · 20 votes
    7y

    Hi Rafael, I use Deca Realty Company for PM. I have only worked with them for three months, but they have been great thus far. They can also manage repairs for you, but they up-charge for some of those services, so you should compare costs to hiring a GC separately. 

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  • Denise Powell
    Member since 2018 · 2 posts · 0 votes
    7y

    Hello Rafael, I live in St. Louis, born and raised and very familiar with ALL areas. My husband is a licensed real estate agent, Investor and contractor. I help him in many of those areas (Investing and Contracting) and would love to speak with you more about your "bank owned properties". If interested please feel free to contact.  Thank you

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