Rental Property Investor · Saint Louis, MO · Member since 2016 · 18 posts · 3 votes
I'm just getting started and trying to figure out if St. Louis has as an average Cap Rate. Since the greater STL and metro areas are so diverse, do certain areas have different rates such as West County, South County, North County, St. Louis City, etc?
Investor · Ballwin, MO · Member since 2015 · 111 posts · 83 votes
10y
Tim, I think you'll find that they are all over the board. @Mike Delprete is right in that most of the time you will definitely find lower cap rates in better areas and higher cap rates in more challenged areas, but there are so many small enclaves in terms of communities within St Louis it's really hard to try to come up with an "average CAP rate".
All my properties are in South City and even there, from one neighborhood to the next you can see caps rates anywhere from 7% to 25%. I think the best advice I could offer would be for you to do some driving around and lots of looking at properties. Find an area that you feel can give you a return you will be happy with then farm that area.
My properties are all in decent blue collar areas in South City (mainly Dutchtown) and overall give me about an 18% Cap Rate. That's deceiving though because it doesn't include CAPEX and these properties are all between 60 and 120 years old. It also doesn't include losses (I lost a condenser unit to theft on one of the properties last year and then made sure that I replaced not only that unit, but cages around the others in my little portfolio that didn't have them). I think Cap Rates should be used as maybe an overall indicator, but don't buy a property based on cap rate alone (and don't let low or high cap rates include or preclude a neighborhood from your evaluation)
Investor · Phoenix, AZ · Member since 2010 · 79 posts · 27 votes
10y
You may notice trends like lower caps in nicer area and higher caps in tuffer area's. It just depends whats going on in your market. Here in Phoenix all cap rates are crazy anywhere you go even in the sub markets.
If your looking to buy and hold you should know the cap rate your comfortable with as an investor and stick to that #.
Investor · Ballwin, MO · Member since 2015 · 111 posts · 83 votes
10y
Tim, I think you'll find that they are all over the board. @Mike Delprete is right in that most of the time you will definitely find lower cap rates in better areas and higher cap rates in more challenged areas, but there are so many small enclaves in terms of communities within St Louis it's really hard to try to come up with an "average CAP rate".
All my properties are in South City and even there, from one neighborhood to the next you can see caps rates anywhere from 7% to 25%. I think the best advice I could offer would be for you to do some driving around and lots of looking at properties. Find an area that you feel can give you a return you will be happy with then farm that area.
My properties are all in decent blue collar areas in South City (mainly Dutchtown) and overall give me about an 18% Cap Rate. That's deceiving though because it doesn't include CAPEX and these properties are all between 60 and 120 years old. It also doesn't include losses (I lost a condenser unit to theft on one of the properties last year and then made sure that I replaced not only that unit, but cages around the others in my little portfolio that didn't have them). I think Cap Rates should be used as maybe an overall indicator, but don't buy a property based on cap rate alone (and don't let low or high cap rates include or preclude a neighborhood from your evaluation)
Residential Real Estate Broker · Saint Louis, MO · Member since 2014 · 1k+ posts · 567 votes
10y
@Tim Walsh Short answer: Absolutely. That said, I find that approaching cap rates at a county level is too broad of a brush for this market. Personally I stick to zip codes, townships or go by block if I try to answer this question myself. Also, the varying tax rates in different zip codes will affect your final ROI as well. There's your standard "St. Louis can vary by block" answer, and it's especially true from an investment standpoint.
Like Mike said, you'll probably find that the higher cap rate areas are generally more hands-on, risky investments, which is of course in line with what you'd expect on a risk vs. reward plot. The trick, as always, is finding the sweet spot between the two. Hope this helps, happy to discuss more too.
Investor · Austin, TX · Member since 2013 · 112 posts · 57 votes
10y
10.5% net unlevered across about 450 units, most of them in North County. We buy as low as 8.5% for AA assets, and it goes as high as 15%. Anything above that you probably have to compromise too much in terms of the area, or you're able to get a great one-off deal here or there. The above numbers are realistic for a fund that needs to buy consistently and can't wait to take only the fat pitches. Hope that helps!
Investor · Austin, TX · Member since 2013 · 112 posts · 57 votes
10y
Net of all expenses (tax, insurance, property management, repairs & maintenance, vacancy/delinquency). Unlevered meaning no debt, equity only. Levered returns in the mid-teens but that number will be different for each investor based on what debt terms they have access to.
450 units bought over the last 12 months or so, most of them on the West side of North County (Florissant).
Investor · Austin, TX · Member since 2013 · 112 posts · 57 votes
10y
@Tim Walsh - Thanks! I wish they were mine but they're owned by a fund that I work for. Personally, I only have two duplexes in Normandy and one SFR each in Florissant and Riverview.