Hi, fellow Midwest investors! I'm a buy-and-hold investor in St. Louis, and have recently come across several properties with no basements. Personally, I think that's weird for a Midwest property and my first inclination is to move on, but I wonder if perhaps it's workable for renters? Do any of you invest in properties without basements... and why or why not?
Thanks for your thoughts!
I've owned 4 Midwest rentals and half haven't had basements. None of my properties in other parts of the country have had them. I've also owned two properties with swimming pools although many people swear against them. My advice, let the market and the numbers tell you what to do.
- Are there houses for sale without basements?
- What are they selling for relative to houses with basements?
- Can you buy one at a discount relative to like-for-like comps?
- Are there other properties without basements for rent?
- What are they renting for relative to houses with basements?
- Looking at both price and rents for houses with/without basements, which provides the better return?
If they are selling and renting in quantity and the numbers meet your investment criteria, go for it.
Basements are pretty much the standard for St. Louis, but I think it can vary significantly depending where you are in the Midwest. I can't think of a house in St. Louis that I've ever been in that doesn't have a basement of some kind. Now that I'm in Indiana it's a different story. I would say half have basements and half are crawl/slabs. I doubt a tenant will care much since they don't usually accumulate much or have the same space needs, but when you go to sell it will likely make a difference. Even the Illinois side of the STL metro area is different, I think the soil and water table can make a difference in the foundation style that you'll see.
@Megan Greathouse , I am up in Duluth MN and most all homes have basements. I am new to the REI portion so I can't speak on effects of having or not having a basement on rent-ability, but I can speak to the construction aspect.
From a construction side, my understanding is basements are used in colder climates where you need to get below the frost line to avoid heaving of your foundation. So by digging a basement (rather than just a foundation since you will be digging anyway) you are getting below the frost line and gaining more usable space for the home. Up in MN our frost line is around 6', but a quick Google search determined MO is closer to 2'; so that would make sense to not see basements on all houses like we do up in our colder climates.
As far as investing in a property without a basement, I would just be sure that if the properties you are looking at have a suitable foundation/ footing depth compared to your frost depth to avoid any expensive foundation issues. I hope this was somewhat helpful.
Thank you and good luck!
- Sam Torvinen
What @Sam Torvinen says about the frost line is interesting, I have owned a few houses in MN with partial basements and currently own 2 with say a 1/4 or half basement. I would think that only the footings have to be set to a correct depth which could vary by climate and soil. Not sure how that affects the livable portion of the house but that being said, I am a renovator, not a new construction guy.
In MN, the houses without basements are largely very old houses or very new houses. There have been many slab builds hitting the market to try and reduce costs recently. I walked through a $450k house that didn't have a basement a few months ago. The builder said it would cost roughly $30k to build the same house with a basement. Seems worth it but for a retiring couple it may be wasted space.
A basement could add value to a renter or owner as you will not have to crowd the appliances on the main floor but your market will determine whether there is some value to be lost by not having a basement. I wouldn't stress it too much, if the numbers work it should be a good buy.
@Greg Scott , @Anthony G , @Sam Torvinen , @John Woodrich ... thank you all for the thoughtful responses! Great points and ways to think about it. In my experience, it's really rare to see houses without basements in St. Louis, at any age, but I've come across two in the past two days, so it got me think. Good to hear some different perspectives!
Basements are very common here in the St. Louis area. However, slabs are not uncommon but in my experience tend to be in the lower priced areas. In what area have you found slabs? It seems to me that most SFHs with slabs tend to be rental properties.
Vince, the homes were in a nice area, but were a bit older. 1960s builds in Ballwin, right near Manchester & 141.
Up where we are in Duluth, most homes that are older and on posts are definite passes. They usually were an older cheaper build and are pretty rare around here and prone being unloved and having resell issues. Slab on grade homes are often not a problem though. They are often a newer construction and have code compliant footings down past the frost depth even if they don't have a basement. In Duluth for example a slab on grade construction will still have a 60" minimum depth footing!
Something that might be a neat thing to look up for your area is the code complaint footing depth for your area and might give you more confidence in answering the question of post footings based on individual locations. There are actually maps of the US that show the depths and where they change. MN / WI for example has a footing depth split right about the Hayward WI / Hinkley, MN latitude on the map. Above that line footing depth for a deck, basement, fencepost, etc is 60" or 72" depending on the footing type, below the line on the map it is 36" or 48" depending on the footing type. I found that interesting as you look at properties in different areas. Here's a map I quick found: http://meridianintl.co/attachment/full/us-frost-de...
Hope that is helpful!
That is very helpful! Thank you, @Michael Schraepfer !
I have 7 SFH all on slabs. I will not buy any properties in central Illinois with basements. Too many in this area have water problems. We all know water equals mold and foundation issues. I believe my properties bring equivalent rents as those with basements because I provide well maintained homes for my tenants.
Megan, we have funded many slabs in this market over the last few years and our borrowers have had great success (flipping and as buy/holds). You just have to be careful when determining an ARV. You should utilize slabs as comps only in determining an ARV.
@Lawrence E. Hopkins ... good to hear! And restricting comps to other slabs makes sense. Thank you!
In the late 50s and early 60s "National Homes" were being constructed at an amazing pace. They are mostly on a slab. The sections were assembled in a factory and brought to the construction site by a truck with a boom and hoist to aid in assembly. Frequently they were built in areas with a high water table such as Cahokia, IL right across the river from Saint Louis. We have bought and held these homes for decades. We have also flipped almost two dozen of them before the bubble burst.
The typical national home is a 3 BR one bath. and the exterior length and width were built with 4' sections. Some were wider but almost all of them were 24' deep. The width could vary at 28, 32, 36 or 40 feet. Everything divisible by 4. Some had a one car attached garage.
They also had a fuel oil furnace, asbestos siding and other issues to start off with. to begin with.
As long as there is no termite damage and the slab is still in one piece, you can't go wrong.
Very good to know. Thanks for all the detail, @George Skidis !
@Megan Greathouse no problem until there is a tornado, but that is what insurance is for.
The reason most homes in cold weather have basements is construction costs. You have to have a frost footing, if you are pouring 4-5 feet of concrete, adding a few more feet gives you livable square footage. It can be cheaper than building up.
Hey @Megan Greathouse I think slabs are great for rentals. Some tenants won't mind because they'll have less stuff to store than a home owner. Another benefit is less foundation and water issues to deal with from a cap ex perspective.
I second what Lawrence said about making sure you have the right comps. The only thing that gives slabs the bad name is the people who list them at the same price as full basement homes in the area and they end up sitting.
There are several over in the Maryland Heights/Creve Coeur (63146) area just south of Westport Dr. that are early 60s homes built on slabs. Papillon/Fontana/Ross Ave. They are nice homes, nice area. I missed one by a few hours on Papillon that was sold the morning I was headed to see it. I had comped it at 250 and it was listed at 150. Another investor got it at 150, did a quality rehab job, and turned it a few months later for 257. I’m not sure if they were National Homes as George mentioned, but the timing lines up and the houses on those streets are all the same basic format/size.
We sell investors properties without basements all the time. They can be a blessing, because you don't have to worry about foundation problems. However, in the south Chicago suburbs, where these homes are located, the rent is less than a house with a basement. No basement leaves little room for storage unless you have a shed or a big garage. It also limits space in the home. A typical 3 bed and 1-1/2 or 1 bath home without a basement, will bring in anywhere from $900- $1000 a month. That same home with a basement will bring in a minimum of $1000 and go up to $1250. The rent rate depends on if the basement is finished, partially finished or not finished at all. An investor is closing on a house this coming week and we're adding an additional room in the basement for him. The cost is reasonable and it will bring in a higher rent. We estimate that it will rent for a minimum of $100 more per month, than without the room. Plus, it will increase his rental pool because of the additional space. So at that rate, the investor will have his money back in 25 months. I'd say he spent his money wisely. So I think each type of property has its pluses and minuses. Buy personally, I wouldn't turn down a house without a basement. I hope this helps you. Best of luck to you.
My first house I bought has no basement, the only issue is cold winters, pipe can freeze if not insulted correctly.
It rents really easy, I must confess I gutted it too.
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