Investing Across The River

10 Replies

Hey BP,

I've been thinking recently on a topic that surprised me when I realized I had kind of thought this way my whole life and that is - going across the river to Illinois.

To be more specific, I grew up in O'Fallon. So a decent drive from Illinois hence why I likely haven't been there much or know much about it. But even further, it was just something my mind never even thought about as if it was just too far and mysterious to know about. 

Now thinking of investing, are there any areas nearby across the river that anybody looks into? I'm well aware East Saint Louis is gonna be a no-go for most all investors. Any surrounding areas that we've heard good things about? Also, does it affect us in a different way by owning a property in another state as far as taxes go? Landlord-tenant laws and construction laws are a must to check when moving over state lines of course.

Let me know what you guys think!

I grew up in Belleville so I figured the east side would be a great place to look for properties.  I spent a better part of a year searching for cash flowing properties in Belleville, Columbia, Waterloo, O'Fallon, Collinsville, Dupo, Edwardsville, etc.  A few popped up in Cahokia, but that's a whole different ball of wax I didn't know much about.  At the end of the year of searching, I finally came to the conclusion that taxes kill cash flow on the east side so decided to invest in St. Louis city where taxes are much better.  My take is that if you are in for cash flow, it's really tough on the east side due to crazy taxes.  That said, I have recently met some investors on the east side (namely Belleville) that focus there.  So, it's just my take.  If you're looking for appreciation, there might be something there in O'Fallon, but I am not making appreciation bets - just looking for cash flow.

Eric

@Eric Castelli thanks for the reply. And I didn’t mean to be vague either by saying OFallon, just the Missouri in me not thinking again!

Now that you say Belleville I’ve heard that’s a nicer area before. However, taxes is definitely something I didn’t know about if it was worse or better.

I’m curious if it’s still common for water and sewer to be paid by the landlord over there.

Sorry - I missed the reference to O'Fallon, MO -- I always think O'Fallon, IL when someone references it.  

I believe that water and sewer is generally picked up by the owner in the east side as well, but this may differ if you are investing in single family.   I'll definitely defer to some other east side folks though.

Regarding taxes on the east side, they flat out suck in my opinion (and I live on the east side).  I wish I could make numbers work there, but they are deal killer for me.  If you haven't already done so, I encourage you to run the BP cash flow calculators on some east side properties with taxes plugged in -- then run the numbers on a similar property in St. Louis city with those taxes.  It makes a huge difference.

Eric

There are good areas in Illinois, such as Belleville, Granite City, etc. just like in Saint Louis city. Just like the city, there are pockets of nice areas where people take very good care of their properties and areas that are dangerous and not worth investing in. Like anything else, you have to know your area and your market. There are some good opportunities to flip properties in Illinois, which is typically a better proposition than renting. The real estate taxes in Illinois are very high as others have mentioned, but they are still workable depending on what type of return you expect. Owning property is not ALL about cash flow; yes, it's important for a long-term investor but so is owning property in a nice area that's likely to appreciate. My advice is to base your required ROI on the area. I am very comfortable getting a 10-12% return on my money for a property in the Lindbergh school district; however, a property at Bates and Virginia is going to take a 20+% return before I even take a look at it. Just my $0.02

Dan Carver

The Property Hoarder

www.thepropertyhoarder.com

8711 Watson Road, Webster Groves, MO 63119

@Dan Carver those are good points. It seems more and more true there are always pockets in  a close range to your market everywhere basically. At the end of the day the high real estate taxes, which is definitely the biggest warning I think I've heard, is just a number to factor in - so if the numbers still work it's a good deal either way.

Good tip on the flipping being a better investment than renting in Illinois - something to keep in mind if I do start looking seriously over there.

Always appreciate the input.

We have been buy and hold landlords in Cahokia Illinois since 1993. Our lease says the tenants are responsible for water, sewer and trash. That does not mean they pay them.

Alton IL now puts the water and sewer in the landlords name. That is ok for new leases but existing leases suffered.

Belleville prices are low in areas. The problem is unless you are the owner occupant everything involving a trade must be contracted with a city approved and licensed firm. You can paint and do minor things but anything requiring a tradesman the prices go up. They also inspect BEFORE you buy so they can catch you doing it yourself.

Although I have a Belleville address I am actually in the county. I would not buy in the city unless it was a no brain flip where money could be made.

O'Fallon, IL is a good market as they are close to Scott AFB. Pretty much anything east of Illinois route 157 is a good move. East of 157 you are up on the bluffs and no flood insurance is required.

Speak Spanish? Fairmont City and State Park are highly concentrated Spanish Speaking areas.

Good Luck and Good Investing. 

Great tips throughout your post @George Skidis . At this point I do prefer to put a lot of sweat equity in by doing my own work to a degree so that's definitely good to know. Once I'm to a point of contracting out altogether that obviously won't hit me as hard - which in all reality it may be a while before I feel comfortable enough to branch that far out. O'Fallon, IL sounds like a solid area to go for with the base like you mentioned and I'm sure that flood insurance tip will save someone thousands!

@Nicholas Richard Ray

For single family rentals I've not heard of landlords paying for the utilities. That being said, I manage paying the utilities, and bill monthly as additional rent. As an owner in most municipalities hold owners responsible for payment issues, I like knowing it's being managed before it becomes a problem. However @George Skidis mentioned last night to me about making things like this a fee in his business operations, for certain "great" reasons that are fuzzy to me right now; something to the affect that fees come before rent in prioritizing payments. 

As far as multi, it seems most landlords offer free water/sewer/trash services. I've tried making small multi's work in numbers on the east-side, and I've had a hard time making them look good enough to pursue with all things considered...taxes especially! I have some friends trying to convince me otherwise, with their success stories in that segment of rentals however. 

Hope that helps. 

@James Fowler Let me clarify last nights discussion. These are utility fees accessed by a municipality or other government entity. We cannot charge a utility fee. We should not treat it as additional rent. We can collect and forward payments to the utility to ensure that payment is made. We cannot make a profit on any utility.

Your lease must be state and municipality specific. In the lease you must clearly state that any outstanding utility bills left unpaid by the tenant will be paid on their behalf and are due and collectible from the tenant when paid.  Next it should state that any monies collected from the tenant will be applied first to the balance of the tenants unpaid utilities and then to the rent.

I am not an attorney and I don't play one on television. Competent legal advice should be considered MANDATORY when drafting your lease provisions.

Great info @James Fowler and @George Skidis . I’ve found talking with others investing in STL that more often than not multis have the landlord paying for sewer, water, trash.

I’ve thought of billing back the tenant but I wouldn’t want my rental to be one of the few that doesn’t include it and then lose prospective tenants. Even if the cost is similar or the same including water etc. I think some will notice it’s not included and just move on. I’m still undecided honestly.

The concept you explained though makes perfect sense in applying funds received to utility payments and then rent to mitigate risk.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.