St. Louis Fourplex -- Too Good to Be True? Deal Analysis Help!

27 Replies

I've found a property with numbers so good that I'm wondering if I've analyzed the deal incorrectly. I'm a newbie and would really appreciate the feedback! Here's the property: The St. Louis Fourplex (I'm not ready to pounce as I'm still learning the basics). 

Can anyone confirm whether my numbers are correct? What am I missing that would make this NOT a good deal? Note that I am not located in / familiar with St. Louis--maybe this is a terrible part of town? Thanks in advance!

Some key numbers extracted from the screenshot below: 
- Purchase Price: $95k
- Rental Income per unit (monthly): $670 (based on myrentrates analysis for 1BR 1BAs)
- Units: 4
- Repair Costs: $15k (total guess, but even with a $100k rehab/repair cost the ROI would be 12.9%).
- Cash Flow per door: $340.29
- Cash Flow, all units: $1361.16
- CoC ROI 39.26%

@Account Closed Ah, thanks--I hadn't heard of Neighborhood Scout. I'm not a subscriber (yet!) so can't see all the details, but how low a score / what kind of profile tells you that an area is a war zone? AreaVibes (free site) rates livability and doesn't deep-dive into crime, but crime rates are apparently 46% lower in this area than the St. Louis average. 

With my numbers readjusted (repair costs at $50k, rent at $500/unit, and Vacancy at 10%), I'm still getting $202.99 cash flow/door ($811.96 total) and 12.72% COC ROI. If you bump repair costs to $95k, the ROI would be 8.01% (which I think is not a home run but a base hit).

Does the location make it a no-go? 

@Account Closed All good, I know there are no hard and fast answers. I've heard that renovation costs have gone up significantly over the past five years, but $30k+ for just the kitchen and bath--whew. Maybe it's time I pick up The Book on Estimating Rehab Costs instead of throwing random rehab numbers into my spreadsheet...

For sure on the higher crime areas point. I need to do my research there. Definitely don't want squatters and death threats! 

Is Neighborhood Scout your go-to resource for crime/market research, or are there others you've found useful? I'm about a month into learning about RE, and my deal analysis has mostly focused on ROI/cash flow metrics. Neighborhood/market analysis is the next challenge for me.

Looking at the surrounding school districts ranking, I also think it may be hard to find the best tenants. I agree with

@Account Closed for a lot of what he has to say. However, I do think that your rehab shouldn't probably be over 30k, however, won't truly know until an inspection. It may just need harder work but seems like it could be an amazing first deal if you're willing to find good tenants. St. Louis is complicated, would you be doing long distance?

@Jeremie Osaghae-Nosa I won't be pursuing this property, but I would be doing long-distance if I was. Looks a bit too complicated for me to take on from a distance--a quality property manager likely wouldn't manage this property for me.

Good tip on looking at school ranking as a proxy for tenant quality. Totally makes sense but hadn't occurred to me. 

Any tips on learning how to estimate rehab costs? I've been making wild guesses thus far. I plan on reading J. Scott's book on the topic, but I'd love to hear about how others learned this skill.

Yuko, I agree with most of the comments so far. I'm a st louis based buy and hold investor for over 17 years. If you are willing to take risks, that property could work well for you BUT that most likely won't happen. Personally, I wouldn't buy in that area. The tenants in that area tend to be rougher around the edges and you will most likely end up having to evict onee of them a year and when they move out, expect to spend 3-4 k to rehab it on top of losing rent.

When a deal seems to be too good to be true, most of the time it is. I have a friend who has property in that neck of the woods, but he says after 5pm, he won't go over there to collect rent.  Just hearing that he has to pick up his rent should tell you enough.  




Always best to find local investors to get their view points on the area.. as well as come out to check it out and see and feel it for yourself. Money in real estate can be made in any market it depends oh how deep your stress levels are. That area is a little shaky but guaranteed there is some good tenants there and due to their finances thats the only area they can afford. If its a place you can see yourself living then its a buy if not keep going. With the rehab cost that will depend on the inspection but in rough areas you can expect defer maintenance and with that 4 unit an $100k would be about right if you had to update all the major systems ( roof, tuck pointing, windows, HVAC, electrical, plumbing, etc ) . Numbers might look good on paper but come see it for yourself to see if it makes sense Good Luck :!

Originally posted by @Andre Taylor :

Always best to find local investors to get their view points on the area.. as well as come out to check it out and see and feel it for yourself. Money in real estate can be made in any market it depends oh how deep your stress levels are. That area is a little shaky but guaranteed there is some good tenants there and due to their finances thats the only area they can afford. If its a place you can see yourself living then its a buy if not keep going. With the rehab cost that will depend on the inspection but in rough areas you can expect defer maintenance and with that 4 unit an $100k would be about right if you had to update all the major systems ( roof, tuck pointing, windows, HVAC, electrical, plumbing, etc ) . Numbers might look good on paper but come see it for yourself to see if it makes sense Good Luck :!

Agree 100%. Most people are good people, it's always a few bad apples that spoil the bunch.  Even Ferguson has good areas as my father has property over there. 

 

I am familiar with this area as I have one rental property about 25 miles away. This is a C or D class area of STL and not the most desirable. If you found great tenants you could make it work though! Only other note is that a lot of these buildings are very old (100 yrs +) and sometime require additional maintenance costs. Feel free to shoot me a DM if you have any other questions about STL

@Yuko Tanaka get on a plane and go into the market you’re interested in. Drive around during the the day AND at night. Go meet some local PM’s and pick their brain. That what I did in KC, September 2018 I owned 0 rentals now I’m working on closing door 7 and 8.

All the demographic websites in the world don’t compare to real life experience of driving the streets.

@Hai T. and @Alex Flaugher , thanks for your boots-on-the-ground insight. I'm aiming to buy in the best location possible, and Class C/D isn't it! To @Andre Taylor and @Nic Stergion's point, getting local perspectives is critical. I'll plan on traveling to and speaking with investors from prospective investment areas as I get closer to buying.

My big takeaway: ROI and Cash Flow are just the tip of the deal analysis iceberg. Thanks to those who contributed--I've learned a lot from this thread :)

@Yuko Tanaka sounds like your taking learning very serious and that’s huge! You will do well if you continue that route, but I’m not sure anyone answered your questions, so let me try.

1. No, that deal does not seem to good to be true except for your rent estimate. Someone said $500 was right and I agree. I don’t buy in St. Louis, but it is a similar market to where I’m at. We pick quads up well under 100k all day long out here that are cash flowing from day 1.

2. Honestly, I've never put 100k into a quad and that's crazy talk! You said your ARV was 115k, so your buying for 95k and rehabbing for 100k, so your all in at 195k on 115K ARV? that is not a good deal. 100k rehab also indicates this property is vacant so you won't have any income coming in, so factor in your carrying costs

And YES, there are programs out there that can help you estimate rehab costs and create scopes of work. House hacker pro is a pretty good tool for starters.

3. We have hundreds of doors all C class and quite a few in very challenging areas, but you have to decide how you want to invest. It’s not for everyone, but there are pro’s and con’s. I manage all of our doors, but you won’t be able to. You have to find a manager that knows the area, is not afraid of the area, and can do a kick *** job. Unfortunately that will be hard!

4. I agree with whoever said there are still good tenants in these areas. I have wonderful tenants in my units, they just don’t have high paying jobs or that is the side of town they grew up in and feel comfortable. You screen and decide who you let it. Do that right and you’ll be fine!

Your welcome to DM me if you would like to chat

That's a pretty rough area of town so IMO I would avoid no matter what the numbers say unless you have extensive experience generating cash flow in low-income/D areas which it sounds like is not the case. St Louis Metropolitan Police have a crime tracker you can look at online:  CityProtect 

For me, the first step is to find the area you want to invest in (location, location, location), watch the listings in that area like a hawk, and you'll learn that micro-market well enough that you'll feel confident to move on a deal if the numbers work "for that area". Running the numbers on paper for any property is a good first step to get a sense of which pieces make the return numbers move around and stuff like that, but trying to analyze a "good deal" in a market as large and diverse as St. Louis is a recipe for trouble because you'll never be comparing apples to apples. Narrow your search down to one or two zip codes or a single neighborhood and then start look at properties in detail incl. rents, pictures, and if possible get inside as many of these buildings as possible. Listing photos can lie, a LOT.

Hope that helps!

A couple cost assumptions I would adjust that will affect your cashflow:

-Rent: $500, as others have said.

-Insurance: I would assume closer to the $1,100-1300/year range for a 4-family. 

-Sewer and water: you will be responsible for this (in St. Louis) as the property owner.

Good Luck!

@Todd Pultz , thanks for the detailed answer. Finding solid quads under $100k sounds like a dream. They're nearly impossible to find in my stomping grounds (NYC), so it's good to hear that they exist in certain markets. 

Your analysis in #2 is spot on, and I appreciate that feedback. I hadn't thought about vacancy during rehab, and of course it doesn't make sense to undergo a major rehab when the ARV won't support it. Rehab numbers are a big blind spot for me, so I'm excited to try House Hacker Pro and learn how to estimate costs more accurately.

My initial plan is to aim for Class A/B locations, but I may revise that as I move forward. No doubt you can find great tenants in Class C locations, but like you said, harder to manage from a distance. 

@Max Householder --That second paragraph is gold, and I'm going to apply that plan moving forward. Are there any particular indicators you look for when picking locations? Good school districts, low crime, high rents, job growth? I'm planning on investing long-distance and am hoping to narrow down potential neighborhoods by analyzing statistics before I plan my visit.

@Matt Shaver , thanks for pointing out those costs. Utilities didn't even occur to me. 

This is my first post on BiggerPockets, and it's been so helpful. Thanks, everyone!

I would double the maintenance assumption for this area and be sure to look into the landlord laws, especially around city inspections. I would also increase vacancy assumption. City inspections add time to your turnover, as you are at the mercy of their schedule and repair requests.

Hey I know its not on topic but your spreadsheet looks awesome, very aesthetically pleasing and clear. is it downloadable somewhere?

One next step thing I would recommend is having a GC and/or accessor walk through the site to give you a better idea on if those numbers are legit for what you are targeting. Hope it goes well if you make moves on it

@Bryan Watson I bought the spreadsheet here. The layout is great and makes info easier to digest. It was missing some key metrics that I care about, so I've doctored it up considerably and have my own version. I would share, but the original isn't my intellectual property :(

So you want to come in from out of town and buy the second most expensive multifamily in the zip code (originally priced the highest) that has been sitting on the market for more than 6 months? I don't think your plan of assuming all the local investors are uneducated rubes is going to work in your favor.

Snark aside, think about that a little bit. The locals know the market. A quad for less than $100k may sound great from your NYC perspective but why have the STL locals let it sit on the market for so long if it's a deal? Don't get me wrong, I love buying when out of state investors lose their *** in STL because they assume they are smarter than the locals, but I hate seeing the properties rot when they get in over their head and stop taking care of them. You shouldn't be looking at anything that is sitting on the market for months. It's not even worth running the numbers exercise.  Like @Max Householder said, you need to pick an area and watch it like a hawk. Whether it's STL or another out of state location, you want to see what properties are selling for that are off the market in a matter of days or a couple of weeks max, not months. Good luck.

Not to beat a dead horse because I believe it has already been said..... I would NOT invest in that part of St. Louis if you are new and inexperienced. The northern part of the city is known to be the roughest part of town. I try not to even drive through that area I stick with a 2 zip codes in south city. Its pretty difficult to find a great deal on the MLS in south city right now as I've seen some duplexes and quads only last on the market for a few days and also sell over asking price. It's nuts! It's also a much more desirable part of town.