Section 8 Occupied Rental Purchased in St. Louis

[David Ounanian]

Investment Info:

Single-family residence buy & hold investment in Overland.

Purchase price: $37,000
Cash invested: $10,000

This was my first occupied rental purchase and it was located in the St. Louis, Missouri municipality of Overland. The purchase price was $37,000. It was rented for $706/mo with rents current and there was 10 months of the lease remaining. I purchased the property sight unseen and AS IS off the MLS.

What made you interested in investing in this type of deal?

This deal was well over the 1% rule and seemed like it would have great cashflow.

How did you find this deal and how did you negotiate it?

I found this deal on the MLS and contacted the listing agent right away. I was the first offer on the property and got it under quickly.

How did you finance this deal?

I used a commercial loan to purchase the property and then refinanced it into a conventional loan after 6 months of holding it (to meet the seasoning period requirement of the loan). I refinanced at $34,000 loan balance on a 15 year note.

How did you add value to the deal?

Once the tenant moved out 10 months after purchased. I put new flooring and paint into the property as well as a foundation repair and sump pump to keep the basement dry.

What was the outcome?

The property rent values went from $706/mo to rented for $825/mo.

Lessons learned? Challenges?

One lesson I learned was all of the paperwork that is required to maintain a Section 8 rental. It is helpful to have a property manager that can file and communicate with the local housing authority. I also learned that when you buy a house unseen there can be some surprises. One surprise we had was that the foundation was leaking. We spent $5000 to epoxy cracks and add a sump pump and pit.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes the bank I used was great! They financed it with a commercial loan and then at the 6 month mark they kicked it over to their residential department and got me into a fixed rate loan!