Should I buy this as my first duplex?

Question

Hey BP, I'm looking for some advice on this duplex for my first deal. South St.Louis huge duplex over 3200 sq ft for $135k. The inspection found out there was sewage problems with blockage. We requested seller redoes both sewage systems or we walk. They said they will redo the sewer system but price goes to 145k. One side is rented with section 8 at $675 and the other side will rent for $725. I think in the future both will rent at $750-$800. All homes in St.Louis are very old and need some type of renovations so im not sure if this will be too much in renovation cost and make it a bad deal or if I should just buy. I need to put new laminate flooring and paint for the vacant side. I'm also thinking of cutting down a tree that is causing stress on a power line. I'm putting about $15k for the renovations but Im right around the 7% coc for my numbers. Would you buy?

Darrell B. · Answer

Hey @Jonathan Greene thanks for the reply. I'm starting to get that feeling as well about being able to do better for this market. I don't see a large potential for appreciation as well. Leaning towards not proceeding. Thanks for the input.

Darrell B. · Answer

@Chandler Cartolano @Jennifer Donley Thank you both for your replies. I can definitely see how for this area I can get better deals to reach my cashflow goals. Thanks for helping make my decision easier.

Jennifer Donley · Answer

@Darrell Birton, I agree with Chandler and Jonathan.  I'm local to StL and buy in north St Louis county.  Properties aren't as old so less repairs and maintenance typically.

Anyway, I think you can do better with a different deal in south St Louis especially if it's in some of the not as great areas.

Chandler C. · Answer

Hi @Darrell Birton it's tough to evaluate your deal based on your description, especially in St Louis where property values vary block to block. But my main thought is South City tends to be more cash flow than appreciation, so that should be your main goal if you decide to invest in that part of town. In my opinion, 7% cash on cash seems low. And that's with all your assumptions hitting. A bad tenant situation or a large capital expenditure can destroy your coc.

There tends to be more opportunities in South City. Because of that, you can grab a SFH or MFH and expect good cash flow. I would keep looking, or see if the Seller would be willing to drop his/her price.

Feel free to message me to discuss in more detail!

Jonathan Greene · Answer

You should be able to do better than the 1% rule in South Saint Louis in my opinion. It's way under as-is, with repairs added, and even your pro-forma has it under. The only way I go in on this is if there is also large appreciation potential, but I don't see it on my end for this one. I feel like you can get a better deal than this.

Darrell B. · Answer

Hey @Will Fraser thanks for the reply. It is in a solid but not great location. The area still has some work to do but its not horrible. Thanks for your point of view, I will be pondering to make a decision.

Will Fraser · Answer

Hi @Darrell Birton, if I was comfortable with the area and have long-term fixed-rate debt in the deal then I'd buy.  I'd gladly let the seller pay to re-run the sewer lines . . . that would offset potential cash-risks nicely!

While 7% isn't great, it also isn't bad for a solid location and a strategy that you can repeat IMO