All Forum Posts by: Cole Donelson

@Brian Ellis, Yes! That's exactly what we'll plan to do. Update the one we're living in and then swap. We ended up getting another $5k knocked off and are going to move forward. Very excited! Thanks so much for the reassurance. 

@Austin Andrews and @Denny Robert, huge thanks to you to for your thoughts. Austin, we will definitely consider multi-units in a Shaw/Tower Grove area when looking for investment #2. Denny, we actually didn't look for 4-units this time, but it sounds like they make a lot of sense.  It definitely made this investment tougher to need to balance personal preferences and wants, haha. 

@Max Householder, thanks so much for the super thoughtful reply. You made some really good points. I didn't realize the Jewish community was so large there. The huge repair was definitely a red flag that made us worried for the rest of the house, but after the inspection we brought in a few other experts (structural engineer, masonry contractor) who gave us some encouraging assessments.

We ended up getting another $5k off and are going to move forward. One of the things that's impossible for anyone here to factor in is how much we like the property and the setting. So we decided it will be a great property to live in for a while and start a family. However we'll definitely reassess whether we want to keep it or not depending on the cash flow when want to move out. Thanks again!

@Brian Ellis thanks for the welcome and your perspective! You make a good point that even if I don't get the best deal my first time out, it's not the end of the world. You can always recover. Really appreciate it.

Also, the tuck-under garage wall that needs replacing is not under the main house. It supports a back patio that the back addition sits on. So after replacement, experts have told us it should be solid. No leaks. And a bonus is that it will make the garage usable for 1 car (as opposed to now when it's advertised as just storage), so perhaps that will add value.

Hi All,

I am planning my first real estate investment and just found Bigger Pockets. I have been devouring their podcast and a few blog posts for about a month, which set me on the path for buying an owner-occupant duplex with a 3.5% down FHA loan.that we will live in for ~3 years. We found a property we really like (https://tinyurl.com/y9s7u3gu) and have it under contract, but needed repairs surfaced that in our eyes put it on the borderline of making good financial sense. Our financial situation is strong, but we want it to be a great investment. I've tried applying the rules of thumb, running the BP rental property calculator, and talking with my agent, but at this point I'm definitely not objective and I'm approaching analysis paralysis. If anyone is willing to share their thoughts (either gut reaction or pointed analysis) I would be eternally grateful.

Here is the background on the property...

1. We saw it after it went back on the market at $295k after being under contract at $339k and the buyer backing out for "no fault of the seller" (reason was not disclosed). The seller is supposedly "motivated" and one unit is currently rented until June at $1,275/mo. After one day on the market it already had one bid and we were the second to put down an offer. It is being sold "as is."
2. We got it under contract, but the inspection determined we would have to replace a garage/basement wall and we had to extend the deadline to commit until this Friday to get some bids for repairs.
3. We have reached the seller's bottom dollar of $280k ($15k below listing). However the bid to replace the wall is $25k, bringing the price after must-have immediate rehab to 305k.
4. We think it could be a decent deal based on the fact that
   • Comps in the area include two duplexes sold recently for $309k and we believe those duplexes in a bit worse condition on a bit worse streets (and don't face a park). Also, the properties on either side of us sold for $338k and $390k in 2017. This property last sold in 2003 for $299,000.
   • The area appears stable with slightly above average "appreciability" being close to Clayton/WashU
   • Rents in this area are some of the highest we have seen for duplexes in STL.
   • There is room to update the kitchen and a few other areas in each unit to add value and then raise rent hopefully to $1450.
   • We like the home and location for ourselves and would enjoy living in that neighborhood with quite residential streets and nice park access for ~3 years.
5. Negatives include
   • The immediate, significant repairs needed and the riskiness of that.
   • The house is 90 years old and seems to have a number of "smaller fixes" necessary, as the owner seemed pretty lax with maintenance. The roof is 10 years old shingle. HVAC are all under 5 yrs. Water heaters are 15 yrs.
   • The fact that it fails two rules of thumb we've seen around BP for a good deal:
   1. Estimable expenses = 50% of income; therefore when fully rented at $2900, estimated expenses = $1450 and our mortgage is estimated at $1800 meaning we are cash flow negative at -$350.
   2. The 1% rule; $2800 rent is 1% of purchase price, but isn't quite 1% of $305k (price after rehab)

Thanks,

Cole

Hi All,

I am planning my first real estate investment and just found Bigger Pockets. I have been devouring their podcast and a few blog posts for about a month, which set me on the path for buying an owner-occupant duplex with a 3.5% down FHA loan that we will live in for ~3 years. We found a property we really like in U-City (https://tinyurl.com/y9s7u3gu) and have it under contract, but needed repairs surfaced that put it on the borderline of not making financial sense. I've tried applying the rules of thumb and running the BP rental property calculator, but at this point I'm definitely not objective. If anyone is willing to share their thoughts on any of the 3 queries below I would be eternally grateful.

a) Is U-City a good area to invest?

b) Are rules of thumb like the 1% rule and expenses = 50% of your income applicable and an appropriate standard in St. Louis? 

c) Is this property is a deal you would make and why?

For anyone interested, here is the background on the property...

1. We saw it after it went back on the market at $295k after being under contract at $339k and the buyer backing out for "no fault of the seller" (reason was not disclosed). The seller is supposedly "motivated" and one unit is currently rented until June at $1,275/mo. After one day on the market it already had one bid and we were the second to put down an offer. It is being sold "as is."
2. We got it under contract, but the inspection determined we would have to replace a garage/basement wall and we had to extend the deadline to commit until this Friday to get some bids for repairs.
3. We have reached the seller's bottom dollar of $280k ($15k below listing). However the bid to replace the wall is $25k, bringing the price after must-have immediate rehab to 305k.
4. We think it could be a decent deal based on the fact that
• Comps in the area include two duplexes sold recently for $309k and we believe those duplexes in a bit worse condition on a bit worse streets (and don't face a park). Also, the properties on either side of us sold for $338k and $390k in 2017. This property last sold in 2003 for $299,000.
• U-city appears to be a stable area with good "appreciability" being close to Clayton/WashU
• Rents in U-city are some of the highest we have seen for duplexes in STL.
• There is room to update the kitchen and a few other areas in each unit to add value and then raise rent.
• We like the home and location for ourselves and would enjoy living in that neighborhood with quite residential streets and nice park access for ~3 years.
5. Negatives include
• The immediate, significant repairs needed and the riskiness of that.
• The house is 90 years old and seems to have an above average number of "smaller fixes" necessary, as the owner seemed pretty lax with maintenance.
• The fact that it fails two rules of thumb we've seen around BP for a good deal:
1. Estimable expenses = 50% of income; therefore when fully rented at $2800, estimated expenses = $1400 and our mortgage is estimated at $1800 meaning we are cash flow negative at -$400.
2. The 1% rule; $2800 rent isn't quite 1% of $305k (price after rehab)

Thanks,

Cole