All Forum Posts by: Mackal Smith

Hey Dalton! Welcome to BP. I'm right down the road from you in Saint Clair. I currently have 13 units (offers out today on another duplex and an 8 unit so maybe 23 by next month!!) Anyway, all my stuff is in South City. To be honest I haven't looked too much (or at all) out here. If you ever want to get together and chat over coffee let me know. Enjoy learning here on BP...

Just seeing this, can u send me the info too please?

I started real estate investing later in life than most I suppose. At 55 I decided I needed to diversify investments and had always wanted to invest in real estate. Starting at this age provided me some distinct advantages:

• I have built up great credit over the last 35 years or so
• I have a large number of stock investments in both 401K and in general investments that have done really well for me over the years
• I have had enough success in the workforce that I'm really not afraid to take on new challenges. I walk into everything with a lot of confidence

So a little over a year later and I have acquired 13 units. I'm very happy but this year my CPA told me that I had to quit cashing in stock for down payments on properties or I would end up in the absolute highest tax bracket because of the capital gains.

I posted my dilemma on BP and received some really great advice. I could continue to invest without having to cash in stock in a number of ways: Partner up with someone that had cash on hand but was unable to borrow, continue to cash in the stock and take the hit (some really smart guys pointed out that the RE investments would actually overcome the the tax hit in about 4 years anyway), or the last suggestion which is what I'm doing now... Look into lines of credit.

Long story short, I paid cash for one property a year ago and now I'm using it as collateral on a line of credit (closing today), then a second line of credit will come from a national bank who will hold my stock as collateral and issue a credit line against it. 

Now, I can use these 2 credit lines to buy distressed properties for cash. Then I can pay cash for the repairs/rehab and at the end, come out with built in equity. The same banks that are giving me the credit lines will do commercial loans for 75% LTV which means i can now refinance and completely pay back my lines of credit. That puts me into the properties with no (or at least very low) money down and keep all my stock.

Thanks BP! Thanks for all the great people with great ideas willing to share!

Tim, I think you'll find that they are all over the board. @Mike Delprete is right in that most of the time you will definitely find lower cap rates in better areas and higher cap rates in more challenged areas, but there are so many small enclaves in terms of communities within St Louis it's really hard to try to come up with an "average CAP rate".

All my properties are in South City and even there, from one neighborhood to the next you can see caps rates anywhere from 7% to 25%. I think the best advice I could offer would be for you to do some driving around and lots of looking at properties. Find an area that you feel can give you a return you will be happy with then farm that area.

My properties are all in decent blue collar areas in South City (mainly Dutchtown) and overall give me about an 18% Cap Rate. That's deceiving though because it doesn't include CAPEX and these properties are all between 60 and 120 years old. It also doesn't include losses (I lost a condenser unit to theft on one of the properties last year and then made sure that I replaced not only that unit, but cages around the others in my little portfolio that didn't have them). I think Cap Rates should be used as maybe an overall indicator, but don't buy a property based on cap rate alone (and don't let low or high cap rates include or preclude a neighborhood from your evaluation)

So, it has been about a month since I posted this and I have done a lot since then. To be honest, this turned out to be a great thing. It caused me to rethink what was possible and I have come out the other side in a great place. Here's where I am now...

I used the one property I had paid cash for as collateral on a line of credit. A local small bank provided me 75% LTV on the appraised value which ended up coming in at a little over $100K. So that gives me 75K to play with. Then I also took out a heloc on my house which gave me about $100K. Last thing, I transferred $100K of stock to US Bank, they extended me a line of credit at 70% of the value so altogether I ended up with around $250K in credit lines.

Now I have changed my investment philosophy to focus on more distressed properties. The idea is to use the lines of credit to pay cash for a distressed property, pay cash for the renovations, shoot to get the appraised value up 30% higher than what I have invested with the lines of credit then refinance with a commercial loan and pay back the lines of credit.

If I can make it all work, this should provide me the ability to acquire additional properties, rehab them and end up completely intact with my lines of credit (basically giving me the properties with equity built in an no money down).

Woohoo... and I would not have even thought about doing this except that I got hit with the "bad news" from my CPA. I have located 2 properties that look like good candidates. We'll see how it plays out over the next few weeks.

Thanks to everyone for the feedback. It is much appreciated!!

I have a number of small multi-family properties in South St. Louis City, but it looks like my former primary residence out in West County (Ballwin) is just not going to sell so I’m going to need to look at leasing it out. It was listed for 6 months last year starting at $500K and eventually came down to $450K then took it off the market for 2 months and did about a $25K rehab. It went back on the market April 1, but have still not had any offers. I’m getting things set up so that I can try and lease it starting July 1 in case I don’t get any interest before then.

My question however is this: My current income properties are managed by a property management company however this one (even at $3500/mo) will not cash flow so I’m looking at managing it myself however, how can I tell what market rent is for the property? Is there anything I should be thinking about leasing a high end property that doesn’t come in to play with a lower end property? I put it up in Postlets (now owned by Zillow) with an availability date of July to see what kind of interest I get. Should I also post it on Craigslist or should I be working with my current realtor to secure a lease? Is there a tenant screening service anyone would suggest for a higher end property? On my rentals in the city I always look for income at a minimum of 3X rents. Does the same work for high end property, or should I be looking at more/less?

Any suggestions welcome.

Just a few pieces of advice. I did the same thing for my son when he went to college. Make sure you have a strong lease agreement,  you review it with each tenant, and stick to it. Contact and befriend the neighbors. Let them know that you are serious about being a good landlord and neighbor and they should let you know about "issues". Plan on more capex costs than you would with a normal property especially if these are first year students.

Make sure your lease agreement states that you will be checking the condition of the property once a quarter (or more) then go do it. College kids are terrible about telling you they have a leak because they broke the faucet off the tub, or the toilet got cracked when they gave their buddy a swirly...

Hi Jamie, that's the exact market I'm in. I buy small multi-families in South City (mainly around the Dutchtown area). I have picked up some nice little properties over the past year all positively cash flowing and all (except 1) under $100K. Go take a look at them in the portfolio section of my website .

My advice: The market here has been getting tighter. You have to move faster to get a deal, but they are still there. Work your numbers, don't forget to put back money for CAPEX stuff. Be prepared to move quickly when you see a good deal. Make sure your financing is in place and you are ready to go. Don't be afraid to ask questions and reach out to others.

If you find something you like and just want a second set of eyes, I would be glad to take a look and tell you what I think.

- mac

Welcome Mike,

I'm a buy and hold investor in the Dutchtown area. If you ever pick up small multi-families in the Dutchtown/South City area, ping me. I'm always looking for a good deal and I don't mind getting my hands dirty...

- mac

Welcome @Sam Harper,

I invest in the city. I have a few units I have acquired over the past year or so. St Louis is a great place to invest and Bigger Pockets is THE place to learn and get going. Earlier in the thread you asked about REIAs in St Louis. @Peter MacKercher runs one that meets on a Wednesday at a restaurant in South County (I think). I believe they focus on primarily buy and hold properties. There is also the Southside Investment Club which meets on a Thursday evening each month. There are some buy and hold folks there, but the club as a whole seems to focus more on flips.

I'm a buy and hold investor. I have picked up 13 units over the last year looking to grow that to around 20 by the end of the year and looking to acquire 20 or so additional properties over the next couple of years.

Feel free to reach out if you would like to talk over coffee some time.

Thanks,

mac