Looking to Invest in St. Louis

[Peter Aziz]

Hey there BP,

I've been considering purchasing a multi-unit (2-4) in the St. Louis area for some time. It appears that one can expect a decent cash on cash return of 12-15% in the area, which is MUCH greater than what I can expect investing in my hometown (I'm from Southern California). Understand that I'll be giving up appreciation for cash flow. 

One of the struggles I'm dealing with is the crime rate and the quality of schools in St. Louis. In Southern California, primarily in the suburbs, low crime rates and good quality schools are prime factors I would consider when investing in real estate. Are these factors I should be considering in St. Louis as well, or are the dynamics so different that maybe they don't apply when investing in the city? On another note, with such a high cash on cash return (read low market value / high rent rates), why is there such a strong rental demand? Is the average income in the city so low that the average person can't manage to save $40K to buy a $200K home? Also, any insight on vacancy rates/factors in the city? 

I appreciate any guidance and am happy to connect to discuss more. 

Many Thanks, 

Peter  

[Jake Hottenrott]

@Eric P. whoa whoa whoa slow your roll on fly over states.  I know you are investing in these areas but still.  Plenty of people in the Midwest have the discipline to save the prerequisite down payments on homes.  The rate of renters in New York City is around 64%, sounds pretty high to me too. There are tons of renters all over, that's why we are all able to have a great forum like this where we can work together to make our lives better.  Sad but true is that you would make a comment like that.

@Peter Aziz being from St. Louis (which I'm sure is similar to other midstate markets) I can let you know that I typically can find investments that are around the 2% rule and cash flow quite well.  The price to rent structure that you are used to seeing is changed because we have a plethora of land still near city/job centers.  I live fifteen miles from downtown St. Louis and we pretty much have cornfields surrounding us.  Prices don't appreciate as much locally (except in pockets around the city) because new housing stock is plentiful and the land to build that housing stock is even cheaper.  We also have a very fractured government with multiple unnecessary layers that can slow and impede development.  

Other things to consider are that St. Louis City can be good to bad by neighborhood and even by street.  There are also a lot of areas where the schools can be terrible, but it doesn't make a difference because the typical tenant in that area doesn't have children but has a nice job and disposable income and the people that have children of school age and are in areas send their kids to private schools.

If you would like to have a conversation more about the area, feel free to connect and I'd be happy to let you bounce ideas off of me and to ask me any questions you have about the area.