Possible First Real Estate Deal in St. Louis

[Mark Struckhoff]

I'm looking for some feedback on the below numbers.  This would be my first rental property, and I plan on a buy and hold strategy.

Couple of things to note:

125,000 is full asking price. I think the property is worth between 110-115 based on SFR sold comps. I don't know how to value based on the fact it is a two family.

Unit is currently leased, however, average rent in the area is around $730/unit.

Unsure of any repair costs because I haven't been through property yet.

Feel free to ask any additional questions.

I have a feeling that this deal is a no go at these numbers.  At what purchase price does this deal start to make sense?

Any and all feedback would be greatly appreciated.  Thanks.

[Bob Hines]

It's tough to give advice on this one.  That is definitely a 'pride of ownership' area and many there will buy 2 families to live in one and rent the other out to live for free.  Also, because of the area, some people take the approach that it's easy to manage with easy to find good tenants so in 30 years they will have a paid for property even if they don't make money right now.  So there are different market forces at play here than a 2 family east of Grand or North County.  

Using the 50% rule with rents of $650 each and a $507 payment, you cash flow almost $150. Not $100 per door like some aim for, but respectable for the area. It seems to me that $125k+/- would be a decent price if it's in top shape (I'm talking area sales, not cash flow metrics you find here on BP). One of the units looks to still have the old metal cabinets so I don't think it should be priced at the top of the market so your range of $110-$115k is probably a decent price for the area. Thus it's listed with an agent on MLS.

If you want a good, solid building in a good solid area; this may be a pretty good deal for your first one.  You won't lose money with it.  If you're looking for top dollar cash flow, you can find much better returns elsewhere but that will also be more work and a steeper learning curve for a first rental.  To put this in other terms, this area is an AA bond (AAA is the top), it won't have the greatest returns but you will have a great shot at getting those positive returns as it's a good area with good tenants.  There are C or "junk bond" areas that offer the potential for really high returns but the likelyhood of achieving those returns are much lower, and possibility of negative returns are higher, as it will be a rougher area with rougher tenants.  And there is the in-between.

I have a friend that is an agent who owns 20+ rentals herself and does rehabbing too.  I have stayed east of Kingshighway with my rentals but I know she has helped several clients buy west and would know a lot more about prices of properties, rents and rehab needed then I can do looking at realtor.com.   Since she does her own investing, she is WAY better than any agent that knows nothing about investing.  Let me know and I can send her info to you if you don't have an agent and would like to view the property.