How is this deal: 4 Units, $60,000, St Louis, MO

Question

I wanted to get some thoughts on the following deal I am looking at:

The owner has verbally said he wants $60,000.  I have not received any records of expenses yet.  The owner is an older gentleman who is sick of the work required to maintain the property.

4 Large 1 Bedrooms: Current rents @ $485, Market is $450 - $700

$485 x 4 = $1940 month
10% vacancy rate
50% expense rate

Net Monthly Income: $776 a month

Annual NOI: $776 x 12 = $9312

This building is older and will need some work, but it is in good enough shape to be occupied.  My friend has been living here for a year without an issue.  On Street Parking only (Maybe put a parking pad in the back for the tenants?) and no Washer Dryer.

I am hoping to get the building for $50,000 and put ~$5K into each unit to fix it up and bringing rents to $550-600.

This deal is in a B- area of St Louis.

Thoughts?

Jon Holdman · Answer

No.  These ratings are informal.  Even though they're commonly used, they are just tacked onto areas and properties by folks like you and I.

Tom Devost · Answer

A,B,C,D is the way many investors classify neighborhoods

"A" would be the most classy and "D" would be a war zone.  "A" does not mean you would get the best return on your investment.  I tend to stick to "B" and "C" areas.

Hope that helps

Chris Winterhalter · Answer

Billy,

Soulard is a solid historic area which can vary block by block.  Is this your first rehab deal?  I would imagine the property is 100+ years old based on the area.  I would make sure your rehab number is extremely accurate unless you will be paying for continued maintenance for the life of the property.  Historic brownstones are beautiful properties but require a lot of expertise....The St Louis Rehabbers Club offers a lot of great local advice.

Shari Posey · Answer

That rating system is good but I really haven't seen it used.

Just curious for any Las Vegas people out there, where are the B/C areas?? Mostly what I've seen area D areas.

Ziv Magen · Answer

What Tom said. B/C variants are where the cash flow is. You wanna speculate, go for A (but prepare to spend some money which may or may not return). Steer clear of hooDs unless you leave, breathe and walk them, or have a solid turnkey operator who does (and until you break those areas in, assume 50% vacancies too, and some extra maintenance costs). Whole different kinda gambling :)

Jon Klaus · Answer

On yeah, there is subjectivity to the ratings and I don't ever recall municipalities using the ratings. There is a lot that can go into the ratings and areas change. Sometimes fast.  I'm working in an Austin neighborhood that I'd call a D 10 years ago, but parts of it are looking like A now, but other parts still feel like D.  I witnessed a street fight a couple weeks ago near new $400k homes going up. The people fighting won't live there long.  They'll be priced out.

Mike M. · Answer

Jon Klaus, are the A-D property classifications shown on the county's tax roles?  I've looked till I've been blue in the face on how to interpret Harrison County's data, but haven't had much luck (although a call in to them wouldn't hurt).  I take it that the area classifications can possibly be derived from the majority of property classifications but also may have an investor-subjective component to them?

Jon Klaus · Answer

Even in a C area, it sounds solid.

Not only are areas classified as A-D, so are properties. You can have a B property in a C area or a C property in a B area.  In fact, this is common.

Billy W. · Answer

I called it a (B-) area.  Using Jon's summary, you might want to call it a C/C+.  But the area is Soulard.

I would love to get your input.

Thanks

Mike Reynolds · Answer

Jon Klaus and Tom Devost Thanks that does help. What would this classification be in the deal I am trying to work:
Bay front area totally wiped out by Hurricane Ike (only one house left standing in a 5 mile radius). BUt in the last four years there have been some buildings come back. Not as many as I would expect because it seems slow for an area that close to the water. (300- 1000 yds from ocean to bay) I am going to build a small RV park there.

Would this be a B with a potential to become an A?

How is this deal: 4 Units, $60,000, St Louis, MO

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