All Forum Posts by: Bob Hines

I can't speak for the area this is located in, but in my area, I wouldn't be interested in 2 bedroom units that would only rent for $450. That is around what most of the 1 bedroom 4 plexes rent for around here for comparison. If 2 bedrooms are only renting for $450, that might mean the property is in bad condition, has a bad layout (walk through bedroom) or the area is bad. Make sure you check these possibilities out thoroughly.

The tax assessments of my properties are broken into Land Value and Improvement value. I take the ratio of the Improvement Value to Purchase Price and use that. All rehab costs are added to this as the cost of the land was only in the original purchase.

@Gunnar Teltow Are you guys doing Section 8 North County rentals? I've heard of people doing that and doing really well but I don't know much about the area so I've stuck with what I know. The housing prices definitely make it seem like it would be a great thing to do.

With earned income, you pay the 7.65% FICA (Social Security & Medicare) tax. If you're self employed, you pay the employer's half too for a total of 15.3%. Real estate income is considered passive income so you avoid FICA tax.

With real estate you also get to take Depreciation off against your real estate income. The property, for residential, is depreciated over 27.5 years. So take your purchase price - value of land + rehab costs / 27.5 and that is how much you get to deduct as a "paper expense" (no cash leaves your pocket) against your real estate income. Depending on your total income level, you may be able to offset some of your regular earned income with real estate losses, including losses that come about from depreciation.

You also own a business now and you get to take business expenses off against your business income. So try and convert as many personal expenses to business expenses as legally possible. More buesiness expenses = less business income = less tax.

I love investing here. It helps that I live here though. Be careful with who you work with, lots of people in town are looking to take an out of state investor for a ride. St. Louis City can be a different world block by block. They might give you some good comps but the 3700 block can be completely different from the 3500 block. I've signed up with every "wholesaler" I can find, about a dozen so not all of them, and whenever they have a "deal" in my area I know it's bogus so I assume their other "deals" are bogus too but I can't be certain on that. Maybe I just haven't found the true wholesalers yet.

There are people that do Section 8 properties in North City & County (there is St. Louis City & a St. Louis County and they are separate governments) that make good money doing it but I know nothing about it. I focus on South City as that is where I lived for 10 years and I know which blocks are good and which to avoid.

@Michael Williams I've driven by Mattingly's many times but never stopped so I would be in.

Yes I work full time. Three kids with activities too. Two families are the biggest I have but with 9 tenants-5 houses and 2 two families; I have not had much work involved with the actual management of the properties. I firmly believe that in Real Estate you make all of your money at the beginning-on your initial buy and who you let into your property. This translates into work also. I do some work on the properties myself, but even if I didn't, there is a lot of work at the beginning getting them ready to rent, showings, screenings etc. But then it's pretty easy after that. Most of my properties were foreclosures so sometimes a surprise overlooked repair comes up once somebody starts living there but once it's fixed, it's fixed.

A concern I would have with the jump to larger units is the possibility of yearly turnover, especially if it is 1 bedroom units as that tends to be temporary housing. Houses tend to attract people who are looking to stay for awhile. I do see the economies of scale of 2 units with 1 roof and 1 insurance policy on a 2 family is cheaper than 2 on 2 separate houses. But I get most of my complaints from the 2 families too-noise, parking, kids did this, basement storage etc.

I'm not sure about the tax rates. I might be way off on my rental rates in the calculation too. But I know in the city I can count on about 1 month rent for taxes so I stay with what I know and what is profitable.

Where are your current rentals at?

If you are talking about taking profits from your investment, yes you can do that at any time. If you are talking about paying yourself an actual, technical & official salary-DON"T DO IT! If you pay yourself a salary you are now subject to the 15% self employment tax. One of the big advantages of real estate investing is that it is considered Passive Income by the IRS. If you take the profits, as Passive Income, you avoid that tax. Depending on your income level, you may be able to take real estate loses against your regular income.

As you now own a business, try to convert as many of your personal expenses into business expenses as you legally can. As you get larger and if you end up in real estate full time, you will want to talk to professionals and make the decision then if you should work in a salary for any reason. But with this as your first investment, read up on the 50% Rule, read as much as you can on BP, listen to all the podcasts and don't worry about an actual salary right now.

I'm in Stable Ridge, across Boschertown from New Town. Maybe we can meet up for a beer and REI discussion at Padavan's or The Tap when it opens up.

Taking 370 to 270 to 170 to 70 around downtown to 44W or 55S, only takes about 30-40 minutes or less to get to a lot of places. Factor in taking 270 to South County/Jefferson County, proximity to North and West County and living in St. Charles, we have nearly the entire metro area as a possibility to invest in without too bad of a drive. Whatever area you choose, make sure you learn it and focus on it. I stick to South City as that is the area I know well and I have my handymen, electrician and plumber there and they don't like to travel too far, even for work.

Actual City taxes for my 5 rental houses for 2013 are as follows:

Rent 595, tax 450

Rent 550, tax 460

Rent 800, tax 660

Rent 750, tax 640

Rent 725, tax 760 (purchased Oct 2013 so hasn't been reevaluated on new sales price yet.)

My 2 families with the total rent stated:

Rent 1200, tax 1000

Rent 1000, tax 545

I looked in Maplewood & U City and thought the taxes were about 1.5x-2x rent. St. Charles seemed to be about 2x or more monthly rent from the places I have looked at. Taxes on my own house are $3300 and I don't see anybody paying anything close to that in rent.

I started investing when I lived near the Botanical Gardens and knew South City pretty well. I then moved to St. Charles and started looking to invest closer to home to save the drive. 4 years later and I'm still buying and driving in to South City. The biggest reason is the taxes. In the city, I average 1 month rent (or lower after the last reevaluation) vs 2-2.5 months rent in St. Charles and 1.5 months rent from what I was looking at in The County. That's a big profitability difference to me so I make the drive still. I live near New Town and I can get down to Carondelet Park in 40 minutes from my house and I work in Clayton anyway so it's not bad. Just wanted to put that out there for you to think about.

Depending on where you live, North County isn't that far and might offer more opportunities than St. Charles.

I have a 4 bed, 1 bath house with an oversized 1 car garage, deck and a large yard in a good area under contract for $36,600 (good area, not what you're thinking). Repair walls, paint, replace trim, lay laminate floor, stain deck and a few new light fixtures is all it needs. Estimating $7k-$8k rehab. Should rent for $850-$900.

It's St. Louis city so I always do a sewer inspection as the only contingency since the sewers are all so old. Turns out the cast iron under the basement needs replacing along with the clay going from the street to the house needs replacing too. From doing the basement before, I know that will cost about $2500-$3000. I've done the outside part before too but this house sits about 8' higher than the street so I didn't know how much it will cost to replace. I call my regular plumber and-over the phone so it's hard to say exactly-got an estimate of $4200-$4500. Called another company that does pipe bursting and he said $2500-$5000 depending on how much digging there is to do at each end. These quotes are just for the outside portion, inside still needs to be done in addition. It will most likely be $6k-$7k for the whole job.

After the inspection I countered at $33,600. They came back at $35,100 at 4:30 last night so I need to give my response this morning.

What I'm thinking about is this: With the sewer repairs, I will be all in for $50k. That's more than I was thinking/planning. I can find lots of houses to be all in for less than $50k. My last 2 family I was all in for $50k. This one is nice because of the large yard (house is landscape instead of portrait like the rest of the houses in the area), garage and 4th bedroom so I can see a family moving in and staying for a long time. It will suck to pay for the sewer at the beginning but St. Louis is old and I had to repair a sewer in another property as it failed. So it is a true CapEx here. At least this one will be fixed from the beginning (the water line, another common StL problem has already been replaced).

So, would you walk away because of the $7k in surprise expenses? Does it make a difference that $7k is 20% of the cost of the house? Would it be dumb to walk away over $1500 (I countered $3k less, they offered $1500) as it's less than 2 months rent? I have a couple of hours to figure out what I am going to do as I keep going back and forth.