All Forum Posts by: Bob Hines

I've had the same thoughts about Cherokee St. It really depends on the block. Some have more potential and some will be rehabbed much quicker than other blocks. It depends what the housing stock is and what condition it is in. Are there lots of boarded up houses falling apart? REALLY falling apart? Might be harder for that to be rehabbed. Are there larger buildings or smaller buildings? People like to rehab the larger ones over the smaller ones etc. The east end seems to be rehabbing faster than the west end because that is where the activity is on Cherokee St.

If this is your first property, you're going to have to learn tenant screening and be on your A game 100% of the time in this area. The area you're talking about I refer to as "Where out of state investors go to die." Lots of investors, especially out of state investors, buy here because of the siren song of high returns only to never actually see those returns because of non-paying tenants, continuous repairs and vacancies. I'm not saying those returns can't be made there, just that it's tough and requires work.

Make sure your "off market" deal is actually a deal. I subscribe to several emails and their off market "deals" are only off market because they could never get that much on the market. They are just hoping someone will pay that much for it. 

Also, for your first property, don't expect to make money. And what I mean by that is, when I started, all the rent went into an account and the expenses came out. Yes I made money but the account never seemed to grow very much. As the balance inched up, then taxes were due. Or insurance, or an AC repair.... It wasn't until I got to #6 that it finally felt like the account would actually grow every month. Just go in with realistic expectations, don't expect to be able to spend an extra $1,000 a month because now there is $1,600 of rent coming in. That money won't be there.

Good luck! Go in prepared and landlording can be a great experience.

Bob

It sounds high to me. Not saying you couldn't get it, but it seems high for the area and there are lots of 2 families with two actual bedrooms close by.

Are you sure the person is getting into the basement? I have a 2 family just north of Carondelet where there is a room addition over the walkout basement door. There were 2 doors into the actual basement that were locked but somebody was living/doing other things in that covered space. Ultimately I'm going to add a security door there but for now, to eliminate the problem, I boarded off the space. The tenants really don't need exterior access there and there is a side door if they want to go in/out of the basement without going through their living space. 

As long as there is no real need for the tenants to go directly into or out of the basement, I suggest either screwing the exterior doors shut or boarding them off from the outside until the problem is solved. Once the problem is solved, you can unscrew/unboard and go on as normal if this is a tenant issue or keep that way if it's a neighborhood issue.

My opinion is that the "wholesalers" that I have seen and signed up with should more accurately be called marketers instead of wholesalers. In my mind a wholesaler finds a deal and quickly turns it to an end buyer for a small but quick, relatively risk-less profit. From what I have seen, it seems like most want rehabber sized profits. This is why I always use quotes when talking about them as "wholesalers". I'm not saying there are not legit wholesalers in the area, maybe these people are great in the other parts that I am unfamiliar with, but I haven't encountered anything worthwhile in my area.

There is no "St. Louis". There is St. Louis City and there is St. Louis County. Completely separate governments. Within St. Louis City, it is generally broken down into North City and South City. Within those regions, there are many different neighborhoods and within the neighborhoods, things really can change street by street.

St. Louis County is generally broken down into North, West and South County. In all of the county, there are 90+ different municipalities and some unincorporated areas. Each one with different housing rules and inspectors. Some have their own school districts. Some of the school districts are top 100 in the nation, some are unaccredited.

I understand you want a single metric to use but that is dangerous. Like I posted, one city has 400+ listings <+125k while another nearby has 100+. There are reasons for that. Some cities/zip codes won't have any listed for less than 125k. What works for me in the South City neighborhoods I invest in won't work in other South City neighborhoods let alone North County where you are looking. There are some blocks within the neighborhoods I invest in where I won't go. You have to find an area, whether that is one or a handful of cities or zip codes, and learn about those specifically. Looking for $50/sqft will lead you to nothing in some areas and will burn you badly in other areas. 

Have you compared prices of what they are offering to MLS/Realtor.com? In St. Louis it's best to check what "wholesalers" are offering to similar properties on the open market. I have seen many that are asking more than comparable properties listed on the MLS. I've seen sub $80k "wholesale" properties come down more than $20k as the "wholesaler" needs to sell before their contract expires. $20k+ profit on that low of a priced property isn't what I think of when thinking of wholesalers. Last week was the first time I have seen a property offered by a "wholesaler" here in town where I think the properties were fairly priced and I think he was acting as an agent for the listings. If you already coming to town, find an agent and go look at houses that are on the market. There are 116 homes less than $125k in Ferguson on realtor.com. Florissant is nearby and has 401 listed under $125k.

When sellers tout % returns it always seems suspicious to me. Especially when you see that they aren't including any vacancy, maintenance or utilities in the expenses. I stick to South City so I'm not sure about North County, but it's pretty common for landlords to cover sewer, water & trash here. Most city properties are not metered so North County may be different. Knowing the local market and customs is a must. 

If you are already coming to town, find an agent and go look at houses that are on the market. There are 116 homes less than $125k in Ferguson on realtor.com. Florissant is nearby and has 401 listed under $125k. Find out the differences between the two municipalities. It can matter greatly which side of a street you are on in the County.

I would be hesitant to buy that corner. There are the two big apartment buildings right behind that property, and along with the park and the ghetto-mart on the corner, it can cause some problems in the neighborhood. I've looked at properties in the area and while they look tempting, I've been leery to pull the trigger because of those issues. I do have a friend that has one in that area, I think it's a bit further from the park/apt buildings, and she is having success there. If it's for a price that can't be found elsewhere, it could be worth it. If it's at a price you can find elsewhere, I would keep looking for less potential headaches.

I agree with Zach, I've really not ever been impressed with the Bamberger/Chippewa area for myself. Now if a property is within the 'Triangle' of Grand/Gravois/Chippewa I won't even go look at it as I've always been less than impressed with any property I looked at there and the area.

How up and coming? $90k for $1100 in rent seems a bit high to me but I like to buy them needing rehab. But depending on the area, it could be a good deal. I haven't found back up contracts to be that helpful. If it comes back on the market and you get your offer accepted it was meant to be. If not, move on. There are plenty more.

Take a look at where the foundation meets the probably sidewalk on the outside. Many buildings need that sealed to move water away from the foundation. It's not a hard or expensive fix IF that is the problem. Caulk sealant in the crack and build a little concrete curb/slope over it and it does the trick most of the time.

I would like to note for readers that may be considering these investments: Whole Life Insurance, the type that is being discussed here anyway, is funded with AFTER TAX dollars. Please don't let the salesmen confuse you by comparing AFTER TAX investments to PRE TAX investments like IRAs, 401k's etc. The decision on whether to make PRE TAX or AFTER TAX investments is completely separate than what investment you should choose once you decide which way to invest. And if you are choosing between contributing to an AFTER TAX Whole Life Insurance or adding more to your PRE TAX 401k, make sure you are comparing ALL of the benefits and drawbacks of each type of investment. Talking only about paying taxes on IRA withdrawals is disingenuous if you leave out the part about the immediate tax deduction.

The nomenclature in this thread (and in many discussions regarding these topics) is wrong: gains inside an insurance policy are not "tax free", they are "tax deferred". Just like gains inside an IRA are "tax deferred" and not "tax free". Fortunately for those with whole life policies, your cost basis is determined by the total of all of your payments. With fees and costs so high, odds are you will have a minimal taxable gain (or even a loss) should you surrender the policy.

You can borrow against the policy without paying taxes, just like you can refinance and pull equity out of real estate or take a margin loan against taxable investment accounts without paying taxes. You can even do pledged asset loans against a variety of assets. Each of these have different percentages of LTV and offer different interest rates.

Find the idea of being invested in the S&P 500 and the guarantee of not losing money attractive? Purchase Structured Notes. That is the investment product the insurance companies use to offer guaranteed (capped) returns between 0%-10% (or whatever). Just with additional fees on top and lower participation rates. You can even buy ones that give you 1.5x or 2.0x leverage to the upside if you don't need 100% downside protection (We typically take 10%-20% downside protection for the added upside multiplier. With 10% protection you are protected from the first 10% loss in the index. S&P down 10% or less, you get all your money back. S&P down 15%, you only lose 5% etc.) Structured notes are pretty cool financial products. I suggest sticking with the plain vanilla ones. The fancier and more complicated notes are more akin to gambling and are what have garnered the bad press in the past. It's important to note that Structured Notes are derivatives and not directly invested in the index or the underlying stocks. This means no dividends or credit for dividends occur, just the change in the price value of the index.

Most people have the S&P 500 as a cornerstone of their investment portfolio: they are never going to sell it until they actually need the money to live off of. Currently, SPY is yielding 1.92%. As long as I am holding that position and not selling it, my only tax is on the dividend. Since the majority of that dividend is qualified, it will be taxed between 0%-15% for most with some paying 20% and even less paying the additional 3.8% Medicare tax on top. Most Americans (I don't know the BP tax bracket breakdown) would be paying 0% in tax on the qualified (majority) portion of the dividend. Realistically, tax wise, if you're holding for the long term and not day trading, putting after-tax money in a regular taxable account isn't at that much of a disadvantage compared to putting after-tax money in a whole life policy as an investment for most people. There are always exceptions though. The regular after-tax account does allow for the opportunity for tax-loss harvesting which can save you money in taxes along the way for a plus. 

The life insurance policy is protected from taxes twice compared to a buy and hold ETF in a taxable account: Once because the insurance policy is a tax deferred vehicle and the taxable account is not and Second because you don't receive any dividends from the underlying in an insurance policy. As explained above about structured notes, the insurance policy isn't directly invested in the stocks or the index so no dividends are paid. It's all based on the price value of the indices. Projecting out 10% historical annual returns until your retirement? Better make that 7%-8% since you won't be receiving the dividend portion of the index's return. That also means you don't get the compounding effect of reinvesting the dividends every year. (1 - highest tax rate) x 1.92% dividend rate of SPY > $0 dividends in an insurance policy. If there are no dividends to defer taxes on, is there any real tax deference advantage offered?

At retirement you can use margin to obtain 50% of the taxable account's value as a margin loan without paying taxes. You wouldn't have to pay taxes until you received a margin call and you were forced to sell at 65% LTV. This is less than many insurance policies that offer a 95% LTV without paying taxes. You would withdraw less principal each year in the taxable account compared to the insurance policy because of the dividends funding a portion of your retirement. It would be interesting to compare SPY's 0.09% expense ratio and reinvested dividends to the insurance policy's higher expenses and lower, no dividend no compounding return over the long run and see how much of a dollar difference this really is though. Especially since many are using examples of saving several decades for retirement and then living through retirement for a fifty, sixty years or more projection. I have a guess which amount would be larger even with the big LTV difference.

Annie Get Your Gun