All Forum Posts by: Max Householder

Hi Beth, I think when evaluating neighborhoods in St. Louis it's best to get out on the ground and drive through them or ride a bike around if you're into bicycling or get out and walk them. Stats like population growth and median income are helpful on a macro scale, like the STL Metro region, but it's hard to find statistics for areas smaller than a zip code and especially in a city like St. Louis that's block-to-block in many areas, those stats can be misleading.

I heard a recent podcast that noted one of their criteria is for the area to have a median income that can cover the rent. Typically about 1/3 of income spent on housing is considered reasonable, so if you're looking at buying houses that rent for $1,000/month then the median income of the area should be $36,000 at an absolute minimum. Then you know your rent should be affordable to more than half the population. If you go with 30% or 25% of income, then you'll be affordable to an even larger segment. Always check the crime reports. Avoid violent crime like murder, assault, home invasions etc. There are many great areas of the city where people still get their car or garden shed broken into, so take petty crime with a grain of salt.

I would focus on getting out and about in these neighborhoods at least by car. What are the existing homes like? Are they run down, recently remodeled, are many for sale, are none for sale? What kind of cars do people drive? At 6:00 on a weeknight are there a lot of plumbing, electrician, contractor type trucks parked around indicating people have good jobs? What kind of businesses are around? Are they new or have they been there a long time? Are they highly rated? You can have areas with great businesses largely supported by people from outside the area, so the median income numbers might show low numbers, but you know people with higher incomes like the area and like hanging out there, so if you provide a nice place to rent, you'll get the best of that group.

Look for dumpsters indicating remodeling/investment projects going on and especially new construction. Larger investors will have already done extensive research on an area before putting in six figures or millions of dollars to invest, so just follow them and save yourself the number-crunching. If Wal-Mart or Chik-Fil-A is putting in a brand new building, there's someone at the corporate HQ for did a lot of diligence on where to build.

Hope that helps you think of some outside the box ideas to evaluate an area.

Drive the neighborhood. You'll be able to tell which houses are 75 years old and which were built in the last 10 years. That'll give you a list of addresses to narrow your search for sales, building permits, etc. If you don't get any hits on previous sales, check the assessed value as well. If the existing owner tore down to rebuild and the value went from $220k up to $500-700k there should be a corresponding jump upwards in the assessed value and property tax owed within a couple years of the rebuild. You'll also be able to see the split between the value in the land and the building/improvements which might help. If you end up driving around and see other projects under construction, contact the builder and see if they can help you assess the pre-teardown value as they've probably done others nearby.

Hi Michelle, we purchased a 4-unit property that had been previously managed by Deca for a number of years and it was in very good condition, clearly well-maintained. I think it is still the cleanest 4-unit I've been in of the many dozens I've looked at! We interviewed them when selecting our management company and got a good impression as well, but it was our first property and their operation felt a little too big for us (this was/is our first property), so we went with a smaller management company and it's worked out well. Good luck!

Our PM @Peter MacKercher has done a great job for us. Depending on what part of town you're looking to invest in, he may be able to help.

Hey EJ, I live and invest in St. Louis. It is a very diverse market where investors can have success in a variety of ways. Yes, there are plenty of areas with < $30k houses that you could lose your shirt on, but there are many areas that are seeing rapid growth and price appreciation. In general, investors do well flipping in St. Louis County (the city is split between the "City" and the "County") and many buy-and-hold in the city where there are a lot of small multi-families, think 1920s-30s construction brick duplexes, fourplexes, and 8-12 units.

I have spent some time in Indianapolis, not studying for investment purposes, but just spending time and it reminds me a lot of St. Louis where there are pockets of nice business districts and nice properties to go with them (Broad Ripple, Mile Square, all the craft breweries, etc.) and then many not-so-good areas.

Aaron Klatt is right that the stats for population growth in the St. Louis region are somewhat poor (more so NOT growing as opposed to rapidly shrinking) but there are many neighborhoods that are seeing rapid growth and population influx, you just need to know which streets and blocks are the right ones. The county/city divide also hurts the city as most of St. Louis County is rather nice with many middle/upper middle class, and affluent areas as well as many stable blue-collar type areas, but it gets counted separated from the city where the few really, really, really bad areas tend to skew the data. 

I would look at the bigger picture and decide whether you want to get in bed with this guy at all. If he refuses to sell without being allowed to stay on as manager, then it seems like a non-starter. Even if you wrote up a PM contract with a 3-month out clause and then fired him for whatever cause, it sounds like this guy isn't going to go away. Plus, you'll have to delay your forced appreciation efforts while you surgically remove this guy. Then, even if you managed to do that and he still held the note he could make your life difficult until you refi him out. I would only do this deal if the guy is cut loose at closing and then if he kept sniffing around for whatever reason you'd have every right to remove him from the property.

As far as an inspection goes, that's up to you on your comfort level. The average inspector probably won't point out much that your contractor or PM wouldn't have caught on your walk through, but it also doesn't cost that much and if they snaked the sewer or pointed out one defect you missed, the cost would pay for itself. What I would definitely not do is call the city/county on this guy being a slumlord. If he puts two-and-two together that it was you then you're going to be out anyways and even if it helps put pressure on him to get out of the property, then they're going to be up your butt about everything that's wrong. Stay off the government radar as long as you can. They're just there to extort money from you, not help.

Congrats! Where in St. Louis is your triplex? What led you to this market from SLC?

My agent @Peter MacKercher "gets it", lol. You should definitely connect with him re: St. Louis investing and specifically south city. Cheers!

Thanks @Grant Rothenburger! Do you work for/with Joe Fairless? Love that podcast!

With the change in management from the previous owner, we expected a bunch of maintenance requests would come in the first few months and then slow down over the rest of the year and that's exactly what happened. There was also a fair amount of tinkering with the boiler systems to get them filling properly which resulted in a lot of trip charges. We knew the boilers might be a hassle going in, so the plan is to add gas furnaces and central a/c as the boilers age out, so even if this is a typical expense each fall, it hopefully won't last forever. We spent about $1500 in December out of our cash flow to finish up some deferred maintenance items found during our initial inspection, so that weighed on our NOI a little bit but shouldn't be an ongoing expenditure. In short, I expect expenses to be at least a little less this year, but will need at least 3 years of data to have a better idea if this was a high, low, or typical year for expenses.

As far as capex, we had to replace a stove during the year that's include in our expense number here, but I'm not sure if our accountant will capitalize that or not. Future capex will be a new roof within 5 years and then replacing the boilers as they age out. Two are relatively new, one is in good condition, and one is very old, but working currently. Right now we're holding all our cash flow to put toward capex and/or reinvest in the property. If we can have two more years like this year 1 then that should cover the roof and a new furnace & a/c to replace the oldest boiler. Our cash-on-cash return would be much less, but we'll still get principal paydown and everything besides the roof should allow us to raise rents (central air, updated appliances, open up the kitchen/livingroom wall, refinish wood floors). Better-case scenario, those variable expenses are much less each year and we can still cash flow on top of those capex expenditures. Since we don't need the cash flow to live on, we're taking it slow as we figure out whether the money we cleared is real cash flow or if we'll end up at breakeven after spending on capex.