All Forum Posts by: Max Householder

Congrats on your first property! That duplex was actually one of the first properties we looked at last year when trying to find our first deal. It's a nice property, especially the upstairs unit! It'd been on the market for $100k for a long time, but <$90k felt more reasonable so well done negotiating down to a good value!

FWIW, I estimate 15% for management, 5% vacancy, 20% combined for repairs/maintenance/capex, and taxes+insurance should come out to around 10% in south city. That ends up right at the 50% rule for expenses.

If you figure $1300/month income, 50% expenses (however you divide it up), and your mortgage payment (P&I) will be like $400?, when you move out it should cash flow easily $100 per door per month or more.

Honestly though, i wouldn't worry about 3% vs 5% vs 8% for whatever category because once you get going, your estimates won't matter. By all means run the numbers with estimates you're comfortable with, but I would focus on keeping detailed records over time and gathering data so you can formulate good estimates for future properties of this type. Keep your expenses for the property, that you're buying as the landlord, separate from your personal expenses. Use a different credit card or make separate transaction when you check out at Home Depot or whatever so it's easier to keep track. After a year you'll have 12 months of data which will smooth out a lot of the month-to-month fluctuations. Then you'll know how much to set aside in reserve so that you're not over-drawing to cover expenses on the lean months. Cash flow management is something that gets left out of a lot of REI discussion.

Over the next 2 years, no matter what you should come out ahead because the 1st floor unit more than covers your PITI so most months you're probably going to be pocketing the balance. Even on the months you have to come out of pocket, it's going to be way less than the rent on a 2-bedroom apartment of your own. If you can afford to, I would set aside 100% of any cash flow as additional reserves until you get a year's worth of data or more under your belt and get a handle on what future CapEx is looming.

Find a good PM and they should have a rock solid lease that covers every sticky issue they've encountered over time. If you're just starting out, hire a PM while you get a handle on the business. You can always take over and self-manage later on if you find you have the appetite for it. Even if you self-manage, add a 10% management fee when you calc your expenses so you know you could always turn it over to management later and still cash flow.

What neighborhood are you in and what about it led you to take the plunge there? Was it strictly the numbers, i.e. maybe C- or D area but it's a strict cash flow play, or do you see upside from job growth, gentrification, etc.?

@Carl Brown 63112 south of Delmar is likely okay for the reasons @Megan Greathouse stated. North of Delmar is probably block-by-block between Delmar and Page. Definitely consult with as many boots on the ground there as you can. North of Page and heading toward Wells-Goodfellow neighborhood north of MLK Blvd is probably a no-go and it looks like you're right on the edge there... here are the crime reports for the last 1 month. Crime Reports 63112 That Arlington Groves Apartments looks shiny and new, but a lot of the units may be subsidized and just go a block north of there on Google Streetview and it gets ugly pretty quickly. 

@Casey Shultz Be very careful generalizing rents in "St. Louis". It's very much block to block or even house to house in many cases. Yes, there are pockets of the city that support $1,250/month for a luxury 1BR, but one block over or across the street a lower-end 1 BR might be only $450/month, not $800. Other parts of town, $800 is what you'd get for a 1-BR with high end finishes, never over $1,000. You should also consider "shotgun" layouts vs. true 1-bedrooms as there can be a big difference in demand and price for the less functional shotgun units. 

For starters I would say listen to every BP podcast, even the ones not specifically about wholesaling. Add keyword alerts for your area and read the forum threads that come up. Sign up for the BP newsletter each week. 

Hey @Account Closed manages for us. With just about a year of data under my belt, I've found his estimates to be dead-on. Water, Sewer, and Trash are fixed by the city so it's an easy calc. Our policy with Shelter Insurance is around $90/month so $120 is a good estimate until you get a quote. Our repairs and maintenance have been $125/month, but our building had been very well-maintained by the prior owner so figuring a higher number is a good idea for you until you get to know this property. Our vacancy has been 4-5% and mowing has been an easy $50/month in the summer ($0 the other 6 months, so $25/month is right) with no issues. We average $550/month for our 1-bedrooms and just raised one of them so our average might be a little higher now.

You might consider calling the city/assessor and asking if they have a number for your 2018 property taxes. The city has been raising them a lot in some areas. We got a 10%+ bump 2 months after we closed, so that would have been good to factor in ahead of time.

As far as CapEx, we had 1 vacancy to fill when we closed so basically broke even for 3 months and since then we've cash flowed like clockwork (knock on wood), hitting our 10-11% cash-on-cash return estimate over the course of the full 9 months. We've added all that to our reserves until we get some a sense of what our CapEx is going to look like over time, so whether you figure 5-10-15% for reserves, you should have enough cash flow at these numbers to set aside as much as you're comfortable with.

We used Buyer's Protection Group to inspect our 4-family purchase and will use them again for sure.

BPG St. Louis

I would highly recommend our PM @Peter MacKercher. Good luck!

Would highly recommend our PM @Peter MacKercher. Good luck!

@Adam Stout Another thing I meant to add on is to look closely at the layout of the unit. Many 1-bedroom units have a "shotgun" or walk-through layout where the bedroom is in the middle of the unit and the kitchen is in the back. It doesn't seem that strange when the unit is empty, but once you walk through a few of them that are occupied you'll realize you're walking through the tenant's bedroom to get to the bathroom or kitchen. I imagine this wasn't a big deal in the early 1900s because most workers only went home to sleep and eat. People today, especially millennials, want an open floorplan where they can entertain, have friends over, etc. The shotgun units tend to be cheaper to acquire, but you'll get lower rents on most of them and they're difficult to renovate into a layout that's more modern.

Also take note of the sqft per unit. I've been in some 1-bedroom units that are only 600-700 sqft and they feel like you're walking through a closet. At 750-850 sqft per unit, it feels so much bigger and you potentially have room to maneuver if you want to take out a wall to try and alter the floorplan to something more modern. Anyways, just a tip that doesn't always stand out right away.