My wife and I went to St. Louis this weekend to look at potential places to buy. We’re looking at multi-family homes and intend to rent the additional unit(s). We’re at the beginning of what may be a long process. Lots of the places were somewhat comparable. We’re dealing with several areas of the city, all located pretty close to the hospital where my wife will ultimately work.
To aid us in our analysis of the properties, we’re basically using a variation of price to rent ratio. Price to rent ratio is a good way to compare properties for investment purposes. What complicates things for us is the fact that we’re going to live in the place we buy. This is both good and bad. It’s good, because more attractive financing options are available if a unit is going to be owner-occupied. You pay a lot more for the money you buy if you’re buying solely for investment purposes. On the other hand, when you’re going to live somewhere, you approach the purchase differently than if you were looking solely for investment purposes.
Of course, a place that you would want to live is probably also attractive to tenants, so in that way not that much changes. The place with the best economics though, might not be the place we want to live the most. In our case, some of the places on the lower end, in lesser neighborhoods have better price to rent ratios than some of the places we’d really like to live. You pay premiums for both location and upgrades. We’re struggling with this. After all, the reason we’re doing this is because we think it’s an attractive investment opportunity we might not take advantage of when we’re older. We want to buy a place that’s a sound investment, but also have a nice place to live.
Some of the places are absolute bargains as far as the ratios go (we’re targeting places with ratios of 12 or below). Of course, the numbers we’re using were supplied by the current owners who are trying to sell the places. They might not be honest. When the tenants were there, we asked what they were paying. One of the places was reporting that they were receiving $800 per unit (2 units). In reality, one of the places was empty and the other, according to the tenants, was renting for $750. The number was close, but clearly not $800 per unit. To be conservative, we’re rounding everything down a considerable amount before figuring our ratios. In any case, it’s a good way to be able to compare the units to one another.
Besides the ratio, we’re considering other factors, of course, such as proximity to my wife’s work, the probable cost of rehabbing the units, the quality of tenant the places are likely to draw and lots of other things. We’re sort of developing a scoring system that starts with the price to rent ratio and works on a system of pluses and minuses from there based on what we want. The system is a work in progress, but if it ends up being something that makes any sense at all, I’ll share it here.
Aesthetics obviously play a large roll in choosing the place you want to live. We’re getting hung up on this pretty consistently. Part of the reason is because my wife and I have slightly different ideas about what we want, but I think we’re getting closer together as we go. My wife is working really hard combing through the listings and figuring out what sort of places we need to be looking at. As we go, we’re trying not to lose site of the fact that this is an investment property. The places aren’t as nice as the condo we live in right now, and most of the places in the city are much older than the building we live in now. Hopefully we’ll find what we’re looking for. If you’re selling a multi-family home in St. Louis city, and want to sell it for a fraction of its actual value, please let me know. If you have any thoughts or insight into the process and what we’re trying to do, that would be great to know, too. Thanks for reading.
No related posts.
Related posts brought to you by Yet Another Related Posts Plugin.
{ 1 comment… read it below or add one }
Todd,
My biggest lesson from owning a rental properties is no additions. We have a house with an addition and it’s causing minor problems that need to be addressed constantly. If I had to go back I would buy a propert without any additions.
-Nate