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Did you know that the number one source of wealth in the US is equity in real estate? Or that more people have become millionaires from owning real estate that from all other sources of wealth combined?
It's true. Here in the St. Louis real estate market we are fortunate. The St. Louis area is very economically diverse. We aren't reliant upon just one industry to power our economy. We've also been blessed with a geography that is well suited for a city to flourish. The St. Louis area's infrastructure is actually pretty good. People gripe about the traffic and the highway 40/64 project is sure to tax some nerves, but over-all we have it pretty good. If you don't believe me, ask somebody who lives in Houston or Washington D.C.. Now, they have problems!
The other advantage that the St. Louis real estate market has is that we have a wide variety of housing stock that is available at a reasonable costs. Home prices in the St. Louis real estate market aren't that bad when you compare them to the prices in other major metropolitan areas. St. Louis real estate rentals are also reasonable when compared to other areas.
This all adds up to the St. Louis real estate market being a good one to invest in. I have actually had clients come here from Washington D.C., San Diego, CA, and other places in order to buy investment real estate in St. Louis.
The easiest way to break this subject up into smaller portions is to look at the different types of investment property that you can buy here in the St. Louis real estate market.
Single Family Homes In St. Louis
Single family homes are the back bone of the St. Louis real estate market and of the St. Louis real estate investment market. They are easy to find, easy to buy, easy to rent, have better tenants over-all and when it's time, they are easy to sell.
The down side of buying a single family home as a investment property is that they don't tend to cash flow as well as larger units.
Duplexes
Duplexes or two-family buildings are another good choice when it comes to having a safe investment in the St. Louis real estate investment market. Generally speaking, most people would like to live in a building with fewer neighbors sharing walls. There is less chance for being disturbed and they are generally quieter than an apartment building with more units.
That said, finding a good tenant for a duplex or a two -family structure is usually easier. As a rental, these buildings offer a better ROI (Return On Investment) than single family buildings, but less than a property with more units.
Three And Four Unit Buildings
Tri-plexes (while not common) are available and Four Family buildings are also popular. They don't have as many neighbors as an apartment building or complex, but they do start to see better rates of return from them.
The down side of owning one of these buildings is that the more tenants that you have, the greater the likelihood of problems with the tenants. One there are more units and two, a lot of people who would have liked to rent a house or a two family and who can't do it, will then try to find a four family to move into.
Another advantage of these types of properties is that they still qualify for Conventional Conforming financing.
Five Through Twenty Unit Buildings
Above 4 units and you are starting to look at properties that are going to be a bit harder to finance. They are generally considered bank deals and because financing is not as readily available as with 4 or fewer units, there are a lot less of them and the banks expect you to have a demonstrated ability to be able to manage rental properties. This can be over-come by hiring a management company, which with this many units you might seriously consider.
That said, these buildings and small complexes are popular with people who want to make a living off of their property and will manage it themselves. Often times actually living in the property as a on site manager.
Above Twenty Units
Above 20 units and you're getting into some pretty serious business. The management and upkeep of such a large property can be over-whelming for an individual. Banks give serious consideration to who is actually going to be doing the managing of the property before considering providing financing for this sort of property.
That said, the cash flow from an apartment complex can be substantial, even after paying management expenses.
Mixed Use Commercial
Mixed use commercial has both a residential component and a commercial component to them. Generally speaking they have commercial tenants on the bottom floor and apartments above. Depending upon how many total units, a management company might or might not be in order. Cash flows are usually pretty good on these types of properties in the St. Louis real estate market.
Strip Malls And Small Office Buildings
Commercial properties such as strip malls and small office buildings are a lot less management intensive than residential properties. The tough thing about them is getting and keeping good tenants, particularly as the property ages. If the property is in a good location, this might not be a problem regardless of the age of the property. Many of the tenants in these types of properties are small businesses that some times come and go, so tenant selection and variety is a major concern. Lenders are especially concerned with these types of properties if they have a large area set up for a single tenant such as a grocery store. If you lose that one tenant, a property that was a gold mine can quickly become an economic quagmire!
Larger Office Buildings And Shopping Centers
Usually these types of properties are stickle the domain of companies that specialize in them. While there are people who basically traded up into these types of properties, they are few and far between and when they have, they have basically become real estate corporations in the process.
Industrial And Warehouse
On the smaller properties they are more than doable by individuals. The major things to look out for with these types of properties are environmental concerns and the fact that they are usually one tenant buildings, especially on the industrial side of that equation. Warehousing is a very specialized business and requires specific knowledge in it to make a go of it as a real estate investor.
Raw Land
Considered to be a risky form of real estate investment, I'm not all that opposed to it as long as you have a way for the land to earn it's keep while you're waiting for the development to catch up with you. I know of people who have bought a tract of ground, harvested the timber then sold the land for a development and made a killing.
Farm land can often be leased out to a separate party as farm land while you're waiting for the development to reach you.
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