What’s the hype? Section 8 Rental Portfolios in St. Louis

St. Louis Section 8 Rental Portfolio: Where Is the Money?

You’ve heard it from the gurus and the investors in your friend group: “Build a rental portfolio, get rich.” Simple enough. Buy all the cheap houses for $30,000, put $25,000 into them, cash-out refinance, rinse, recycle, repeat. Get rich. Own 30 doors, then 300 doors. Build passive income with Section 8. Sounds pretty simple, right?

Until you actually start doing it.

Because then reality shows up.

You buy the $30,000 house. You put $25,000 into it. Then you have closing costs, holding costs, financing, insurance, utilities, inspections, contractors and all of the other expenses that come with getting a property ready to rent. You finally get through the renovation, get the property leased, get through the inspection process and get a tenant moved in. You look at your numbers and maybe you're making $250 to $400 a month.

Then something breaks.

Maybe the furnace goes out. Maybe the plumbing backs up. Maybe you have a turnover that costs you a few thousand dollars. Maybe the roof needs attention. Maybe your insurance goes up. Maybe the property sits vacant longer than you expected.

And you start asking yourself, where is the money in this?

That is actually the right question.

The Problem With Chasing Cash Flow

A lot of new investors get completely focused on one number: monthly cash flow.

“How much does it cash flow?”

It's an important question, but it shouldn't be the only question you ask when evaluating a rental property. If your entire strategy is based on buying a cheap house, putting a tenant in it and collecting $300 a month, it is pretty easy to look at all the work involved and wonder why you're doing it.

Let's say a rental produces $300 a month in cash flow. That's $3,600 a year. Own ten properties and you've got $36,000 a year in cash flow.

That sounds great until you remember that you also have ten roofs, ten furnaces, ten electrical systems, ten plumbing systems, ten insurance policies, ten tax bills, ten tenants and ten properties that can have problems. One large repair can wipe out months or even years of cash flow on an individual property.

This is why I don't believe the entire rental investing conversation should revolve around cash flow. Cash flow matters, but it is only one piece of the return.

There are several different ways a rental property can create wealth, including cash flow, principal paydown, appreciation, forced appreciation, equity creation, refinancing, tax benefits, leverage and eventually the sale of the property.

If you're only looking at the $300 that hits your bank account each month, you're missing everything else happening underneath the surface.

So Where Is the Money?

This is where rental investing gets much more interesting.

When you buy a property, you're not just buying the monthly rent. You're buying an asset. If you buy that asset correctly, you can potentially benefit from several different things happening at the same time.

Your tenant is paying rent. Some of that rent is helping cover the property's operating expenses and debt service. Your loan balance may be decreasing. The property may appreciate. You may have created additional value through renovations. You may have purchased the property below its potential stabilized value. And, depending on the financing and your equity position, you may eventually be able to refinance and use some of that equity to acquire another property.

That is a very different way of looking at rental investing than simply asking whether the property makes $300 or $400 a month.

Section 8 Doesn't Magically Make a Bad Deal Good

Let's get one thing straight. Section 8 is not a magic button.

The Housing Choice Voucher program has specific requirements for landlords and properties, including inspections, rent reasonableness and Housing Assistance Payments administered through the local Public Housing Agency.

You can't just buy the cheapest house you can find in St. Louis, put a huge rent number on it and assume the government is going to pay whatever you ask. That's not how the program works.

The property still needs to make sense. The rent needs to make sense. The property needs to meet the applicable program requirements. And you still have to operate the property like a business.

Section 8 can absolutely be an important part of a rental strategy, but it doesn't rescue bad underwriting.

If you paid too much for the property, you paid too much. If you over-rehabbed it, you over-rehabbed it. If your taxes, insurance and debt service destroy your margins, it doesn't matter what type of tenant you have. The deal is still the deal.

Why St. Louis Can Be Interesting for Rental Investors

One reason investors continue to look at the St. Louis market is the variety of neighborhoods, property types and price points available to investors. There are opportunities for investors who are willing to look beyond the obvious properties and understand how the numbers work at the neighborhood level.

But buying a cheap house doesn't automatically make it a good investment.

This is where investors get themselves into trouble.

They see a $60,000 house and think, “This is cheap.” Then they spend $50,000 renovating it, another $10,000 on financing, holding costs and closing expenses, and suddenly their $60,000 house has become a $120,000 project.

The purchase price is important, but your total basis is what really matters.

Your Basis Matters More Than the Rent Number

Let's say two investors each buy a rental property. Investor A buys a house for $100,000. Investor B buys a similar house for $70,000. Both spend $25,000 on renovations, and both rent for $1,400 per month.

Who started in the better position?

Investor B.

It sounds obvious, but investors routinely focus so heavily on the rent that they forget to focus on what they actually have invested in the property.

That's why when I'm looking at a rental property, I don't just want to know what it rents for. I want to know what it costs to acquire, renovate, finance and stabilize.

A $1,500 rental isn't automatically a better investment than a $1,300 rental. If you paid substantially more to get that extra $200 in rent, you may have just bought yourself a more expensive property.

This Is Where BRRRR Gets Interesting

The BRRRR strategy sounds simple: Buy, Rehab, Rent, Refinance and Repeat.

But there is one very important part that gets glossed over online. You have to create enough value to make the refinance work.

If you buy a property for $100,000, put $30,000 into it and it's worth $130,000 when you're finished, you haven't magically created $50,000 in equity. You've spent $130,000 to create a $130,000 property.

That's not the same thing.

The opportunity comes when your acquisition cost and renovation cost are meaningfully below the stabilized value of the property.

For example, let's say you acquire a St. Louis property for $70,000 and spend $30,000 on the renovation. Your basis is approximately $100,000 before financing and other transaction costs. You stabilize the property, get it rented and the completed property is worth $150,000.

Now you've potentially created approximately $50,000 in gross value between your basis and the property's value.

That is a much more interesting conversation than simply saying, “This house cash flows $350.”

The Real Game Is Creating Equity

This is one of the biggest mindset shifts I want investors to understand.

You're not necessarily buying a rental because the monthly cash flow is going to make you wealthy. You're buying an asset that can potentially do several things at the same time.

It can produce income. It can pay down debt. It can appreciate. You can potentially create additional value through renovations. And if you have enough equity and the financing makes sense, you may eventually be able to use some of that equity to help acquire additional assets.

That's where the rental portfolio strategy starts to become powerful.

You're not starting from zero every time you buy another property. You're building on what you've already created.

But What About the Repairs?

Repairs are real.

This is where some of the rental investing content online gets a little misleading. You see someone post that a property cash flows $500 a month, but you don't see the $8,000 HVAC replacement. You don't see the sewer repair. You don't see the vacancy. You don't see the turnover. You don't see the insurance increase. You don't see the month where the property produced almost nothing.

You see the attractive number. You don't see the operating statement.

That's why I don't underwrite rentals based on the best-case scenario. I want to know what happens when something goes wrong, because something eventually will.

The question isn't whether something will go wrong. The question is whether the deal can handle it.

Section 8 Investors Still Need Reserves

This is especially important when you're building a portfolio.

Don't take every dollar out of a refinance and immediately buy another property because somebody on social media told you that's how you scale. You need reserves for repairs, vacancies, turnovers, capital expenditures and the expenses you simply cannot predict.

The Housing Choice Voucher program places ongoing responsibilities on landlords, including maintaining the property and meeting applicable program requirements.

The goal isn't to be afraid of repairs. The goal is to plan for them.

A good rental portfolio isn't one where nothing ever goes wrong. It's one where you've built enough margin into your acquisitions and operations that you can handle the things that inevitably do.

Stop Buying Houses. Start Buying Deals.

This is probably my favorite way to explain rental investing.

You don't need more houses. You need more good deals.

There is a massive difference.

A house is an asset. A good deal is an opportunity.

If you're buying a $100,000 house because somebody told you it rents for $1,400, that's not enough information. I want to know the acquisition price, the actual renovation cost, closing costs, financing costs, taxes, insurance, realistic rent, utilities, vacancy assumptions, management costs, expected repairs, stabilized value and debt.

And then I want to know one more thing:

What does this property do for the portfolio?

That last question is huge.

Your Rental Portfolio Is Bigger Than the Individual Property

One property might not look incredible by itself. But five properties purchased using similar acquisition criteria, renovated using repeatable systems and managed efficiently can look very different.

Now you have scale. You have vendor relationships. You have operating systems. You have management processes. You have more equity, more income and more data.

More importantly, you have a portfolio that can potentially become much more efficient to operate than a collection of completely random properties.

That's the goal: repeatability.

If you can identify a type of property that works, a neighborhood where the numbers make sense, a renovation strategy that is predictable and a tenant profile that fits the investment, you can start creating a business around the acquisition process rather than simply buying one house at a time.

The $300 Door Isn't the Goal

This is where I want investors to think differently.

If your only goal is, “I want every property to cash flow $500 a month,” that's fine. But that may not be the best way to think about building long-term wealth.

What if every property in your portfolio was purchased at the right basis, renovated strategically, stabilized with reliable tenancy, producing cash flow, paying down debt, creating equity and positioned for future refinancing or sale?

Now you're looking at the entire investment instead of just the $300 showing up in your checking account.

Because $300 is spendable money, but equity is also wealth creation. Principal paydown is wealth creation. Appreciation can be wealth creation. Forced appreciation can be wealth creation. And the ability to recycle capital into additional acquisitions can change the trajectory of a portfolio.

The Portfolio Is the Business

If you own one rental, it's easy to think like a landlord.

If you own 20 rentals, you need to start thinking like an operator.

If you're trying to build 50 or 100 rentals, you absolutely have to think like an operator.

You need systems. You need vendors. You need standardized renovations. You need leasing procedures. You need bookkeeping. You need property management. You need reserves. You need acquisition criteria. You need financing relationships. And you need to know your numbers.

Otherwise, you're not really building a portfolio. You're just collecting houses.

Those are two very different things.

What I Look For in a St. Louis Rental

When I'm looking at a rental acquisition, I'm not necessarily looking for the prettiest house. I'm looking for the numbers.

I want to understand the neighborhood, the rent, the property condition, the financing and the exit strategy. I want to understand what the property could be worth when it's stabilized and what it will actually cost to get there.

And I want to understand whether the property makes sense as a rental before I fall in love with it.

Because investors get themselves into trouble when they fall in love with the house first and try to make the numbers work afterward.

Make the numbers work first. Then buy the house.

So Where Is the Money?

Let's go back to the original question.

You bought the cheap house. You put money into it. You got it rented. You're making $300 a month. You have repairs, management, insurance, taxes and tenants, and you're wondering why you're doing this.

Here's my answer:

The $300 isn't necessarily the point.

The point is what that $300 sits on top of.

A properly acquired rental can potentially provide cash flow, principal paydown, equity creation, appreciation, tax benefits, leverage and portfolio growth.

That's the game.

You're not buying a house so you can collect $300.

You're acquiring an asset that you intend to operate, improve, finance and hold.

That's a business, and that business has multiple ways to create wealth.

But Don't Confuse Multiple Ways to Make Money With Guaranteed Money

This is important.

Real estate isn't passive in the beginning, and it certainly isn't guaranteed.

Properties can lose money. Tenants can stop paying. Repairs can be expensive. Insurance can change. Taxes can change. Financing can change. Markets can change. Rents can change. Regulations can change. Section 8 requirements and local Public Housing Agency procedures can change.

That's why good underwriting matters.

You don't build a portfolio because you believe nothing will go wrong. You build a portfolio because you've structured the deal so you have a plan when something does go wrong.

Building a St. Louis Section 8 Portfolio Takes a Strategy

If you're buying one rental, you can probably get away with winging some of this.

If you're trying to build 20, 50 or 100 doors, you can't.

You need a clearly defined acquisition strategy. What neighborhoods are you buying in? What price range are you targeting? What property types do you want? What renovation level makes sense? What rents are realistic? Are you targeting Housing Choice Voucher tenants? What are the applicable local program requirements? What financing are you using? How much cash are you leaving in each property? What is your reserve requirement? When do you refinance? When do you hold? When do you sell?

And most importantly, what does the next acquisition look like?

Because the real power of a portfolio isn't just owning the first house. It's having a strategy for the second, third, fourth, tenth and twentieth.

The Goal Isn't More Doors. It's Better Doors.

I'm not impressed by someone who owns 100 rentals if they have 100 problems.

I would much rather see an investor build a portfolio intentionally: buy right, renovate right, finance correctly, lease strategically, operate efficiently, keep reserves, create equity and repeat.

That's how I think about rental investing.

Not, “How many doors can I get?”

But, “How much wealth can I create with every acquisition?”

Because 30 doors of mediocre deals can become a full-time job. Thirty well-underwritten properties can become a completely different asset.

And that's where I think the conversation around St. Louis Section 8 investing needs to go.

Away from, “How much does it cash flow?”

And toward, “What is this property actually doing for me?”

That's the question I want every investor to ask before they buy.

Because the goal isn't to own a bunch of houses.

The goal is to build something that makes sense.