St. Louis, Missouri, is known for music, BBQ, baseball, and the Gateway Arch. But many may not realize the Gateway to the West can also be an excellent market for real estate investors. Its strong economy and low cost of living draw plenty of people and create more profitable opportunities.
If you’re looking to start or expand your real estate portfolio, here are some reasons St. Louis, Missouri, is worth your consideration:
Rental properties can offer stable income streams in the right markets.
Currently, St. Louis rent trends are holding steady or gradually increasing. This can offer investors more financial security and points to potential rental increases.
Real estate does not correlate strongly with stocks and bonds. That means real estate will not necessarily crash if stocks and bonds do. As a result, real estate can help investors guard their assets in an economic downturn.
That said, investors should also consider diversifying across markets within real estate. Investors without a St. Louis property may consider adding this market to their portfolios.
Owning a St. Louis rental property could grant you access to plenty of tax deductions. This can help you afford to invest in and improve the property — ultimately leading to appreciation and higher rents.
You should consult a tax professional to determine which deductions you qualify for and how much you can deduct. Still, here are a few deductions to look over with your accountant:
Homeowners get a special mortgage interest deduction. Investors cannot access this deduction for rentals but can deduct mortgage interest as a business expense.
In general, you can deduct the smaller of your rental income or your interest paid. For instance, if you earned $40,000 in rental income and paid $12,000 in interest, you could likely deduct $12,000.
The IRS lets you deduct depreciation to account for property wear and tear.
Investors can generally depreciate a US property for 27.5 years at a rate of 3.636% per year. Only the building can be depreciated. Land cannot be depreciated.
You might be able to capitalize the costs of obtaining a mortgage, such as closing costs, onto your property’s basis. As a result, you could increase your yearly depreciation deduction.
Your operating expenses are your usual business expenses. Per the IRS, they may be deductible if they’re “ordinary and necessary.”
Here are a few common costs the IRS may let you deduct:
Investors may be able to deduct property taxes and insurance on their income taxes. This can be especially helpful in markets with high property tax rates or insurance premiums.
According to IRS Publication 527:
“You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property.”
Some of these travel expenses might include:
Out-of-state investors will find these especially helpful since they may spend more on items like flights and hotels.
That said, there are exceptions and caveats listed in IRS Publication 527. Work with a tax advisor to ensure you deduct the correct amounts.
Like Memphis, TN, St. Louis’s Mississippi River location makes it an “inland port.” This creates numerous jobs in shipping and transportation.
That said, St. Louis has a diverse economy that draws professionals seeking new job opportunities. Its August 2022 unemployment rate was 3.3% — lower than the 3.7% national average that month.
The city’s most prominent sectors include government, education, health, professional services, and the trades.
Major employers in St. Louis include:
St. Louis sits on the Mississippi River’s west bank and is right where the Missouri River meets the Mississippi. Outside the city are rolling prairies, shallow valleys, and some gentle hills. The area has a humid subtropical climate and experiences all four seasons in terms of weather.
The city itself offers plenty of attractions for residents and visitors. It’s rich in history, being the area where Lewis and Clark launched their expedition westward. Perhaps its most iconic structure is the massive Gateway Arch. However, buildings like The Old Courthouse, Forest Park, and Eads Bridge also offer glimpses into the past.
In terms of culture, St. Louis is known for its music. It’s home to the National Blues Museum, detailing the city’s Blues history. St. Louis Symphony Orchestra, the US’s second-oldest professional orchestra, was founded here in 1880.
Residents and visitors can also enjoy the city’s food scene (BBQ in particular), beer, and Cardinals baseball.
A 2022 report from Demographia found St. Louis to be the fourth most affordable city worldwide in terms of housing. In fact, the median listing home price is just $195,000. That means investors can find better deals and charge lower rents without losing profit potential.
Furthermore, St. Louis’s general cost of living is fairly affordable. It’s lower than the US’s by a long shot, and even falls under Missouri’s despite being a city.
St. Louis offers affordable properties, a low cost of living, a healthy economy, and numerous attractions.
At the same time, rents are steady or gradually increasing, creating stable income and higher profit potential. Potential tax breaks only help St. Louis investors widen those margins.
As a result, St. Louis could be an excellent market to start or grow a real estate portfolio in. If you agree, Evernest can help you find the perfect St. Louis property for your goals and preferences.
Let’s talk — fill out our buyer’s form today to get started.
Taylor Streitmatter is Evernest’s Director of Brokerage. His diverse expertise includes sales, operations, and brokerage management.
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