Monthly Archives: October 2007

October 16, 2007 · 8:32 am

What Is A Pro Forma?

People love to show me the pro formas on the investment property they are trying to sell. And I look at them…with a wary eye.

What is a pro forma? It’s a set of numbers that project what a property should be getting/spending versus what it is getting/spending. It adjusts income and expense numbers to reflect true market rates. Or does it?

To me pro forma probably means “I’m lying to you.” Now, I hate to sound cynical. However, if an income property should be getting $850/mo in rents per side why is it only getting $725/mo per side in rents? Also, how can you say expenses will only be “Y” when it is an eighteen year old property with the original heating, air, roof and water heater. Don’t you believe there will be capital expenses to account for next year?

I know you can turn investment properties around. There is a lot of money to be made in doing so. But choosing the right property is a daunting task and it should not be based solely on what the seller’s pro forma is showing you. You need to research, fact check and look at the numbers with a cold, rational approach. Take off the rose colored glasses before you get yourself into trouble.

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Filed under Real Estate Investing

October 15, 2007 · 9:23 am

Get Ready To Pounce!

About two months ago I started saying that winter was going to be a great time to pick up good investment property here in the Johnson County, Kansas area. And I like it when a plan comes together.

Over the last two months inventories have swelled from about 42 multi-family housing units for sale in Johnson County to today’s number of 72 multi-family housing units for sale. Many/most have starting prices too high and that is to be expected.

Realty is quickly setting in on many of these sellers. They are trying to sell at premium prices, above and beyond what was reasonable even 18 months ago. How do I know? Because their rent to purchase price ratios are out of whack. Numbers don’t lie. I know I can show each of these sellers the past three years of pricing trends and get them down.

Most of these investors own these properties and know the real numbers anyway, even if their REALTORs don’t. I just need to start picking and choosing.

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Filed under Real Estate Investing

October 12, 2007 · 8:06 am

Is That A Good Deal?

It just seems to me that people keep missing the point. The question isn’t “Is that a good deal?” The question is “Where else could I put my money and would that be more or less profitable?”

When it comes to real estate investing people are constantly asking me (after I’ve shown them a property) “Is this a good deal?”

“I don’t know.”

Now, I’m really not trying to be flippant. In fact, I’m trying to make you think. After all, what is a good deal for you may not be a good deal for the very next guy discussing the very same property. Why?

Different criteria.
Different job incomes.
Different credit scores.
Differing ability to take advantage of passive loss.
Different down payments.

Get the picture?

I am not advising here the infamous real estate investing technique of “paralysis by analysis.” I am saying that you need to know what’s on the market and how each of those properties would be expected to perform in order for you to answer the question “Is this a good deal?” about any one particular investment property.

Note To All You Costa Rica Spammers

You are annoying the hell out of me with all your stupid “Great post! Have you thought about blah, blah, blah” followed by your stupid, un-asked for links.

You want a link from this blog? Let me tell you you are going about it all wrong. And in case you haven’t noticed I just keep throwing them in the trash.

Please discontinue your links. If you like, and it won’t bother me a bit, quit reading, as well.

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Filed under Uncategorized

October 10, 2007 · 7:06 am

More Growth News For Olathe, Kansas

Looks like I’m doing a week long series on how real estate, and therefore real estate investing, is affected by the influx or outflow of jobs in a given region. Since I live in Olathe, I’ve been focusing on Olathe and southern Johnson County, Kansas. (Which includes Overland Park and Leawood and maybe some of Lenexa.)

***

From today’s Business section of the Kansas City Star comes an article by Kevin Collison that states U.S. Bank is building a 100,000 square-foot facility that will house technical equipment to support this bank’s nationwide operations. The western Olathe site was chosen from 93 possible sites and was chosen for reasons including “competitive utility costs and availability of labor.”

While the contractor building the site will be from Minneapolis they are expected to use as much as 70% local subs . This new business in Olathe should bring at least 80 long term jobs.

***

From today’s Olathe Neighborhood News section of the Kansas City Star there is an article written by Sarah Benson that talks about the continued growth of the Olathe School District.

Here are some choice sentences;

The district is growing at an unprecedented rate.

The district (Olathe) gained 842 students this year, bringing it’s enrollment to 26,385.

Quoting Superintendent Pat All: “We’ve had straight-line growth for 41 years.”

And my favorite paragraph of the article: Olathe’s growth isn’t just because of new subdivisions. All said that student population in older, established neighborhoods is up, too. That’s because of young families with small children are finding affordable housing in older neighborhoods.

As a real estate agent who lives in works in Olathe that last paragraph goes along with what I’m seeing. Do date the older neighborhoods aren’t decaying. In fact, many buyers are buying low and fixing up to build their equity and live closer to where they choose.

As Olathe steams towards the projected goal of 300,000 people by 2050 we are going to see a lot of changes. It will be important to keep our schools healthy as well as our job growth. Olathe, like Overland Park, can be a strong city in it’s own rights. Not just living off of the jobs provided by Kansas City.

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Filed under Kansas City, Olathe

October 9, 2007 · 7:15 am

Forsee Out At Sprint: What This May Mean In Kansas City

Coming on the heels of yesterday’s post about the growth and expansion of Garmin is last night’s news that Gary Forsee has stepped down (fired?) as CEO of Sprint. It seems that Sprint has been hemorrhaging customers and has lost it’s way concerning customer service, vision and execution.

This is potentially very good or very bad news for Kansas City’s economy, specifically Johnson County and it’s housing market.

Should a new CEO come in and embrace Sprint’s Kansas City roots, turn the company around and cause economic growth/expansion those middle management houses will once again be in short supply and high demand. But if some east coast guy comes in who thinks of Kansas City as a liability more than an asset and decides to move more and more operations towards Reston, VA, well, there could be big, big trouble.

This is development worth watching. I have quite a few clients that are Sprint employees. Sprint is the single largest employer around Kansas City and pays very well compared to many other tech companies here, from what I’m told.

Real Estate Values & Expansion

A basic tenet of real estate theory is that anywhere there is job growth real estate will be more in demand. As there is more demand, there is pressure for prices to rise. Less demand usually follows jobs fleeing an area. The people will follow leaving a downward pressure on housing.

How does this relate to real estate investing in Olathe, Kansas? Just thought you would like to know that Olathe’s Garmin, Inc, the world headquarters of the GPS leader, is expanding again just a few years after completing their new headquarters.

Also, Olathe still predicts a near doubling in population over the next twenty years. A commercial agent I know says light industry and warehouse space is going quickly.

Just thought I would share.

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Filed under Olathe