Monthly Archives: November 2007

November 19, 2007 · 2:24 pm

Legal Zoom: Do It Yourself Legal Documents

For those of you so inclined you should check out legalzoom.com to see the legal documents services they provide. I first heard about them on the Jim Rome Show, and in fact if you put the name Rome in the promotions box at checkout you are supposed to get a discount.

Now, I’m not endorsing them. I’m simply pointing them out to you if you are thinking of forming an LLC or other such entity to protect either yourself or your investment properties. I still think their is real value in having an honest (well, that may be open to debate) to goodness attorney working for you and intimately familiar with your situation. But if you are independent and always looking to save money, legalzoom may appeal to you.

Good luck. If you use them, let me know your thoughts!

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Filed under Cool Sites

November 18, 2007 · 5:36 pm

Real Estate Investing Returns Calculations

Calculating projected returns can be of paramount importance when deciding on whether or not to pull the trigger on any particular investment property whether it be here in Kansas City or elsewhere. After all, real estate investing is about securing a return. Without that return your money would do better to be somewhere else.

So before buying that next “income” property you need to know whether there will be any income. (That’s why I get paid the big dollars.)

Of course how you calculate that return is completely up to you. Jeff Brown recently discussed his Einsteinian theory over at BawldGuy. See the post here. And a nice little Q&A session happened in the comments section so be sure to read those, as well.

Let me just say that I prefer to know what the equity return on any investment property will be before I buy it. What is equity return? Quite simply it’s how much I am receiving in benefits divided by how much I have invested.

Remember the 4 Benefits of real estate investing?

Cash flow before taxes.
Principal reduction.
Depreciation.
Appreciation.

Let’s take the calculation of these step by step.

#1 was cash flow before taxes. Simple enough. Just take the amount the property is actually bringing in and subtract the amount the investment property is actually costing you. What’s left over is your cash flow before taxes.

#2 was principal reduction. Again, quite simple to figure out based on the loan you have taken out. If you took out an interest only loan (you’re welcome, Jeff) then you won’t have any. If you have taken out almost any other kind of loan you can just look at your amortization table and figure out how much principal reduction there should be in any given year for your rental home.

#3 is depreciation. Okay, I could do an entire post here. Or two. If you are breaking down your depreciation between land and building only then you depreciate the building over 27.5 years. Rather simple to calculate and all you have to do to figure out the number is to refer to a depreciation table as to when you put your rental property into service.

If you choose to accelerate your depreciation through cost segregation then you will need to do some more figuring. But it’s really only a few more steps. Although, that may be over simplifying things.

#4 is appreciation. Wow! Have you ever tried to predict appreciation? How did that work out for you? Listen, you can guess at what it will be and be awfully darn sure of what it was. But when figuring out if an investment property will be a good buy RIGHT NOW you are going to want to buy a rental property that will make sense based on the previous 3 benefits of real estate investing. Then appreciation is icing on the cake! And you wouldn’t buy a cake unless you knew it would have icing, right? (I know, there’s pineapple upside down cake. But let’s move on.)

Again, before buying your next Kansas City real estate investment property you need to know before you buy whether or not that was a good idea. Take the time to work through your calculations to see if the rental property will be a good buy or a drain on your current resources. After knowing you are making a good investment then you can go back to planning your retirement worth having.

1 Comment

Filed under 4 Benefits of Real Estate Investing, Real Estate Investing

November 18, 2007 · 2:42 pm

This Is War! Well, A Border War.

At the risk of losing any of my loyal real estate investment clients because of their misguided loyalty to the University of Missouri I have to take a stand right here, right now on the Border War coming up next Saturday night in Kansas City.

For those of you that need some background on this, the most fierce of rivalries, take a minute and read this article by Blair Kerkhoff titled Border War: An uncivil beginning to a great rivalry printed in today’s Kansas City Star.

I am urging publicly that Govenor Sebelius station Kansas National Guard troops on the border at State Line to be able to respond quickly to any danger the Kansas Jayhawk football team and/or their fans may face from the hostile Missouri crowd.

Why is this necessary? Three reasons:

Kansas and Missouri have agreed to play the next several games against each other in Kansas City’s Arrowhead Stadium. Missouri soil. This offers us no protection from the descendants of Quantril and his raiders.
They are Missourians. You cannot trust them.
Alcohol will be served at the game.

Add those three things together and you can only have a recipe for disaster!!

Editor’s note: Most of this blog post is done tongue-in-cheek. Well, except for the part where you might figure I don’t like Missouri. While the rivalry is truly fierce, let us hope that people on both sides of the matter can accept a win with class and a loss with dignity. It will only take a few idiots from either side to ruin a great night in Kansas City next weekend. Please, show respect and restraint. Cheer for your side. Have a great time…oh, and know that KU will win. 🙂

2 Comments

Filed under Kansas City Sports

November 16, 2007 · 9:56 am

Ask Chris

I received this email early this morning from a would-be real estate investor that I’m working with:

I know appreciation is a big piece of the return, but in this market I don’t know what I can count on. It makes me think I should maybe look cash flow instead until the market turns around and move more toward growth at that time. Your thoughts?

Well, I’m glad you asked.

First, let me state unequivocally that this would be investor is sharp. He is looking at real estate investing as a way to secure a retirement worth having. But when you are newer at anything there is always a period of confusion and wonderment. Now to the question at hand.

Appreciation and growth are always going to be important when you are working with me planning out your real estate investments. I don’t advise heavy cash flow (run-down housing, mobile homes, etc.) income property and I believe that when you are starting a good healthy dose of leverage (with proper cash reserves) is in order.

Having said that, a rental property that pays for itself is of paramount importance. As the writer wonders, what will this market bring? What isn’t stated, but implied, is:

How long will this market last?
How can I time it to move from cash flow to growth?

Quite simply, you cannot know any of those things. You have to go with historical growth calculated along with growth assumptions, population & job trends, available real estate and desirability (along with a few other things) plus experience and then you blend those all together so that you come up with a target area and property type. Easy, right? 🙂

In the mean time, you absolutely must acquire properties within those parameters that will pay for themselves based on the down payment you have, the loan product you choose and the expenses you expect (and don’t expect).

Real estate investing is part science, part voodoo and a little bit of luck mixed in doesn’t hurt. (See California’s 20% a year growth. How ’bout the guy who sold it all at peak without knowing it was peak? That’s luck.)

What am I saying? Buy your rental property, income property, investment property (whatever term you use) based on sound financial principals. Base your growth projections on sound homework. Then you should be fine.

1 Comment

Filed under Personal Real Estate Opinions, Real Estate Investing

November 14, 2007 · 10:26 pm

Real Estate Guru Ratings: A Must Read For The Real Estate Investor

Okay. So I must have been living under a rock to be the one person involved in talking about real estate investing to not know about John T Reed’s Real Estate Guru Rating page. I found it today’s through Christopher Smith’s Equity Scout.

I must say that Mr. Reed seems a bit (how should we say?) cranky. But, I like cranky. And in most cases I laughed out loud because I agreed with him.

Oh, dear. What will he think of me?

Well, I cannot control that. But in the mean time if you want some truth and entertainment, why don’t you click the link above.

(Sorry no pictures. I’m treating you like a grown up. I knew you could handle one post here about real estate investing that didn’t have pictures.)

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Filed under Real Estate Investing

November 14, 2007 · 3:28 pm

More Kansas v Missouri

Providing both Kansas and Missouri win this weekend in football I can see next week as one of the ugliest weeks in history around the Kansas City area. I was just emailed this shirt.

It’s not the Border War. It’ll be Border Armageddon!

I want to encourage your trash talking here! This doesn’t all have to be about real estate investing in Kansas City. We can have a little fun, too. Right? Especially after Kansas whoops up on you from Mizzou!

2 Comments

Filed under Kansas City, Kansas City Sports

November 14, 2007 · 2:42 pm

Kansas & Missouri: The Border War

People throughout the sports world think they understand rivalries. There’s Michigan v Ohio State in football. Duke v Carolina and Indiana v Kentucky in basketball. Boston v New York in MLB.

But there is nothing like the rivalry there is between Kansas & Missouri. Nothing. Sure, we haven’t won as many championships between the two schools. But each and every competition between the two is called the Border War. And while ESPN can pimp all they want to the Duke v Carolina basketball rivalry, it is Kansas v Missouri that stands out in front.

Don’t like each other? Seriously, what two other rivalries had great-grandparents that shot at each other? That burned each other’s town to the ground? And look! The Missourians are still proud of it. (For those of you that don’t know, that’s Lawrence, KS burning on the shirt. Nearly 150 men of Lawrence were left dead or dying that fateful morning after Quantrill’s Raid.)

I credit the Missouri nation for their creativity and success this year. It’s one of the reasons I love to “hate” them. And I know they feel the same way. 🙂

***
By the way, the most creative shirt floating around Kansas right now refers to our successful football program…at least this year.

Our coach beat bulimia.