Monthly Archives: January 2008

January 22, 2008 · 1:37 pm

Investor’s Beware

The following guest post is brought to us by Shaun Kilburn of AAA Insurance. Be easy on him. 😉 It’s his first post!

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Investment properties are a wonderful asset and provide both short term and long term earning power on your money. As an insurance agent and property investor I find it hard to believe that owners of properties don’t shore up their risks in several key ways. The hard truth about liability insurance is that as your assets go up so should your liability insurance. Your primary residence has normally up to $500,000 worth of available liability protection. But what happens when your net worth starts creeping up over that amount? Well you had better start by speaking with a reputable insurance agent. Your assets are vulnerable to law suit once you have more than your home or umbrella insurance policy allows.

Many properties start to become more valuable than previously thought as your rents go up whether the market is moving sideways. Your primary residence, investments property, and assets not in a trust will be discovered by an opposing attorney who has done an asset search in the event of a lawsuit. Your umbrella policy should be valuated at more than you are being sued for. The attorney can chose to sue you as the policy owner or you as the individual based on where there is more money. All the attorney has to do is sue for more than the liability limit will cover. If your worth is more than the liability limit on your policies, look out, you’re in for a bumpy ride.

All this anguish can be avoided by taking out a simple umbrella or excess limit liability policy. They are the cheapest form of insurance and although a million dollar policy sounds expensive they usually run less than $200 a year. That’s right, less than $200 and you are as close to bullet proof as you’re ever going to get. Do yourself a favor today and call a reputable insurance agent with at least an A rated company (A.M. Best). Your investments are too valuable to leave to chance.

Another area of concern is making the appropriate disclosures as to the type of policy you carry on an income property. There are many kinds of policies from straight renters to builder’s risk, non-occupied dwelling, improvements and betterments policies etc.

Each time you change the parameters of the original contract, you need to contact your insurance agent as you may find yourself with no coverage in the event of a loss. Most companies do not like non-occupied dwellings. If you started out with an occupied unit when you signed the contract, and your property becomes vacant for an extended period of time, say over 60 days, you may find that you need to change your property to a non-occupied policy or at least disclose your situation to your agent and go from there. Many times the insurance company will work with you, and as long as it is documented that your situation has changed. In the event of a loss if you have notified your agent then when the claims adjustor does a loss assessment any changes in occupancy or other structural changes will be accounted for and your policy will most likely pay out.

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For questions or quotes you can contact Shaun Kilburn of AAA Insurance at:
816.931.5252 x 173
skilburn(at)aaamissouri(dot)com

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Filed under Legal Issues, Misc. Real Estate, Preferred Vendors

January 21, 2008 · 5:38 pm

Meme Time

There’s an annoying tradition on blogs. It’s called being Meme’d. Now that I’ve been tagged by Lani I have to tell you 7 things about myself and then pass this annoyance on to other people. Sort of like the change letter from Hell.

I started losing my hair when I was 18.
My favorite bar when I was in college was Louise’s. It’s still there.
I was enrolled at KState right up to the minute I actually came to my senses and went to Kansas.
I love Mexican food as much as BBQ.
I have been shot at. (And it wasn’t because of my sarcastic humor.)
One day I want to skydive.
I’d risk everything for a chance in outer space.

Now I’m going to tag Jeff, Christopher, Pat, Bill, and, ah, heck…that’s enough for Pete’s sake.

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January 21, 2008 · 9:18 am

Ridin’ The Storm Out

Kevin Cronin and REO Speedwagon once sang

Ridin’ the storm out,
waitin’ for the fallout…

I must confess right here it’s one of my favorite songs, ever. But I don’t like it when it concerns real estate investing. Fortunately, here in Kansas City our income property hasn’t had too much fall out. But around the country? Forget about it.

Because the California and Florida and Las Vegas markets have experienced tremendous fallout many people in more stable markets like Kansas City, Charlotte, Tulsa and Dallas still feel apprehensive about moving forward with acquiring more investment property.

So I wanted to give you some food for thought. First, I like what Christopher Smith over at Equity Scout has to say on the subject in his post titled Five approaches to today’s soft real estate market. Read it and see what you think.

Here Are My Thoughts

If you have a non-performing property right now, sell. No if’s ands or buts. I don’t care if you lose money on the sale. What would you rather do? Continue to lose money every month indefinitely? If it’s a non-performing property in a less than desirable location cut your losses and run.

If you have an under-performing property right now, hold. Maybe you counted on appreciation to get the price up quickly so you could raise rents. Maybe you counted on rents rising faster than they did. Either way, whatever small amount you might be losing will probably be offset when the market begins to rebound. Will that be next year? I don’t know, either. But depending on your situation I would advise you to hold tight.

If you are lacking leverage, go ahead and exchange. So you sell for a bit less than you want to because it’s a buyer’s market. Guess what? Whatever you buy you’ll be able to buy for less than that seller wanted to sell because it’s a buyer’s market. 🙂 What’s more important here is keeping your capital growth on track to get to your retirement on or ahead of time. Not whether you bled every penny out of your property that you had hoped to get.

If you have cash now (or assets) and are thinking about more property, buy. It’s never been easier to buy at or below market here in Kansas City. And believe it or not we still have areas of modest appreciation. Call or email me for specific examples.

Of course, everybody’s situation is a little unique. These are generalizations and not intended to be specific advice to anyone. We’ll have to sit down over a coke to see when and where you should go.

A Successful Few Days In Kansas City

Early, and I mean early, this morning I put Jeff & Josh Brown back on the plane to San Diego, California. While they were here I had a chance to show them that Kansas City does have wireless internet in their hotel rooms, running water to houses and buildings made out of other materials than sod.

Jeff Brown On the business front Saturday saw two very successful investment workshops conducted by Jeff. Feedback from those that attended has been positive. There is a hunger in the market to know all they can regarding their real estate investing present and future.

And also on Friday I think Jeff was impressed with some of what Kansas City real estate investment housing has to offer.

From a barbeque standpoint Jeff & Josh got to experience Arthur Bryant’s, BB’s Lawnside and Oklahoma Joe’s Bar-B-Q’s. You’ll have to ask Jeff which he preferred. I’ve emailed him a photo of him standing in front of a real BBQ pit at BB’s. Now he understands how BBQ is made. 🙂

The photos are from BB’s. (Athol, I was using a small point & shoot in low light. So forgive the lack of quality.) 🙂

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Filed under Kansas City BBQ, Misc. Real Estate

January 18, 2008 · 2:48 pm

Again With The Four Benefits of Real Estate Investing

BBQ Capital is constantly adding readers. How do I know this? By the internal stat counter. So one of the issues I like to revisit over and over and over and over again is the 4 Benefits of Real Estate Investing.

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Cash Flow Before Taxes. Simple enough. You take all of your income, subtract all of your expenses and what is left over is your cash flow before taxes. For your Cash-On-Cash return you simply divide that number by the total amount of dollars you have put into the income property.

Principal Reduction. Again, fairly simple. Take the total amount you put towards debt service and subtract that portion that was interest. What’s left over is the amount your tenant’s put on your rental house’s mortgage towards your retirement.

Depreciation. This is a bit more complicated. Especially if you accelerate your deprecation. But in short, it’s an amount the government allow you to write down your investment property each year…so long as the depreciation schedule is in effect. Do not overlook this benefit. It’s major.

Appreciation. What’s the property worth now. Subtract what you paid for it. That’s your appreciation.

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Filed under 4 Benefits of Real Estate Investing

January 17, 2008 · 9:27 am

Odds & (Burnt) Ends

I have suspected this was going on at unprecedented levels and now I have confirmation from today’s Kansas City Star. The Star reports in the Business section that CountryWide Financial Corp helped 81,266 borrowers renegotiate their terms to allow them to stay in their homes.

First, this just seems smarter than taking the real estate back. Second, it shows there is a movement by the free market to correct it’s own mistakes. And third, the borrowers will benefit, at least in the short term.

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I’m picking up Jeff & Josh Brown today from KCI. For anyone interested, we’ll be atBB’s Lawnside BBQ tonight. We’ll probably get there around 7:00. John Paul’s Flying Circus will be performing. Maybe we’ll see you there.

For a late lunch I’m taking him to Arthur Byrant’s. It’s my hope we’ll put 20 lbs on them before they leave.

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Anyone else tired of all the snow? And the kids are out, again. Ugh.

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Watch carefully for the new construction homes announcement next week. I’ll be unveiling it this Saturday to the workshop attendees. Whatever is left will be on this blog.

Kansas City v Los Angeles…Again

I had to laugh out loud yesterday after speaking with two different people from California. They were complaining about Kansas City’s weather. You know, snow, how cold it gets, etc.

“How can you live there? It’s 68° and sunny here!”

Then I open up this morning’s business section of the Kansas City Star and see an article showing that the most recent study of California real estate is that prices are down 15.2% from last spring/summer’s highs. My question to them is;

“How can you live there? Prices are stable here!”

And, we don’t get earthquakes, unimaginable crime, traffic at 10:00 pm, etc.

We all live where we live and have advantages over other parts of the country. Though you will ALWAYS hear me complain about the cold I have to say I like the change in seasons. Well, except for the whole raking leaves thing.

But from an investment property owner’s standpoint, there is no question that there is a stark difference between owning income property here in Kansas City or anywhere in the SoCal area.

Kansas City’s advantage: Stability and affordability. Slow and steady growth. It’s not sexy. But neither is KC.

SoCal’s advantage: At times, spiraling appreciation that can make you wealthy beyond your dreams. But if you don’t time it right…look out! And just try to make the numbers work.

Do what you are gonna do. If I can help great. But just know each area has it’s pluses. 🙂

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Filed under City Comparisons