Monthly Archives: March 2008

March 24, 2008 · 9:04 am

What Is “Break-Even” Cash Flow?

Holy Grail What is break-even (or neutral) cash flow? Mostly a lie. Well, not really a lie so much as a fantasy. Or a projection.

Lately I’ve been speaking with a lot of newer investors (1 rental property or fewer) and the term “break-even” cash flow keeps coming up. Listen, when we do these projections they are just that, projections. We try to be very accurate on income and expenses. And when I whittle all that down to Cash Flow Before Taxes and it says $895 for the year, to me that’s break-even cash flow.

For those of you who are not regular readers of BBQ Capital you need to know what I mean by Cash Flow Before Taxes. Click on the 4 Benefits of Real Estate Investingunder the Categories column. That’ll be easier than me explaining it all. But rest assured, I cover as many conceivable expenses as possible. This isn’t pie-in-the-sky.

It’s here. In writing. To me “break-even” cash flow is anywhere from losing a thousand to making a thousand. If losing a thousand is major to you then you need to be sure of your reserves that are almost mandatory or invest in the stock market where there is never a chance you could lose a thousand dollars. 😉

Required Reading for the Kansas City Rental Property Owner

Are you a Kansas City rental property owner? Do you consider yourself a real estate investor? Do you find real estate investing interesting? Then here is your required reading for the weekend. Three articles are from Jeff Brown who seems to be in the zone right now.

Some Definitions For Beginning Real Estate Investors

More Definitions For Real Estate Investors – Tax Deferred Exchanges

Adjusted Basis: It Ain’t Just ‘Buy Low & Sell High’ For Real Estate Investors

The other two articles come from Chris Smith. I may have referenced one before, but what the heck.

Real Estate Investing For The Long Haul

Real Estate Investing For The Long Haul: Part II

You have your assignment. Now enjoy your families and Easter and we’ll see you on Monday. And don’t forget, I’m here for all of your Kansas City real estate investing questions.

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Filed under Real Estate Investing, Worth Reading

March 21, 2008 · 9:10 am

Good Friday

I’m a bit ashamed today. I’ve been working so hard and paying so much attention to the NCAA’s that I came in to work today and wondered where everybody was.

“Chris. It’s Good Friday!”

Cross

Oh.

I’m a believer. But sometimes confuse my priorities. At the risk of offending some of you I’ll just say that there once was a man that came for me, and you. You should check into it.

I’m done. I’m going to go spend some quiet time before I go too much further into my day. Have a great weekend. Have a great Easter Sunday.

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March 19, 2008 · 8:30 am

The Mid-Month Move-In On Your Rental Property

Phone rings: “Chris. I have some tenants that want to move in this weekend. How do you handle the rent?”

Ah, the mid-month move-in. They really are not that hard to deal with. In fact, they are really no different than any other tenant. Except;

Regardless of what day they move in I always collect the security deposit and a full month’s rent when I give them the keys.
On the first of the following month, I then charge them the pro-rated fee for their previous “short” month.

Quick example: Rent is $1,000 a month with a $1,000 security deposit requirement. They move in on March 20, 2008.

On move in I collect $2,000.
On April 1 I collect $322.50 ( $1,000/31 days = $32.25 per day x’s 10 days)

And obviously on May 1 I collect $1,000.

This way I know that they have the money to move in and that I am getting much of my rent money up front. To me, it’s non-negotiable. I don’t want someone moving in and then not pay rent right away and I’m only holding about $700 less than I could be.

Just my $0.02 on the mid-month move-in for your rental property!

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Filed under Property Management

March 18, 2008 · 10:33 am

Navigating The Minefield Of Real Estate Investing

minefield

As a professional real estate agent that works almost exclusively with the real estate investor I am in a unique position to observe (and experience) the minefield of real estate investing. This creates two situations over and over again for me:

I am able to recognize what is about to happen and offer a word of caution or encouragement (whichever is appropriate) to my clients.
People expect me to have more answers than is humanly possible. 🙂

Not only can I bring my experience to the table, but I can bring so many of the experiences of my clients. And you, the real estate investor, can accomplish this as well by staying in tune with other real estate investors around your area. When you talk to other income property owners you will find that;

Real estate investing is never smooth sailing. (If it is, that just makes you worry about the coming storm.)
Other income property owners experience many of the same difficulties you do. They just figure out a way to use them to their advantage.

Now, this post isn’t written with the intent of scaring away the would-be real estate investor any more than it is written to encourage everyone to be a real estate investor. I kinda liken it to what it must have been like to captain a naval vessel in World War II across the Pacific to deliver supplies to Europe.

There always had to be someone competent at the helm of the ship. On the lookout for other ships (problems like wood rot, bad tenant behavior, etc.) and worried about the occasional minefield (like vacancies, back real estate taxes, etc.). But you see the ship had to go forward. There were times when the chosen path couldn’t be taken or a calamity may have delayed arrival. But with care and knowing when to press forward and when to proceed cautiously the ship did arrive to it’s destination.

Too much care and it will take forever…if you ever arrive. To0 much bravado and you will surely be the cause of your own undoing. Too much worry and you’ll die of a heart attack and then what difference did saving for retirement make?

Balance. Seek it out. And like a teeter-totter I’m sure you’ll have to make constant adjustments to keep that balance. That’s okay. Adjustments are to be expected. Real estate investing is an inexact science. There is as much “gut-feeling” as their is mathematical formula. Seek that balance.

Single Family Home or Multi-Family Home For Your Kansas City Real Estate Investment?

Face off I’m in an age-old conversation with a first time Kansas City area real estate investor. This new investor has the money and is a pretty sharp cookie. Homework has been done and now she is looking for just the right property to start her portfolio with.

I can tell she likes the idea of a single family home. On the other hand, I generally nudge people towards a duplex for their first residential income property. Which is right? Neither. Both.

Single Family Home Advantages (and disadvantages)

Tenants tend to be more stable and stay longer
House tends to appreciate along with it’s neighborhood (which is usually at a greater pace than a multi-family home)
Tenants seem to take “ownership” of a single family home
When you re-sale, buyers can be anyone
Empty = no $
Rents tend to be higher…this is good & bad
Tend to have less favorable return numbers in regards to Cash Flow Before Taxes – therefore a much larger down payment required equalling lower capital growth

Multi-Family Home Advantages (and disadvantages)

When 1/2 is empty, you still have income from the other half
Maintenance and tenancy issues all under one roof
Return numbers generally superior to SFHs resulting in greater capital growth
Appreciation tends to be slightly less than SFHs (goes hand in hand with rents)
Buyers tend to be other investors (which means they have experience negotiating)
Tenants tend to be a little more transient

Are you looking to me to answer the question “Which is better?” I’m afraid I cannot answer that. After all, it’s your checkbook and your life. I just lay out the possibilities and give you what I think is the best way to go at any given time based on what is currently available.

The key is to get your real estate investment portfolio started. Now is the best time to buy that I’ve seen in years. That’s not a NAR line. It’s the truth for the Kansas City real estate investor.

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Filed under Real Estate Investing

March 15, 2008 · 10:50 am

Kansas City Power & Light District: Two Thumbs Up

The Kansas City Power & Light District gets a thumbs up from me and an another from by buddy. We spent the day there yesterday hanging out in KC Live with all the festivities for the Big XII Tournament. As you can see from the photo, there was not only a sold out Sprint Center but literally tens of thousands more came down to drink beer or sodas, hang out with friends and watch the game on the 12-15 foot television screen that you can see in the upper right hand corner of the photo.

I have no idea on whether or not this will be a long term economic success. I can tell you from a civic pride perspective that I felt like I was in a real city, again. The whole atmosphere reminded me very much of Baltimore’s Inner Harbor area. (Yes, I know there isn’t any water within 3/4 of a mile of the place.)

Gordon Bersch Marzin We grabbed a bite to eat at the Gordon-Biersch brewery. Food was great and their own brews were good. I loved the Marzen. GB describes it as “Our most popular beer which is a smooth, mildly sweet, auburn colored lager.”

The crowd was very midwestern. Well-behaved and friendly. We spoke with people from Iowa, Missouri, Kansas, Texas and Oklahoma. I even saw that Colorado brought their fan!

Chris, what does this have to do with real estate investing in Kansas City? Well, nothing really. Or everything. See, I believe cities will tell you whether they are moving forward or backwards. And that will have a determination on the desirability of a city for future work-forces and employers. And this bodes well.

Despite many fears, parking was not too difficult to find so long as you don’t mind a 5-10 minute walk. And really, if you are going down to eat and drink all day, I don’t think the walk will hurt you.

So the next time you are looking for something to do I would love to encourage you to go on down to the Kansas City Power & Light District. Eat dinner. Listen to one of the many live shows they have planned. Catch an event at the Sprint Center or visit the College Basketball Experience.

4.21.2008 update: My wife and I decided at 8:00 pm on Saturday night to go on down the the Power & Light district and see what was up. Time away from the kids and all. Anyway, WOW!

I simply cannot emphasize enough the transformation this place has on my attitude towards Kansas City night life. The place was packed. Every restaurant. Every bar. And the “common area” in the center was crowded enough to be full but not too crowded as to be miserable.

We met several couples as we wandered from place to place. Some from in town and one couple from Minnesota who couldn’t get over how cool Kansas City was. (Chamber of Commerce moment.)

The Irish bar we tried poured the Guinness perfectly and had a cool dancer come out for one song that made the live band all the more entertaining. If you plan on going to Howl at the Moon or that Rock’n’Roll bar my advice would be to get there early.

Heck, just the people watching was a blast. Women all decked out, scraggly looking and everything in between. Same with the guys. Anyway, try it out. But take your wallet. Not the cheapest food and beverages in the area!

Shameless advertisement alert: Looking for a REALTOR in the Kansas City area? Then contact Chris Lengquist of Keller Williams Realty in Olathe.
M 913.568.1579 EM listwithchris@kw.com
www.olathekansascityrealestate.com

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Filed under Kansas City entertainment, Kansas City neighborhoods