Monthly Archives: October 2008

October 27, 2008 · 9:32 am

What Does A Kansas City Property Manager Cost?

Here in the Kansas City area a property manager can be a blessing or a curse. There are really good property managers. There are really bad property managers. Many different things go in to the whole make-up of what makes a good property manager or a bad property manager.

But what about cost? Like realtors, property managers can set their own rates though competition tends to keep the pricing structures pretty close together. I think you’ll find the average cost of a property manager in the Kansas City area to be about 8% of collected rents.

Now, there are property managers that will charge you 6% and some as high as 10%. But 8% definitely seems to be the trend. And then there are associated costs. Who keeps late fees or application fees? The real estate investor or the property manager? If there is any rehabbing is there an oversight fee by the property manager? And what about lease-out charges?

Generally when I’m guessing on expenses for a property I will figure 5% vacancy, then 8% management charges and 75% of one month’s rent for a lease-out charge. That may me a little high or low but I think it’s a great way to at least account for some if not all your property management charges when deciding whether a property is for you or not.

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October 24, 2008 · 7:08 am

It’s Not All Roses: Difficult Tenants

I think I do a pretty good job screening tenants which is what allows me to have some success at real estate investing. But as a client asked the other day, “You make it all sound like a bed of roses. Are there any problems with real estate investing?”

Oh, yes. If expenses are unusually high for whatever reason, that’s difficult. If you end up with an unusually long vacancy, that’s difficult. If your tenants checks out well, performs great the first month or two and then turns into a difficult tenant, that is definitely difficult.

Performing great for a month or two and then turning difficult has happened recently both to me and a client of mine. By difficult I mean late/incomplete payments by my tenant and unreasonable repair demands by my tenant’s client.

No. Real estate investing in Kansas City or anywhere is not all roses. It’s definitely worth it in the long run. But sometimes you ask yourself “Why am I doing this?”

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October 21, 2008 · 7:07 am

Johnson County, Kansas Real Estate Investing

Today I want to look at investing in real estate here in Johnson County, Kansas. For those of you who are from out of the area, Johnson County, Kansas is a suburban area of Kansas City, MO. Within the county are two of the Top 20 Cities in America to live in: Olathe and Overland Park. (I live in Olathe.)

There are other great cities, too. Like Lenexa and Shawnee and Merriam. But I digress. Looking over our MLS of homes for sale I am consistently finding that the better value buys are in single family homes at this time and not duplexes or more.

Duplexes for Sale
At this very moment in time our Kansas City MLS shows 51 duplexes for sale in Johnson County, Kansas. I’ve been through and awful lot of them and I can tell you there are not 4 I would recommend at this time based on their current asking prices. While inventories are up on duplexes reality has yet to set in on some of the sellers. They still want rent to price ratios from a few years ago. Unfortunately the properties haven’t been taken care of since a few years ago. 🙂

Single Family Homes for Sale
The same kind of delusion that some duplex sellers have is also true with many sellers of single family homes. Though they are not generally owned by investors and therefore do not have to know better. But because of the sheer volume of houses for sale there are quite a few buys out there to cherry pick.

Now, as we’ve discussed many times the disadvantage to purchasing a single family home as an investment property is it will most likely need some repairs so you’ll need to have not only the cash to purchase (in JoCo figure about 20%-25% down) but you’ll likely need another 5%-10% to bring the property up to date…rental wise. Another aspect is that you’ll probably need anywhere from 60-75 days after closing to get the repairs done and get a tenant in. So that’s a mortgage, maybe two, you’ll have to pay without any income.

The flip side? You can buy these homes significantly under value compared to CURRENT comps in their neighborhoods. And these homes are in neighborhoods with traditional growth and desireability.

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October 19, 2008 · 7:09 pm

I Have To Laugh

For those of you that saw my last post (scroll down) about how I think Fannie/Freddie sucks, well, I have to laugh. Please laugh along with me. Turns out that MY lender dudes (and dudette) tell me that the underwriting stip mentioned only has to do with when you are moving from primary to primary.

This just goes to show you a few things;

That the information both my client and I received was erroneous. Make sure you work with a lender that knows the details of his stuff before talking.
That I found it believable shows how fluid the whole investment property lending environment is right now. I really feel like I’m spending too much time trying to figure out what the lastest regulations are.
That I can be a little reactionary. But longtime readers already knew that, right?

Now, I’m still not ready to retract my statement about my thoughts of F/F. I’m only willing to say I was wrong and probably shouldn’t have written that post. Sure I could just delete the post. But I won’t. I don’t want to pretend it didn’t happen.

Freddie and Fannie Suck!!!!

I used to know investment loans as well as any lender out there. Ask me anything, I could tell you. Now, since it all changes on a minute by minute basis (seemingly) I don’t know what to think. Read this email I just received from someone under contract to purchase an investment property right now:

Fannie/Freddie changed the rules about the rental propertyI already own. Apparently, since I don’t have 30% equity or greater in the Grandview duplex they don’t count the rental income, HA! But of course they still count the mortgage payment, which destroys my debt to income ratio.

I’m still traking this down, of course. But this is getting insane. This isn’t even reasonable. He’s owned the properties for years but keeps them leveraged for capital growth. Not counting any income from the properties but counting debt isn’t even reasonable.

Ah, Inspection Day

I have two inspections tomorrow for a couple of potential investment properties over in the Waldo neighborhood of Kansas City, MO. As an agent I get bored to tears going to inspections. But as a buyer…especially an out-of-town buyer…I’m big on recommending them.

I have good eyes when looking at a house. Still, I see things the second and third time I might not have noticed the first time. And then having a completely neutral set of eyes look at things can be a big benefit.

If you are really, really good at looking over a house you might want to forgo an inspection. But if you wouldn’t mind spending $325 on a very large investment I highly recommend the time and trouble to have a qualified houses inspector look at that potential rental property. If nothing else it will confirm or deny what your agent has told you.

Hands On Real Estate Investing Class

I spent a couple hours Saturday morning teaching a class down at the University of Missouri – Kansas City called Hands On Real Estate Investing. And the audience of about 9 or 10 was very receptive.

As you might expect one of the hot topics was financing and the availability of loans for the real estate investor. But more than anything, and more than any other class I’ve taught at UMKC, there was a real hunger by a few of the participants to learn more about real estate investing. Great questions that were well thought out.

One of the points I tried to drive home is that real estate investing in Kansas City is not rocket science. Learn what the numbers are. And work those numbers. Work with someone that has the experience to show you the road. That experience will definitely help you recognize troubles along the way. Know that numbers are your best friend or your worst enemy. They will work for you or against you…but they don’t care. If you know how to read what the numbers are you’ll know which are the good seeds and which are the bad.

After all, the first rule of real estate investing is to not lose the money you have. (See my purchase recently of more Sprint stock…I’m such an idiot when it comes to the stock market.) After you’ve done the right research to find a stable property then you can forecast the gains that property will make over the long term.

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