Monthly Archives: May 2010

May 27, 2010 · 8:36 am

Net Operating Income Reprise

Net Operating Income or NOI. The basic building block of financial analysis for investment property or businesses. For the sake of our Kansas City real estate investors we’re gonna talk about NOI specific to owning rental property. I’ve talked about it before on many occasions. In fact, in September of 2007 I wrote Net Operating Income aka NOI on this very blog. That should show you two things; 1) It’s an important topic. 2) I’ve been doing this real estate investor blog thing for quite a while now.

Net Operating Income is simply your Gross Scheduled Rents minus your expected vacancies minus any expenses that it costs to run and maintain the rental property. Financing is not included. Why? Because everyone’s cost of financing is different. That’s why.

See not too complicated. Once you have your NOI you can then determine value.

For instance, you can find your debt coverage ratio by taking your NOI and dividing it by your debt service. Want to know if you’ll get the financing on that new rental property before even the underwriter gets it? Then have a strong debt coverage ration of at least 1.2 to 1.4. And in today’s financial world I’d keep it closer to the 1.4 if at all possible. Negative DCR? Don’t even think about it. But that’s a whole other blog for a whole other time.

For other definitions and explanations of NOI I invite you to visit Investopedia and/or Jeff Brown’s Bawldguy explanation which is a little more colorful.

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Filed under Real Estate Investing

May 26, 2010 · 11:05 am

Let’s Get Back To The Basics

With apologies to Waylon Jennings & Willie Nelson, it’s time for me to get back to the basics of my real estate love. Real estate investing. Now, while I won’t be discussing Luckenback, Texas, I will be discussing my home town area of Kansas City.

How Do I Know If The Rental Property I’m Buying Will Be Profitable?

Real estate investing in Kansas City is not very complicated. It can be treacherous to those that don’t heed to common sense. But it’s not too complicated. In a nutshell here is the basic formula for determining whether or not a rental property you are considering will be profitable or not;

Income (projected)
– Expenses (projected)
= Cash flow (positive or negative)

There! That’s it!

Income can take on many variables. There is income from rent, laundry, parking, late fees, etc.

Expenses can take on many more variables. There is, of course, the mortgage. There are also insurance, property management, maintenance, upkeep, legal and “future” expenses. (That is by no means a complete list of expenses.)

Learning how to project income and expenses is where the rubber meets the road. And once you know what the Net Operating Income of a property is you can then set a value.

Not sure how to determine and then work from Net Operating Income? Stay tuned.

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Filed under Real Estate Investing, Uncategorized

May 21, 2010 · 8:34 am

Landlords Must Pay Tenant’s Bills? How About Their Driving, Too.

A couple posts back I did a short piece called Kansas City Real Estate Post Tax Credit and while the post it’s self was rather innocuous the comments were worth reading about the subject of landlords now being held responsible for bills usually under the purvey of tenants. You know, for such luxuries as water and sewage.

So I started doing a little looking into it and decided not to say anything until what happened happened. Seems there was a bit of a bro0-ha-ha about the fact that it had been passed and that landlords were responsible for the water bills whether or not the tenants paid them. The illustrious City Council of Kansas City, Missouri had passed the ordinance without, of course, having read or been told about the provision in a much larger matter. (Publicly elected officials not reading what they are voting for is an epidemic around this country. These laws are written in hundreds if not thousands of pages and no one wants to read them. Well, I’d say it’s part of your job…but that’s a whole other matter.)

Anywho, the Kansas City Star reports yesterday that KC changes water and sewer bill policy on rental dwellings.

Doesn’t anyone in the freaking country take responsibility for themselves anymore? When did so many people become a bunch of little pansies? And taxing? Please, don’t even get me started. We wouldn’t have to tax so much if people would just take responsibility for themselves. (Editorial Note: I am the father of a daughter with CP. I, better than most of you, understand fully that some people will never be able to fully support themselves. There are those who need our help and as a society we should feel morally obligated to do so. So don’t throw the exception to the rule at me.)

The whole matter that landlords should somehow be responsible for the bills of others is absolutely ridiculous. Apparently in Arizona this is already the case. (See comments from the above listed blog post.) Maybe we as landlords should also be responsible for the gas and electric. Wait, then we should be responsible for how many cars drive on the roads in front of our rental houses. Think I’m kidding?

Mission, Kansas considers road fee that would that would link properties, street use. This too, from the Kansas City Star. Imagine.

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Filed under Legal Issues, Misc. Real Estate, Real Estate Investing

May 19, 2010 · 8:27 am

FHA Underwriters

I just love it when an underwriters takes on responsibilities that they do not understand. For instance, we had a closing delayed because the underwriter said my sellers didn’t have the write to sell the property as the home belonged to their parents. Ok.

But did you read the title work that clearly explained, in English even, that there was a Transfer on Death Deed and that the deed had been executed and filed?

It’s okay to ask questions. It’s not okay to hold up a closing because you don’t know how to find answers. Especially answers that are sitting right there in front of you.

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Filed under Financing Options, Misc. Real Estate

May 12, 2010 · 8:42 am

Kansas City Real Estate Post Tax Credit

Well, we are twelve days into the real estate market without the tax credit and there is absolutely no way to make any scientific determinations. But I can tell you a few things that are true and that I have noticed.

Looking at our showing service I can tell you that showings for the first week of May are down 48% from the last week in April. -48%!
Our sales board at work, where I just added a fairly anemic sale, is quite thin compared to the previous two months at this time. That’s just an observation. Not a fact.
My phone? Crickets. Well, except for the many calls regarding more docs, loan stuff and FHA repairs for currently pending deals.

As suspected, the patient real estate buyer and/or investor may be able to start to pilfer some ever-growingly-uncomfortable sellers in a very short while.

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Filed under Kansas City Real Estate

May 4, 2010 · 1:00 pm

Working On My State of the Market Report

I’m currently working on my State of the Market Report for Kansas City real estate owners and investors. It should be out on Thrusday. Check this blog and/or your email if you’re on my list.

I think you’ll find it interesting.

Chris

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Filed under Uncategorized

May 3, 2010 · 7:25 am

Unemployment Heat Map

Want to see the latest unemployment heat map? Here is a link to the Washington Post;

http://www.washingtonpost.com/wp-srv/special/nation/unemployment-by-county/

Make sure you click the auto-play at the top right. While I realize that we need a lot of things taken care of in this country, it seems to me jobs would be a top priority. Look at unemployment in January ’08 and where it is today. Oh, I know, it must be the other guy’s fault. Even though it’s two years later. 🙂

I’m just sayin….

And aren’t those same dark counties the same counties with housing problems? Do you think maybe, just maybe, there is a direct correlation between the ability to earn income and the ability to afford your home?

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Filed under Worth Reading