Monthly Archives: September 2015

Choosing the right rental property isn’t really all that different from choosing the right home for yourself.  But there are some differences. With that in mind, let’s go over some of the big issues.

Curb Appeal
You want the home to look good in the marketing picture. A house framed by trees, but not covered up by them, looks great.  A nice yard.  Fenced really helps.

Updated Interior
Again, a prospective tenant’s first look is probably through pictures on some online advertisement. Clean wood floors or carpeting, clean walls or freshly painted and the kitchen and baths that are in line with the price range. For a $900/mo rental property you really don’t need granite counter tops, 20″ tile floors, etc.  What you do need is something that has been updated in the last 10 years.  No avocado counter tops, almond appliances,etc. But if your income property will rent for $1,800/mo, it better be as nice as the luxury apartments right around the corner for $300/mo less.

Functional Room Sizes
A 9′ x 9′ bedroom isn’t much of a bedroom.  Is it?

Solid Foundation
Here in Kansas City, we have basements and foundations that can move.  Your best house has a perfect foundation.  That’s usually a newer house at a higher price tag. I can usually live with some movement if it’s been addressed professionally.

Good Drainage
Water can destroy a house…and the solid foundation.  Pay attention to this.

Neighborhood
Is the neighborhood solid?  Is it on the come? Or is it on the decline?  I’m looking for solid or on the come.  I don’t want investment properties that become melting ice cubes.

Get a good, boring house.  Let some of these “flipper” guys take the risks on the tough houses.  Be patient. Choose the right rental property and your real estate will help you get to that “Retirement worth having.”

We can never forget that property management is a business and that your property manager is your friend, until he isn’t.  This was reminded to me this week when a client we have managed for the last several years has a severe defect in the plumbing system with their home,  ie, the sewer line broke underground.

And somehow, someway, I’ve been told that we mismanaged the situation and made it worse.  How I or my staff can make an underground collapsed sewer line worse is still yet to be explained to me.  But that isn’t really my point.  The point is, real estate and property management here in Kansas City (everywhere, really) is a business.  And it’s a business not everyone should be involved with. (Yes, I’m fully aware I’m not supposed to end a sentence in a preposition…but still.)

The root problem here (no pun intended) is that there needs to be a cash reserve with which to repair problems that will inevitably develop with an investment property. Especially one many decades old.

Cash reserves are needed for broken sewer lines, aged roofs, crumbling basements, deficient tenants, etc.

As a Kansas City property manager all we can do is communicate problems and successes, offer our advice, and help to make the property as profitable as possible through maximum rents and advise as to which maintenance issues will do what with how much. Sometimes we have to deliver bad news.  As I said, we’re your friend…until we’re not.

Equity versus leverage is an ongoing debate when deciding how much (if any?) money you should put in to the purchase of your rental property.  Me?  I’m a fan of having some instant equity in a home.  With equity, I’m usually speaking of a down payment…your hard earned cash.  There are other ways to earn equity, as well.

To be clear most, not all, banks require a 20% down payment on a single residence income property and 25% down on a multi family home rental property.  However, I have begun to hear lenders tell me they can do 15% down.  Back in the day, before the bubble burst, I even bought an income property with 0%, yes zero, down. SIDE NOTE: When I got home from that closing I told my wife it’s almost over.  She asked “What is almost over?”

“The housing boom.  I just bought a property with absolutely nothing in it with bank approval. They have lost their minds.”

But I digress.

In my mind, equity is a good thing in your investment property.  You have “skin in the game.”  Plus, with a lower mortgage payment you have a bit more cash flow. With better cash flow you are better able to weather storms that may come up like major repairs, disasters, worsening economies, climbing vacancy rates, etc.

Now mind you, I don’t like to see too much equity in a home, either.  If you are walking around at 20% LTV your plan had better be to get the rental paid off asap and just live on complete cash flow.  If that is the strategy, great.  Especially if you are older.  But if you are in your thirties, or forties (and maybe even fifties) is this the best use of leverage?

Equity versus leverage is a sliding scale.  Each individual real estate investor has to decide for themselves;

• What is my risk tolerance?
• What cash flow am I trying to generate?
• What is my growth or hold strategy for the next 5 year window?
• What are my “Retirement worth having” plans?

Let me know if I can help you answer some of these questions.

Chris Lengquist
Ad Astra Realty, Inc
913-815-3473

On Friday, September 4th, I will be holding my 3rd annual Bike MS BBQ Fundraiser. As regular readers know, I like BBQ, I like making BBQ and I like riding a bicycle.  So this is a perfect match.

If you cannot make it but you’d like to give to this great cause, you can follow this link to my personal donations page.  Any amount helps this great cause.  And we are thankful for anything you can do.

Chris