Category Archives: Investment Property

It’s crazy how limited the inventory for multi-family housing in Kansas City is right now.  Just sayin’.

I suspect we are going to have another rise in property values as the market here in KC keeps getting a little stronger each year since 2010.  I don’t expect a 2004-2006 sort of rise but the inventories are limited and the demand is  up.  Especially in Johnson County, Kansas.

Most real estate investors eventually ask me “How do I know the value of my income properties?”

All income – All expenses = Net Operating Income

Net Operating Income  / Cash Invested = Cap Rate

If you are an investment market driven by cap rates that should get you what you need to know.  But if you are a cash investor you may be better suited to value your property based on the formula for Cash on Cash;

Cash Flow Before Taxes / Cash Invested = Return of Cash on Cash

Knowing the different formulations and when to use them is a big part of the work in being a rental property owner.

I know it’s exciting to think about being an income property owner.  By the time you are ready to pull the trigger you have been reading, searching the web, probably talked to a real estate agent or two and maybe even attended some type of investment property guru seminar.  But, let’s figure out the goal before we go look at houses.

As much as possible I like to meet people at my office before we go out and look at houses.  For twelve years I have worked with rental property buyers and I have a lot of experience in what to look for, what to avoid and how to figure what that property’s actual returns will look like. If we immediately just meet at a house or jump in the car how can I really help you unless I know what the end game is all about?

It is wise to be in a bit of a hurry.  The economy is changing and income property does not appear to be getting less expensive.  But please, I’m getting paid to help you figure this out before you buy and not after you already own something you wish you would have passed on.  I’m here to help.  Let me help.

California real estate investing is definitely different than the REI we do here in Kansas City.  And I’ve written about the differences between California and Kansas City before and I think I’ve proved that for cash flow nothing beats Kansas City.  You can see the first post here wherein I proved the math for Kansas City.

Of course, those articles go all the way back to 2007 when real estate was still booming.  It’s not anymore in most places though activity has most definitely picked up.  But then I receive this facebook message from my cousin, a realtor in California.

“We closed on an investment property yesterday and now I’m trying to get it ready to rent. 960 cash – 2 week close and no contingencies. ( 8 offers I think ) As soon as we closed I got a call if we’d sell for 1,050,000. It’s only a 2 bedrm condo and I’m asking 4400 mo rent but it will go higher. It’s crazy here. I don’t even do real estate anymore but for us…”

Now I admit that looks fantastic!  Heck, it’s a $90,000 equity gain in a matter of days!  But I regularly sell houses with cap rates of 10.  I regularly sell houses with 11%-13% cash on cash returns.  Heck, if you take all in prices of houses we do and go for my quick-n-dirty multiplier I sit at 1.7-1.9 on a more than regular basis.  ($46,000 all in price divided into rent of $850 equals a 1.85 which is sure to kick off better than 11% cash on cash.)

I don’t have the energy to do all the math today.  But her quick-n-dirty return number is 0.46.  I said 0.46!

With $960,000 I could have approximately 20 homes in and around Kansas City bringing in cash flow and earning whatever appreciable equity growth KC will do.  Your risk would be spread out across 20 properties instead of 1.  If after buying and rehabing and renting I had created a harvestable equity position of about 12%-15% (our average – difference between what it’s worth and the all in price) I would have created an equity gain of $138,000.  That’s better than the $90,000 we mentioned above, right?

California real estate investing or Kansas City?  C’mon out to KC.  The first BBQ sandwich is on me.