Category Archives: Personal Real Estate Opinions

It’s that time of year again for college basketball.  The coaching carousel starts and where it ends nobody knows.  Coaches leave here and sign there.  They proclaim their loyalty even as they have the AD from another university on hold. 

And they all have work contracts.  For three years.  Or five.  Or even funnier, ten.  Yet, they leave.  And they never get punished.  It’s insane.  Well, except for poor Rich Rodriguez formerly of West Virginia.  Seems West Virginia actually expected him to honor his contract.  How insane is that?  😉

Let’s just say we find a house we love and we purchase it.  Six years later we decide we like another house better so we just leave.  No recourse on the mortgage.  No bothersome sales process.  We just leave. 

Most jurisdictions that I’m familiar with have 10 day (or so) “free look” periods for buyers that allow them to conduct due diligence and inspections to decide if this really is the house they want to purchase.  Well, what if the “free look” period extended all the way up to closing?  Or what if the contract wasn’t ever enforced anyway if someone left? 

I guess in some respects it is that way.  Forfeit a meager deposit of $1,000 and you really can just “walk-away.”  And besides, a good attorney I know feels every contract has sufficient wiggle room to cause problems to the side trying to enforce a contract. 

I don’t know. Maybe I’m just frustrated with where our culture has gone.  I try to do the right thing.  Really I do.  And I know others do, too.  But I can see the train crash coming.  Can you? 

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.    😉

I must have upset Chris Johnson over on Lenderama a little when I responded to one of his post that I will, on occasion, take a lender to task regarding their fees.  Because he sent me an email asking me how that worked out.  (I don’t really know Chris and he may or may not charge junk fees.  I just don’t know.  As many loans as he closes he must be doing business the right way.  I would assume, anyway.) 

In my response to him I pointed out that junk fees are exactly that and that the public should not be willing to pay them.   But first they have to recognize what they are.  Well, I’m not going to go into all the junk fees a lender might charge.  However, I will ask you to ask your real estate agent how they get paid.

What is a Broker’s Administration Fee?  That’s an excellent question to ask your agent.  Because you are the one paying it.  Basically it’s an additional $275 to as much as $425 I’ve seen agents charge their buyers/sellers.   Some major, major brokerages here in Kansas City (think largest, second largest, etc) require their agents to charge the fee.  If the agent doesn’t get it out of their client then the brokerage gets it out of the agent’s commission.

The fee is for, well, I’m not really sure.  Why don’t you ask your agent charging one?  I’d love to know what it’s for. 

Now, an agent may charge you an additional fee to the commission he/she receives on the transaction for a closer.  Or an assistant.  Or a new suit.  But you should ask them what the fee is for and if you don’t think it’s absolutely necessary it’s a point you can negotiate.

Chris, have you ever charged a broker’s administration fee?  Yes.  Not often.  But I have.  An example would be if your file was going to be handled by a third party to get it to closing, and not me.  I have charged the fee.  I currently don’t as I just believe that’s my cost of business, not yours. 

I was working some numbers the other day on an investment property that would hold it’s own with only 5% down.  Seriously.  That includes expenses…all of them.  So I picked up the phone and asked a trusty local lender if there were any 5% down payment options for the Kansas City real estate investor. 

The answer, not surprisingly, was “no”. 

March 2007 represents, to me, the end of non-owner occupied loans that were easy to get with terms not favorable to the lenders.  It all began to change rather quickly after that.

So as you are planning your next purchase for an investment property here in the Kansas City area you’ll need to plan on a minimum of 10% down.  Don’t forget closing costs and reserves. 

On a personal note, I’ve always thought it was better to have a minimum of 10% into your income properties, anyway.  Just seems to make sense.  If a property “breaks even” at 10% down it might even be good to go ahead and put 20% down for the extra safety/cash flow.  (That sound you just heard was Jeff’s head exploding.) 

It all depends on your risk tolerance and goals. 

For all of your questions and comments regarding Kansas City real estate investing, feel free to contact me.