Category Archives: Real Estate Investing

November 6, 2008 · 11:43 am

Are You A Savvy Real Estate Investor

To be a savvy real estate investor really doesn’t take all that much. I can recognize them immediately. It’s just a few simple things, really.

I represent the seller of four fourplexes (4 unit apartments) for sale down in Gardner, Kansas. I got a call/email from his real estate agent yesterday asking for;

a copy of the Schedule E for the last three years.
a rent roll with ACTUAL rents, not pro forma.

There you have it. Someone is taking a serious look based on numbers, not speculation. After having those items and weighing any future potential this investor thinks the properties will or will not have he or she will know whether to buy 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 13, 2008 · 8:23 am

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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October 8, 2008 · 3:15 pm

Kansas City Real Estate Investing

There are great equity deals. There are great cash flow deals. Are there any deals with both?

Real estate investing is getting easier and harder all at the same time. Financing an investment property is more challenging. Not impossible. Just more challenging. But finance you must (a Lengquist must) in order to use leverage to your advantage. Finding homes that meet your criteria, well, that’s gotten a little easier.

Notice I didn’t say simple. A good rental property still has to have certain aspects to make it attractive to possible tenants. And it’s usually those nicer amenities that make the prospective rental property less attractive, affordability wise. Ever notice how the nicer the property is the more money down it will take to make it cash flow?

There is a happy medium. And for many out there that happy medium is a sliding scale depending on your target price point, cash available before and after closing and target tenant pool.

Kansas City real estate investing is still a preferable path to travel than much of the country. And I’ll still put our investment properties here in the heartland up against anything your stock market is doing. One of the nice things about real estate in stable markets is it’s not prone to panic selling. Thank you, Jesus.

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October 2, 2008 · 7:12 am

Using Leverage When Real Estate Investing

One of the major, major advantages of real estate investing is the proper use of leverage. I’ve long been a proponent of purchasing rental properties that will “hold their own” with as little money down as is possible. In other words, if the property will break-even after all actual expenses at 10% down, then that’s all you should put down.

If the neighborhood has more possibilities for future growth and it takes 20% down, then that’s okay. But keeping your investment property properly leveraged has long been a benchmark that I strive to help my clients achieve.

Now days, however, we need to do additional math. I had a client quoted as much as .5% less on his mortgage and 1 point less on his fees if he went from 20% down to 25.1% down. That’s huge.

These are fluid times. And fundamentals do not change in times like these. But minor adjustments and tweaks do need to be weighed. I didn’t say to everyone to start putting down 25% on homes that may very well hold their own with 10% down. I did say to do the math.

Due diligence should be a part of every real estate investment.

Proven Neighborhoods, Proven Rents

If you can take your eyes away from CNN and Fox News just for a moment, I’d like to remind you about the established neighborhoods I am familiar with when it comes to owning Kansas City area real estate investment property.

Pure Cash Flow
If you are looking for cash flow, cash flow, cash flow but do not want to be in neighborhoods where your personal safety is threatened, think the Skyline neighborhood over by the old Bannister Mall. Or eastern Kansas City just east of I-435 and north of 63rd St. And lastly, there is Ruskin. By far the most labor intensive of the lot with the highest turn-over/vacancy rates. But cash flow, none-the-less.

Some Cash Flow – Steady Values
Waldo. Waldo. Waldo. Located close to downtown KC, the Plaza and with JoCo to the west Waldo is a great area to own or rent. Working class homes mixed with homes of the upper middle class and everything in between. Love the area. Also a fan of the Kansas City, Kansas area right around the University of Kansas Medical Center. But don’t stray too far… And I love the Blue Springs area.

Break Even Rental Housing That Appreciates…Regardless
Johnson County, Kansas is the great. Housing values have softened. Notice I said softened. Not plummeted like much of the nation. But rentals for 3 bedrooms, 2 baths are very hard to find. Every property manager I know says rents are strong.

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