- Are you an investment property owner and/or do you take any specialized classes to assist you with evaluating real estate investment property?
- How long have you been working with investment properties?
- Can you show me how you evaluate an income property, numbers wise?
- What are your feelings about cash flow or appreciation?
- What are your hours of availability?
- Do you require a Property Management agreement in addition to an Exclusive Buyer’s Agency Agreement?
- Who do you work with concerning inspections, repairs, maintenance and property management?
Category Archives: Real Estate Investing
7 Questions To Ask Your REALTOR Before Looking For Investment Property
Filed under Real Estate Investing
Required Reading for the Kansas City Rental Property Owner
Are you a Kansas City rental property owner? Do you consider yourself a real estate investor? Do you find real estate investing interesting? Then here is your required reading for the weekend. Three articles are from Jeff Brown who seems to be in the zone right now.
Some Definitions For Beginning Real Estate Investors
More Definitions For Real Estate Investors – Tax Deferred Exchanges
Adjusted Basis: It Ain’t Just ‘Buy Low & Sell High’ For Real Estate Investors
The other two articles come from Chris Smith. I may have referenced one before, but what the heck.
Real Estate Investing For The Long Haul
Real Estate Investing For The Long Haul: Part II
You have your assignment. Now enjoy your families and Easter and we’ll see you on Monday. And don’t forget, I’m here for all of your Kansas City real estate investing questions.
Filed under Real Estate Investing, Worth Reading
Navigating The Minefield Of Real Estate Investing
As a professional real estate agent that works almost exclusively with the real estate investor I am in a unique position to observe (and experience) the minefield of real estate investing. This creates two situations over and over again for me:
-
I am able to recognize what is about to happen and offer a word of caution or encouragement (whichever is appropriate) to my clients.
-
People expect me to have more answers than is humanly possible. 🙂
Not only can I bring my experience to the table, but I can bring so many of the experiences of my clients. And you, the real estate investor, can accomplish this as well by staying in tune with other real estate investors around your area. When you talk to other income property owners you will find that;
-
Real estate investing is never smooth sailing. (If it is, that just makes you worry about the coming storm.)
-
Other income property owners experience many of the same difficulties you do. They just figure out a way to use them to their advantage.
Now, this post isn’t written with the intent of scaring away the would-be real estate investor any more than it is written to encourage everyone to be a real estate investor. I kinda liken it to what it must have been like to captain a naval vessel in World War II across the Pacific to deliver supplies to Europe.
There always had to be someone competent at the helm of the ship. On the lookout for other ships (problems like wood rot, bad tenant behavior, etc.) and worried about the occasional minefield (like vacancies, back real estate taxes, etc.). But you see the ship had to go forward. There were times when the chosen path couldn’t be taken or a calamity may have delayed arrival. But with care and knowing when to press forward and when to proceed cautiously the ship did arrive to it’s destination.
Too much care and it will take forever…if you ever arrive. To0 much bravado and you will surely be the cause of your own undoing. Too much worry and you’ll die of a heart attack and then what difference did saving for retirement make?
Balance. Seek it out. And like a teeter-totter I’m sure you’ll have to make constant adjustments to keep that balance. That’s okay. Adjustments are to be expected. Real estate investing is an inexact science. There is as much “gut-feeling” as their is mathematical formula. Seek that balance.
Single Family Home or Multi-Family Home For Your Kansas City Real Estate Investment?
I’m in an age-old conversation with a first time Kansas City area real estate investor. This new investor has the money and is a pretty sharp cookie. Homework has been done and now she is looking for just the right property to start her portfolio with.
I can tell she likes the idea of a single family home. On the other hand, I generally nudge people towards a duplex for their first residential income property. Which is right? Neither. Both.
Single Family Home Advantages (and disadvantages)
-
Tenants tend to be more stable and stay longer
-
House tends to appreciate along with it’s neighborhood (which is usually at a greater pace than a multi-family home)
-
Tenants seem to take “ownership” of a single family home
-
When you re-sale, buyers can be anyone
-
Empty = no $
-
Rents tend to be higher…this is good & bad
-
Tend to have less favorable return numbers in regards to Cash Flow Before Taxes – therefore a much larger down payment required equalling lower capital growth
Multi-Family Home Advantages (and disadvantages)
-
When 1/2 is empty, you still have income from the other half
-
Maintenance and tenancy issues all under one roof
-
Return numbers generally superior to SFHs resulting in greater capital growth
-
Appreciation tends to be slightly less than SFHs (goes hand in hand with rents)
-
Buyers tend to be other investors (which means they have experience negotiating)
-
Tenants tend to be a little more transient
Are you looking to me to answer the question “Which is better?” I’m afraid I cannot answer that. After all, it’s your checkbook and your life. I just lay out the possibilities and give you what I think is the best way to go at any given time based on what is currently available.
The key is to get your real estate investment portfolio started. Now is the best time to buy that I’ve seen in years. That’s not a NAR line. It’s the truth for the Kansas City real estate investor.
Filed under Real Estate Investing
Investment Property As A Security Blanket
As I lay there in my bed wondering if death would be preferable to this flu I’ve been battling, my phone rang.
“Chris. This is Julie. I just wanted to let you know that two people dropped off checks for you this morning and I’m going to put them in your box for you.”
Ahh. See, here is the deal. Just because I’ve been sick doesn’t mean my expenses have stopped piling up. With four children and $305 gas heating bills the expenses never stop. But because I have income property, neither does the revenue.
We’ve discussed before the importance of purchasing Kansas City investment property on sound fundamentals. My basic premise has always been that if you buy on fundamentals then the property should support itself regardless of appreciation. And this would eventually lead to a Retirement Worth Having.
As I lay there I began to think about another benefit of owning income property that is self-sustaining:
Residual income for when I cannot perform.
Let’s say that you set off down the path to be real estate investor but you never acquire more than one or two rental properties. Something happens in your life and you can no longer work. So long as you have purchased these properties using appropriate leverage within a sound economic concept you should be able to use these properties to help offset some of your monthly expenses.
Now, because my brain is still tired and all I really want to do is go back home and go to sleep I’m not expanding on this as much as I probably should. Hopefully, however, you get the idea.
Filed under Real Estate Investing
Selling Your Rental Property In A Buyer’s Market
Kansas City is currently experiencing a buyer’s market. Investment property is a little better off. Certain areas of the city are better than others. Let me give you a picture of what the investment market in Kansas City currently looks like.
Below will be a couple sets of numbers for you to take a look at. One is for Johnson County, Kansas duplexes and the other is for Jackson County, MO duplexes. Now, the numbers only include duplexes priced for sale between $100,000 and $300,000. I just figured below $100,000 isn’t usually what my clients are looking for and above $300,000 just isn’t going to be profitable within the parameters I use.
Johnson County, Kansas Duplex Activity
current as of 2.21.2008
Active = 34
Pending = 3
Sold = 52 (within previous 12 months)
Jackson County, Missouri Duplex Activity
current as of 2.21.2008
Active = 147
Pending = 5
Sold = 100 (within previous 12 months)
Right away you should be able to see the market within the market. Johnson County has about a 7.5 month supply of homes while Jackson County has about a 16.5 month supply of homes. Further emphasizing that all real estate is local. And local can be broken down into cities from country, zip codes within the city and sudivision from the zip code.
As a seller of residential investment property in Kansas City you need to know that you are in for some fierce competition. And while some sellers may think they know that what I see on the market is usually overpriced, under cared for and have crappy tenants.
Why, I know of a duplex in Overland Park that has been on the market for quite some time and the real estate agent has “motivated seller” on her comments. Further inquiry discovers that one side has a tenant that isn’t paying any rent because they made improvements to the property and don’t feel they owe rent for some time to come. The other side unilaterally decided their rent was too high and cut their payment by $200 a month.
And the seller still wants retail for this Overland Park duplex!!!???!!!
There is no question I could find an investor to take this headache off their hands. But not at retail. So what can you do to be sure you can move your Kansas City are investment property if you need to cash out?
Investment Property Selling Tips
-
Price it right. Know where the price point is for your particular class of investment property (and location) that the next would-be real estate investor will pull the trigger. This is not the market to “test” the waters.
-
100% occupancy with quality tenants. I said quality tenants. Tenants with good payment history. Tenants with security deposits. Tenants with time left on their leases. Tenants that don’t trash their rentals.
-
Deferred maintenance accounted for in the pricing or repaired before marketing. Remember, if you milked the property dry by collecting rent and not fixing a thing you will pay for it on your sales price! You might be able to get away with that crap during a seller’s market. But guess what? This isn’t a seller’s market.
-
Choose the right real estate agent. I’m not the only one in Kansas City that knows and understand real estate investment property. (I am, however, the best. 🙂 – Sorry for the ego trip.) There are several good agents around the city. But that number doesn’t exceed 10-12 out of the 10,000+ licensed real estate agents around KC.
-
Be prepared to assist with closing costs. Investors, and that is who will be in the market for your duplex, like to get in with as little cash as possible to maximize their equitable returns.
-
Be patient. Do all of this correctly and you should sell inside 4-6 months. In fact, if you do all this correctly we should sell inside 4-6 weeks going into spring. But the real estate investor’s credit standards have changed drastically over the last year. You don’t have to like it. But it means fewer people are qualified to buy your rental property.
I’ve used duplexes as the prime examples here. But the same is true for all investment class real estate whether it be single family homes, apartments or four-plexes.
You can definitely sell your investment property in this market. In fact there is a need for quality inventory. Feel free to give me a call, write me an email or leave a comment if you have any questions or comments.
Real Life Olathe Investment Property Story: Part II
On Monday I did a post titled Real Life Olathe Investment Property Story: Part I. It will be helpful for you to go back and read that. But what we found was that through using the Buy & Hold Forever theory of real estate investing that you could turn an initial investment of $21,200 into about $102,149 in about 11 years.
Not too shabby.
But what if, as it appears the original owner of said duplex might have done, the real estate investor had sold those properties in the winter of 2001 and rolled the proceeds over into other Olathe duplexes that would have been for sale at the time?
Well, I’m glad you asked. It’s important to note that now I move into the hypothetical because I do not know this real estate investor from Olathe nor do I know what he did or didn’t do. But if he had been my client I would have probably recommend what follows.
Let’s say he sold the duplex, as he did, one side at a time. Seeing that the duplex was liquidated by 12/2001 I know that his net proceeds at closing would have been right about $76,500 after sales costs, including probable buyer closing costs paid by seller.
Now, remember that $21,200 of that was part of the original investment capital used to purchase the duplex. But what I would have recommended was staying in Olathe, since I see growth here for quite sometime to come. In 2001, the investor could have put 15% down on a rental duplex priced $160,000 and it would, from there, completely pay for itself each year.
15% down on $160,000 would be $24,000. (We’ll multiply all this by 3 when we get to the end.) So;
Purchase Price $160,000
2008 Sales Price $197,500
Sales Costs $ 13,825
Net Appreciation $23,675
Now let’s figure he financed on a 30 year amortized loan at 7.0% interest.
Loan balance at origination $136,000
Loan balance at sale $125,891
Net Principal Reduction $10,109
Now keep in mind that all of this is x’s 3! So let’s figure this out. Appreciation to today’s sales prices plus principal reduction after sales costs of all 4 units (the original duplex and now these three duplexes) plus the down payments totaling about $75,000 nets us a new equity position of about $174,000.
Did you read that right? Yes, I said $174,000.
Now, with your original $21,200 you could have done a lot of things. Including making a nice little profit by using the Buy & Hold Forever strategy. $102,000 or so if I remember correctly. But by keeping your money leveraged on Olathe real estate you have turned that $21,200 into $174,000.
Now tell me what your annual return is!
Again, we haven’t calculated miscellaneous and property upkeep expenses. But as I mentioned above, at 15% down those properties should have maintained themselves. And we have also NOT calculated Depreciation or Cash Flow Before Taxes.
Of course I would always recommend you calculate these numbers yourself. These appreciation rates I have used are actual, not hypothetical. And they include whatever “correction” you think Olathe may or may not have gone through.
Real estate investing in Olathe, Kansas City or wherever is not for everyone. Some would rather park their money in a money market account or mutual fund or something of the like. But for the life of me I cannot figure out why you wouldn’t want at least one or two rental properties working for you. Can you?
It looks to me like real estate investing can be a little like finding the goose that laid the golden egg. Now that will help you to fund that Retirement Worth Having.
Filed under Olathe, Real Estate Investing, Retirement Worth Having
BBQ Capital | Kansas City Real Estate Investing 