Category Archives: Real Estate Investing

April 21, 2007 · 5:38 pm

Real Estate Investing in Kansas City: On Your Mark, Get Set, Get Set, Get Set…Oh, Go Already!

About two weeks back I was interviewing a potential Buyer client. He had found me through one of my blogs and said that he had liked what he had seen about my real estate investing philosophies here in the Kansas City area. I was flattered. But I was also growing leery of his motivation.

His motivation to actually buy a property, that is. It seemed that he had read the books I recommend along with half a dozen others. He had been to workshops and seminars that I’ve never even heard of. He was member of both investment clubs here in Kansas City. Had an LLC. Had an accountant. A lawyer was all lined up. So to was a property manager. Mortgage guys had been interviewed. There was even someone he was considering hiring as a mentor.

And all this had only taken him three years.

Now, I am big on setting goals before you get started. Knowing your criteria for a good income property is a must before I’ll go out and show you any homes. Pre-qualification/pre-approval a necessity. But come on. Do you really need the whole “team” together before you get started on your first property?

I am not pooh-poohing preparedness. Far from it. But this is a classic case of paralysis by analysis. Always preparing and never acting. Sooner or later don’t you have to buy a property to be a real estate investor here in Kansas City…or anywhere for that matter?

It was my advice to this would be real estate tycoon that he really focus on purchasing his first income property in the next few weeks or months if he wanted to get his business off the ground. I would help him to evaluate neighborhoods, properties and incomes. But he needed to actually commit to that before I would go to a great deal of trouble. After all, when you hire me to be your Buyer’s Agent, you are hiring a professional real estate agent who can navigate you through the benefits and mis-steps of owning rental properties. This is what I do. Here are references you are welcome to check.

We had a great conversation. It lasted about 45 minutes. He left very enthused and looking forward to emailing me his criteria and pre-qualification letter. He was really ready, this time, to buy an investment property.

I’m still waiting for the email.

If you are the customer of which I’m speaking and you read this and you think I’m speaking of you, you may be right. Don’t think for a moment I am minimizing your efforts or your dreams. On the contrary I want you to act on them. I hope to hear from you, or from anyone else reading this blog who fits that mold, very soon.

One last comment on this topic. Johnson County has appreciated about 3.85% (average) over the last three years. That $200,000 duplex he could have bought in 2004 would now be worth $224,000. Is this a good decision?

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Filed under Kansas City Real Estate, Real Estate Investing

April 19, 2007 · 9:14 pm

Market Cycles, Vacancy Rates & Your Income Properties

I’m not very good at fortune telling. I tell everyone my crystal ball is cracked. Want proof?

I bought a house in Suburban Maryland when the market was down. I purchased it for $8,000 lower than the previous buyer had paid for it. 5 years later I sold it for a handsome $44,000 appreciation. It sold for $142,000. The highest price ever for a townhouse in that community. Boy! I really knew what I was doing.

Er, no I didn’t. 4 years later that neighborhood was selling in the $390’s. Now, with the real estate slip on out there you could probably pick it up in the $330,000-$340,000 range. (But the lady that bought my house has “lost” $60,000 in equity over the last 10 months. Never mind that she has really “gained” $200,000 in 5 years. A little better than my $44,000.)

I don’t tell you that story to discredit myself. Only to say that when you are working with real estate anything can happen. When you are purchasing income property you need to base your numbers on today. Does the property hold it’s own today? Don’t bank on future growth to cover your negative spread. Use the future equity growth to create your wealth.

Use today’s cash flow, principal reduction and depreciation to pay for the property and to begin building that nest egg. Count on those three and you can’t go wrong.

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Skepticism and Real Estate Investing

It seems the real estate industry has caused some problems for itself with it’s non-stop touting of real estate investing, er speculating, these last few years.

First, you need to know what real estate investing is. It is the acquisition of property based on sound financial analysis with a target return in mind. Usually I recommend a cumulative return (from the 4 Benefits found in the right side bar) of somewhere in the 22%-26% range. If you have a sound criteria and the property does not fit, don’t buy.

Real estate speculating, on the other hand, is buying property banking on the fact that it will

appreciate high enough and quickly enough that it will exceed your poor decision making. (Sorry, do I sound negative?) This is what was going on when people were purchasing condos off the plan, selling them 3 months later, and in turn those people would sell them 3 months later and so on until there was no way left for people to be able to justify the expense of personal living or the returns it would make as a Buy & Hold property.

I bring all this up because a blogger here in Kansas City linked to one of my blogs and turned the title into a negative. I left his link there. And it should be said that I read the blogger on occasion. And I’m really not even mad at him. To an extent, his perception of real estate investing is based on what the TLC and Home & Garden channels, the National Association of REALTORS and a whole lot of real estate “gurus” and agents have been saying and doing.

By way of his comments section I have invited him to debate the issue. There is an education process that needs to take place across Kansas City and this country about what real estate investing is all about, when it’s appropriate and when it’s not. I welcome the debate with any of my readers. (As long as it’s based on merit, not emotion.) Heck, Kansas City has been considered a “city of concern” by the FBI because of all the fraudulent real estate transactions that have taken place here. Even by city councilwomen and men running for congress.

This blog is set up to be a real estate discussion. And your input is always appreciated. Hope to hear from you.

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Filed under Kansas City Real Estate, Real Estate Investing

April 16, 2007 · 10:29 pm

I Have $35,000 for Rental Property – Now What?

Coming to me with $35,000 to start your real estate investment career is terrific. Let’s just see what we can do with that money.

How about we take it and split it in two? We’ll buy a couple of Waldo area homes, put 10% down, run mortgage payments (with escrows) of about $725 and we’ll get rents of about $775. Not great cash flow. In fact, pretty dead even. So why do I want to to that?

Currently your $35,000 is sitting in an IRA or CD or stock. Let’s give you the benefit of the doubt and say you are earning 8% on the money. That is a $2,800 gain for the year. Heck, I’ll take it if you don’t want it.

But now let’s look at that same $35,000 in the above scenario. Remember, there are 4 Benefits to investing in real estate (see side bar) and we are only going to talk about the appreciation factor here. Not Cash Flow Before Taxes because it’s minimal to nothing here. Not Principal Reduction even though that can really add up. Not Depreciation…trust me you’ll love me at tax time. We’re only going to discuss the Appreciation benefit.

With that $35,000 you should have leveraged yourself into about $200,000-$225,000 worth of real estate. So let us take the smaller number of $200,000. Historically, Kansas City real estate appreciates at about 5% a year. But I believe we’ll have another flatish year at 2%-3%. Again, let’s use the lower number of 2%. $200,000 x 2% means a $4,000 increase.

“Well Chris. That’s only $1,200 better than the return I was getting in the stock market.”

You are right. And couldn’t be more wrong. Remember, we are only calculating ONE of the 4 Benefits of owning residential investment property. Remember, we didn’t fully leverage your capital. And remember, we are in a flat year of real estate growth. What happens if it really takes off, again? (And quit talking to me about dips in the west and east. We didn’t get the growth they were getting so why do you think you’ll get those dips…ALL REAL ESTATE IS LOCAL!

Your thoughts?

Editor’s Note/May 26, 2008: According to the Office of Federal Housing Enterprise Oversight the Kansas City area had 2.7% appreciation in Kansas and 1.7% in Missouri. What did I say above?

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Filed under 4 Benefits of Real Estate Investing, Real Estate Investing

April 13, 2007 · 11:06 am

Working With A Coach While Investing In Real Estate – Just Run The Play

Coaching. You’ve heard the word. The first thing that comes to most people’s minds is a sports coach. Someone who leads, trains and calls the plays.

That’s what I do.

Yes, I’m a real estate agent. And yes, residential investment property is my specialty. Truth be told I look at myself as an investment counselor. You tell me what return goals you have in mind, how much credit and cash you have to bring to the table and I’ll be able to tell you what your expectations should be. Where in town you should invest. What property manager to hire. What type of tenant you will attract. And what your returns both in cash flow and appreciation will/should be.

Remember that when you are hiring me you are hiring a professional that knows his business. I can provide references to check out. Transaction history to review. But ultimately, you have to be recruited to my team. You have to trust what I teach you. You have to run the plays I call. How successful is the basketball player who constantly questions the coach he’s playing for?

When choosing your coach keep this in mind. It should be the goal of any coach to succeed. To win. To accomplish the goals that are set out. It should also be the coach’s job to train and motivate. To someday see his “players” do better than he did. To go on capable of doing so without him. That is true success for the coach. And everyboy wins.

Keeping An Eye Out For Great Investment Properties

Keeping an eye out for sharp investment properties takes discipline, experience and a keen knowledge of what today’s renters are looking for.

Make no mistake about it. When you own rental property and you have a vacancy you are competing against all of the other vacancies out there. Your prospective tenants know this and are looking for a lot of the same attributes for their home as a home buyer would be looking for theirs.

Today I had the chance to get out and see 11 properties. Obviously, I was most impressed with the properties my buyer was impressed with. We liked the same things. Clean, freshly painted walls, newer roofs, structural integrity, proximity to conveniences and work zones, free flowing floor plans and well maintained and groomed exteriors.

And you know what? The homes that fit the above criteria were priced remarkably similar to the houses that didn’t meet any or all of those standards.

Some home investors are in a position that they are looking for “distressed” properties that they can improve and have some built in equity. But many of my buyers are working professionals with busy lives. They are looking for turn key properties that are not going to have a lot of future maintenance issues.

After finding and identifying the proper home candidates the next thing to do is sit down and figure out going rent rates for each unit and their corresponding expenses. From that point, it is very easy for me to package a home up for the right buyer.

Not every buyer wants or needs the same thing. Not every house will fit every buyer. My job is knowing the differences and where to apply them.

Demystifying Real Estate Investing – Learn From The Right People and Keep It Simple

Tonight I had the pleasure to speak before 120+ people at the MAREI monthly meeting. I was received warmly and I had a great time. There were many different real estate investing philosophies in that room and I’m sure many differing opinions as to whether I knew what I was talking about…or not.

And isn’t that funny? I realize that my particular brand of investing for my future (and guiding you to do the same) isn’t for everybody. In that room there were people taking notes. And there were people nodding off. Here is my hope, however, for each and every person I have the honor to discuss real estate with: That you have a retirement goal that you are working towards and that you have the guts to step out and make it happen.

Knowledge is something that is ongoing. I never stop searching for those wiser than me in my particular discipline regarding investing in real estate. But in concert with knowledge is something called Action. One without the other is simply wasting your time…and probably your money.

Anyway, I need to move on. It just gets me all worked up. 🙂

Here is a link to an interview by Liz Strauss of a gentleman that I speak of often here on BBQ Capital. If you want to get your thinking straight about long term real estate investing then I would hope you would take the time to read it.

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Filed under Real Estate Investing