How the Time-Value of Money Can Help You Sell Your House by the Real Estate Zebra.
Los Angeles v. Kansas City: Which City Is Better For Your Real Estate Investment Dollar?
A good deal of my clients come from the California, Washington and New York areas. And most of those come from the Los Angeles area. So I thought, for a little fun, I would point out to the folks here in Kansas City why the Los Angeles real estate investor likes this area for their dollar.
First, a few disclaimers. Finding LA comps to KC rental properties was not easy. After all, we in Kansas City have different style of architecture in our duplexes and let’s face it, our area is much, much smaller than the Los Angeles area. So when you are reading below just know that for the Los Angeles numbers I did the best I could in diligent research trying to find a two bedroom duplex that had a garage and was in a “nicer” part of the Los Angeles suburbs. After I found one on craigslist (why don’t more real estate agents in LA have user-friendly websites?) I then went to rentometer to find accurate rents.
So the long and the short of it is that I did the best I could on the Los Angeles numbers. If you feel I’m a little off here and there, feel free to adjust my findings accordingly. But I don’t think I’ll be too far off…
The goal is to get the rental homes in each city to “pay for themselves” when considering principal, interest, taxes, insurance and a 7.5% property management fee. No vacancies, reserves or other miscellaneous items have been figured in. So you know it’s not real world but it will get the point made.
LOS ANGELES
I found a duplex located on Vanowen Street in Lake Balboa, California. It appears to be in pretty good shape from the photos, has two bedrooms on each side, one car garage for each side (shared) and I don’t know how many bedrooms. My research showed rents would be in the $1,300 per side range. It is being offered at $599,995. So let’s do some math.
$2,600/mo rent collected
– $ 195/mo property management
– $ 300/mo taxes
– $ 175/mo insurance
= $1,930/mo available for P&I
Making a cash investment (not including closing costs) of $294,995 would leave you with a $305,000 mortgage at 6.5% interest amortized over 30 years. That’s $1,928/mo. That’s $24 a year cash flow.
KANSAS CITY
On Friday I closed a duplex in Olathe, Kansas that was asking $199,950 that featured two bedrooms, one and one half baths and a private garage for each side. My Buyer payed $194,000 for the property. Both sides are rented with fresh one year leases totalling $1,475/mo.
$1,475/mo rent collected
– $ 110/mo property management
– $ 225/mo taxes
– $ 90/mo insurance
= $1,050/mo available for P&I
Making a cash investment (not including closing costs) of $38,800 (20%) would leave you with a $155,200 mortgage at 6.5% interest amortized over 30 years. That’s $981/mo. That’s $828 per year cash flow.
WHICH CITY WINS???
Early in the game it looks like Kansas City has taken the lead. By putting down only 13.2% of the money in Kansas City than you would in Los Angeles you have created break-even to very modest cash flow. In Kansas City you are committing much less money up front and committed to a bank for a much lower mortgage balance.
But we are only at half-time of this match. (Or the 7th inning stretch, whichever you prefer.) Tomorrow we’ll discuss appreciation. Who do you suppose will win that battle? You might be surprised.
Jump to Kansas City v Los Angeles Real Estate Investing Part II here.
Filed under City Comparisons, Real Estate Investing
Real Estate Investing Return Rates
When you invest in real estate you are expecting a return. Otherwise, why bother? Right?
What concerns me is the amount of potential clients I speak with who are ready and willing to rush headlong into purchasing an income house without having any idea as to what the returns will be. Or even what returns they expect to get from their real estate investing. It sounds trite, but if you don’t know what you are shooting for how do you know if you got it?
“I just want to make enough to cover my mortgages payments and to not have to put any of my own additional cash into the home to make it fly.”
As your chosen real estate investment counselor I have to say that I still don’t know what you mean.
Yes. I get what you mean. But really what is the goal we are trying to obtain? How many years do you have before you expect to retire? How much capital do you have for real estate investing at this point? What is your tolerance towards non-traditional 30 year loans? Are you after Growth or Income? How do you measure returns? Cap Rate? GRM? Cash on Cash? Overall return? What is the end amount of money we are trying to accomplish?
I’m not trying to over complicate this thing. Owning real estate for income purposes is really just like any other business. You need to understand, before beginning, what you will need to put into your business and what you expect to get from your business. This would be true if you were starting a flying school, a Quick Trip or a hamburger stand.
After getting these (and a few other) questions answered I can better help you to determine what needs to be done next.
Filed under Real Estate Investing
Should A Real Estate Investor Get Their Real Estate License?
I received a question by email the other day that I get asked about 6-8 times per year.
“Should I, as a real estate investor, get my real estate license?”
Let me just begin this post by saying that I am not a substitute for sound legal advice. (Does that make you think the answer could really matter?) When you get your real estate license there are certain legal obligations you have to fulfill. So before making a final decision feel free to contact your real estate attorney.
Advantages
- Certainly, as a real estate agent you can get first crack at quite a few properties. Once you learn how the MLS system works you can set up searches that allow you to monitor for homes that fit your criteria.
- People know you are “in the game.”
- Access to Board approved real estate contracts.
- You can save or earn a commission on deals that would otherwise go to the agent involved.
Disadvantages
- As a state licensed real estate agent you are now held to a “higher” standard. You have laws to comply with and the Code of Ethics to follow.
- You must notify any buyer and seller you are working with that you are a licensed real estate agent.
- If it ever went this far, who do you think a jury would side with? The person who ended up selling their home at a deep discount or the licensed real estate agent who knew the true value of that home that was for sale?
Generally, I tend to recommend to people to NOT get their real estate license if they are going to be a full time real estate investor. I believe the liabilities and compliance issues outweigh the benefit of saving the occasional commission.
Having said all of that, there is absolutely nothing wrong with being a real estate agent who also owns investment property. For instance, the investment property I own is for my security and my benefit. It is not, at this time anyway, my primary source of income. It is my nest egg and wealth growing vehicle.
So ask yourself: What will my point of emphasis be if I get my license?
Filed under Misc. Real Estate, Real Estate Investing
Real Estate Thoughts
Discrimination and Real Estate: What Do You Do? – Posted on my Active Rain blog.
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Top 4 reasons to own income property:
- Cash flow before taxes
- Principal reduction
- Depreciation
- Appreciation
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We’ve had so much rain in Kansas City that my basement flooded for the first time. That has been a real delight to deal with!
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True story: I am helping some client buyers purchase a home. During escrow the home gets the air conditioner condenser coil stolen and the deal is falling apart because the seller says it’s my buyer’s responsibility! So I send over my AC guy and he finds out here are even more problems with the ac/heat than we were initially led to believe. And the seller wants us to pay for that, too! We’re done.
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Next 4 reasons to own investment property:
- Tried and true wealth building
- Secure a retirement worth having
- Provide safe/affordable housing
- Create a hedge against losing main source of income
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If we have the technology and, in fact, the technology is in use…why isn’t it more widespread? Natural gas powered cars are cleaner and cheaper to operate. Hmmm.
Filed under Real Estate Investing, Social Issues
Recommended Reading Before Beginning Your Real Estate Investing Career
If you are on the fence about real estate investing you must read this. If you have bought a house you realize you shouldn’t have, you must read this. If your real estate investment is eating you alive, you must read this. If you just now realized your real estate agent must not know anything about investment property, you must read this.
From my West Coast friend, Darth BawldGuy:Filed under Uncategorized
Do You Have Real Estate Questions?
Most of the time my blogs come from current events in my life and business. Sometimes, however, they come from emails you send or comments you leave. I would love to hear from you about a few topics you would like me to cover. Or cover in more detail. So I encourage you to leave me a comment or email me at listwithchris@kw.com.
Anything is game from the seemingly easiest question concerning buying or selling your own home to something that deals with the very heart of real estate investing. I’d love to hear from you.
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A couple of items I have been reading:
thanks to LandChasers I found the article
Filed under Cool Sites
BBQ Capital | Kansas City Real Estate Investing 