BBQ Capital | Kansas City Real Estate Investing | Real estate investing and property management in Kansas City.

March 24, 2009 · 7:28 am

Spring Bounce Is Here. Is It Permanent?

kw_sold2 “That’s the busiest February I’ve ever had.”

That from a Re/max agent I know that has been selling houses in Kansas City for 20+ years.

“Damn it!” (Sorry for the swear word.)

That from a real estate investor I’m working with who just missed his third property in a week because when we made the offer there was already another “just accepted” contract.

I have had two closings in the last seven days with two more still on the board.

I’m not saying it’s 2003 around Kansas City. I am saying people have moved off the sidelines and into the game. A BIG factor is the first time home buyer’s credit. First time home buyers are out and about in a big way.

And real estate investors are beginning to feel like we are at bottom (or close enough for hand grenades) that they are wanting in again. Though they are coming in a little lower on price point because of the larger required down payments necessary by lending standards.

2 Comments

Filed under Kansas City Real Estate

March 20, 2009 · 8:31 am

What Are Kansas City Real Estate Investors Looking For?

Q: I’m looking to wholesale homes to investors in the Kansas City area. I’d like to know the answer to one question. What are the top 3-5 things Kansas City investors / landlords look for in a property they’d be eager to buy?

A: I have wholesalers call me each and every week. All believe or hope that I may have a stable of ready buyers for their properties.

In no way will I want to appear rude here, but usually if a wholesaler is involved the numbers will not match up with the expectations of most of my more experienced buyers. Because that’s just one more layer of expenses that have to be worked through to see if the numbers work.

Top 3-5 Things A Kansas City Real Estate Investor Is Looking For

Price/Value/Equity– Whether my buyer is looking to Buy & Hold, Rehab & Rent or is daring enough to Buy, Rehab & Sell they will all be looking very closely at the numbers. Buy & Hold is probably willing to accept up to 85%-90% of CURRENT market value after all update expenses and closing costs. Whereas a Rehab & Rent guy will probably be looking for a ceiling of 75%-80% of CMV and a B,R & S guy will be looking at 60%-70% of CMV.
Location – This depends on the budget, down payment, credit scores and end-use goals of the individual investor but you can expect most of my buyers to be looking at clean, safe neighborhoods where appreciation is more the expected than the exception. Even in this economy. Jeff Brown calls it the Grandmother Test. (If grandma wouldn’t spend the night there maybe you need to reconsider.)
Exit Plan – Is this neighborhood likely to increase in value, stay the same or sink a little? Who is moving in? (People making more money than their neighbors or less?) Are they taking care of their houses? Any new development, both positive and negative, expected for the area in the next 3-10 years?
Tenant Pool – What kind of tenants will this property attract? Are there enough of those kinds of tenant about? Where will they come from? Where do they work?

Wholesaling tends to take place in the less than $70,000 price range around most of Kansas City. It does happen some over that price range, but not nearly as much.

If a house meets the criteria of the above I’m always willing to look at it. Just email me the needed information. listwithchris at kw.com

5 Comments

Filed under Real Estate Investing

March 16, 2009 · 2:25 pm

State of Missouri Audit Coming Our Way: Everybody Panic!

tony_soprano-girl1 So the State of Missouri has told our broker that an audit is coming our way within the next 30 days and the admin people of our office are freaking out. Never mind that we have a paper policewoman who won’t let us have our checks until all the boxes are checked and signatures initialed and asses are kissed. (Sorry, this whole thing pisses me off.)

My feelings are this on audits;

They are good in that the fear of an audit makes brokers hire people to make sure everything is done by the book.
They are bad in that the auditor comes in and will not leave until they find something, no matter how innocuous or ridiculous, in which they can draw a fine from.
Missing a check box or not filling in a warranty line is hardly the same as “fraud.” But by God, they will fine you and the broker $150 each if you miss it.
What they are really looking for, and let’s call this out, are Kansas agents selling Missouri homes and not paying Missouri state taxes.

I try to operate my business with the utmost integrity. I fight for the benefit of my clients. But if I miss a box I’m more likely to be fined than if I help commit the fraud that has been so rampant.

Oh, well. Like the neighborhood merchants who have to pay tribute to the mob it’s just the cost of doing business. I know I’ll be a target because I sell so many properties in Missouri. I’ll let you know how it turns out in a month or so.

5 Comments

Filed under Misc. Real Estate

March 13, 2009 · 9:01 am

Show Me The Returns

On Monday I did a post titled “What Return Should You Be Looking For?” and I had a comment from a regular reader asking me to show how I can get the returns I promised. So I thought I would work out a potential investment/rental property right here in Kansas City in the Waldo neighborhood that I had a hunch might work.

waldo-investment-house I looked at a property the other day. Definitely not a charmer. But nothing too bad about it, either. It sits on a street that gets traffic, but not too much. Just blocks from an elementary school.

Typical Waldo house. This one has two bedrooms. One addition. A crawl space that will make new home owners a little nervous…don’t worry, it’s like every other crawl space in this area…and could use a few things done to it.

I expect the rents to be in the $640-$675 range. That’s based on knowledge of other similar housing within a few minutes walk of here.

Waldo is a neighborhood that goes up and down based on the fortunes of the local economy. It has suffered a bit these last 9-12 months. But not too badly. And I don’t expect it to get any worse, comparably speaking, to anything around it. With this house at the right buy I can honestly say I would expect a 1% appreciation rate your first year. Yes, I’m being serious and conservative. You can expect blue collar or lower service industry type renters. Hardworking people that make up this country.

Anyway, let’s hit the numbers, shall we? All numbers will be close estimates. I cannot tell the future but I’ll bet, looking back, I’m not too far off.

Purchase price: $55,000. 20% down, 7% interest with 1 point. House payment of $293 per month.

Expected expenses to include $500 for repairs, $800 property management for you out of towners, $200 utilities when vacant, 5% vacancy, $100 miscellaneous, $600 insurance and about $977 in taxes.

Expected income will be $650/mo.

That leaves us with a Net Operating Income of $4,223 and Cash Flow Before Taxes of $707/yr. Principal Reduction will be $450. Your tax benefits (depreciation, interest, etc) will save you about $105/yr. if you are in the 28% tax bracket.

That means you have a cash on cash return of 5.24%. A capital growth return of 9.01% without appreciation. (Cap growth formula for me is Cash Flow Before Taxes + Principal Reduction + Tax Benefits / Total Cash Invested.) With the expected appreciation mentioned that jumps to 13.4%.

Now how about if you are a local Kansas City Real Estate Investor? If you are willing to manage the property yourself you are looking at a return of 15.27% without appreciation and 19.35% with the modest appreciation mentioned.

Getting back to my previous post, you have to ask yourself are these numbers worth the investment, time and risk you take. But then again you have to ask yourself on any investment, right?

We can tweak those numbers mentioned to a degree. You can choose to put down 25% to get a slightly better return on your cash flow and a better interest rate. But then again you can save that extra 5% and combine it with other funds and buy two rental houses that are bringing in a 10%-12% return rather than one house bringing in a 13% return. Follow?

For those of you that don’t know me I’ve tried to be as real as I can about those numbers mentioned. Believe or don’t believe. The choice is yours. But if you owned some Kansas City investment property you’d have an excuse to eat some of our good barbeque.

Now, I’m going to go mourn my Jayhawks losing yesterday. And get ready for next weekend!

4 Comments

Filed under 4 Benefits of Real Estate Investing, Investment Property, Kansas City Real Estate, Real Estate Investing

March 9, 2009 · 8:02 am

What Return Should You Be Looking For?

Yesterday afternoon I sat down with a knowledgeable client and we worked out a prospective return for a house he currently owns and is thinking of converting from a primary residence to a rental property. After working through the numbers we determined the return on investment and then discussed it.

I know you want me to tell you the return number. But it’s not really relevant. What has to be determined is what else could you do with that money and what would the returns be if you did?

When you own and/or manage a rental property you have to step back at least once a year and recalculate your returns. Are you better off in the stock market with that money? Bonds? Under the mattress?

What will the future bring? Inflation? More deflation?

If I thought inflation I’d hang on to as many hard assets as I could. Remember, 24-36 months ago very few saw the magnitude of our current financial collapse. So who knows how quickly inflation could set in with all the money the fed is pumping into the economy.

Long term deflation? Unlikely in Kansas, but not off the table. Then it’s best to sell now and stuff under the mattress. 🙂

If I’m helping you purchase an investment property here in Kansas City I’d like to get your overall capital growth up to about 15% – 22% a year. Converting a residence can be considerably lower because of various other factors. But a rental property return should definitely be higher than you can get elsewhere if for no other reasons than with rental property you have to work with tenants, property managers…and your money is not liquid.

Think about all of that and then decide what is an acceptable return. What is acceptable to you may be very different than what is acceptable to me.

3 Comments

Filed under Real Estate Investing

March 6, 2009 · 10:04 am

Kansas v Missouri History Lesson

For all of our out-of-town readers, here is a sign that was unfurled for the first time in last weekend’s Kansas versus Missouri basketball game. That’s John Brown in a classic remake (sort of) of “Tragic Prelude” which is in our state’s capitol building. There are a few variances. For instance, that’s still John Brown leading Bleeding Kansas against Missouri. And that’s still a gun in his right hand. But in his left hand the Bible has been replaced by Kansas’ 2008 National Championship trophy. LOL.

Appraisals Versus Real Value

I have had to address this topic four or five times over the last few weeks so I thought I would address it here. Your appraisal is different than the actual value of your home. (Appraisers, you are certainly welcome to weigh in on this post if you like.)

Let me say that again. Your appraisal is not the value of your home.

Pass is forbidden. The Policeman forbids Most appraisals are ordered to support or not support the bank’s loan on a home. An appraiser comes out, looks at trends, comparable houses and their sales prices and determines whether or not the home in question is similar in so many ways. Then that subject home either falls in to a range that is acceptable to the bank or it does not.

I like to help people buy homes in neighborhoods where the house they are purchasing has hidden equity. If every house in the neighborhood has sold for $200,000 in the last 6 to 12 month and we are buying at $180,000 then you’d like to say you have $20,000 of hidden equity right off the top.

But not so fast. Are you an anomaly purchase or is the neighborhood heading in that direction? One below market sale in a neighborhood is no big deal. Two can raise an eyebrow. Three or more in a six month time period is a very large red flag.

When you look for hidden equity there is a lot to consider. How established is the neighborhood? How close are schools, employment centers and shopping? What is the surrounding area like? Historical value? And a few other items to check off.

A seller and a buyer determine value. An appraisal supports or denies that value. Nothing more, nothing less.

Now if you are in the mood we can discuss how appraisals are one of the chief reasons we got into the mess we are in today. Appraisals were supposed to help guard against what happened happening.

2 Comments

Filed under Financing Options, Kansas City Real Estate, Misc. Real Estate