October 10, 2008 · 7:32 am

HUD Homes

HUD homes are a blessing and a curse to the real estate agent.  Recently here in Kansas City I’ve been looking at quite a few HUD homes on the Missouri side.  Sometimes they are quite the buy.  Others are overpriced junk.

Working mostly with real estate investors I look for properties that would be good rentals, have sweat-equity to be earned, are below market even after purchase+repairs+sweat equity and would cash flow with 20% or less down.  HUD homes are plentiful.  What I just described is a less so.

The Blessings are that HUD homes pay us real estate agents 5% commissions.  So that sounds great.  At least until you get to the Curse part.  There is unbelievable attention to detail in the mountain of paperwork that is required.  And the government loves false deadlines.  On any given transaction I’ll have to spend at least $60 in FedEx fees and worry endlessly as to whether or not I forgot one set of initials somewhere which will cost me more.  Then there is the interchangeable terminology that HUD has on their contract addendums that confuses everyone. 

If you need them to sign forms you request?  Forget about it.  You have to jump through all of their hoops but they aren’t doing crap for you and your local real estate requirements.  And they seemingly always pick someplace to deliver that earnest money that is at least 30 miles from my office. 

Now, what does all of that have to do with you?  Well, it really doesn’t.  I just like to gripe.  🙂  I’m dealing with three HUD homes right now.  I’m grateful for the business.  It’s just so much more cumbersome than a non-HUD transaction.  It is comical, really. 

Keep in mind that as a real estate investor HUD homes are only available to you after the first round.  So some of the best deals are gone before you are eligible.  Unless you commit fraud…which I really do not recommend.

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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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Filed under Kansas City Real Estate, Real Estate Investing

October 7, 2008 · 12:18 pm

Worried About Your Real Estate Investment Returns?

Kansas City real estate is historically safer than the stock market.  Want more proof?  My IRA is down 37.4% this year!  My individual stock holdings are down 35.02%. 

My real estate?  I’d say, at most, down about 3% on one and even to up about 1% on another.  No great shakes either way given the time component of real estate investing. 

Just a thought…

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October 3, 2008 · 7:51 am

American Royal Barbeque

This weekend is the “World Series of Barbeque” here in Kansas City.  (I just noticed it’s been a while since I’ve had a BBQ post.  Too bad for us all.)  If you need to find me tonight I’ll be with my wife down at the American Royal Barbeque Festival.  I haven’t been to this particular one in years.  Seems like something always comes up at the last minute.

But I will be there tonight come heck or high water.  You can find out more about the even here.  Hope to see you there.

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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.

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Filed under Financing Options, Real Estate Investing

September 30, 2008 · 8:53 am

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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Filed under Kansas City Real Estate, Real Estate Investing

September 29, 2008 · 7:26 am

Geno – My Duplex Is Different Than Yours (A Chicago Experience)

As regular readers know I took my new 16 year-old to Chicago Fri-Sun and had a great time.  Chicago has a new fan.  I loved it and so did Jacob.  And while we were there we got a call Friday morning from Geno Petro anxious to show us his town.

Geno picked us up around 10:30 and proceeded to give us a three hour tour of the city.  Lincoln Park.  Wrigleyville.  The Gold Cost. Lake Shore Drive.  Halstead Street.  The Wienerville hot dog stand.  Geno showed us real estate and gave us price points.  Oy.  Geno showed me what Chicago people call a duplex.  Much different than what Kansas Citians call a duplex.  Much different.

Then Geno turned us loose.  We took the blue train out to Bucktown and proceeded to walk and walk and walk.  A tennis-shoe tour of the city.  We even stumbled across a Jayhawk bar at the Armtiage stop of the brown line.  Further proof that the city of Chicago has class!

I highly recommend setting up rights-of-passages with your children.  I think we had a weekend to remember.  But I digress.

Getting back to a real estate take, I was very impressed with Chicago.  But their prices are much more extravagant than what we deal with here in Kansas City.  I’m not sure how I would work numbers up there.  My guess is they are not all that attractive.  Not Los Angeles real estate investing bad.  But less profitable than here.  And I’d have to learn all new terminology to get acclimated to that real estate market. 

Thank you Geno for the guided tour.  You are truly first class.  Thank you Chicago for letting us stay.  And thank you for the advice many of you gave through emails and comments.  The architectural tour was fun.  The dogs were good.  (You know, they are still hot dogs, right?)  And the pizza fabulous.

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