BBQ Capital | Kansas City Real Estate Investing

I received this email early this morning from a would-be real estate investor that I’m working with:

I know appreciation is a big piece of the return, but in this market I don’t know what I can count on. It makes me think I should maybe look cash flow instead until the market turns around and move more toward growth at that time. Your thoughts?

Well, I’m glad you asked.

First, let me state unequivocally that this would be investor is sharp. He is looking at real estate investing as a way to secure a retirement worth having. But when you are newer at anything there is always a period of confusion and wonderment. Now to the question at hand.

Appreciation and growth are always going to be important when you are working with me planning out your real estate investments. I don’t advise heavy cash flow (run-down housing, mobile homes, etc.) income property and I believe that when you are starting a good healthy dose of leverage (with proper cash reserves) is in order.

Having said that, a rental property that pays for itself is of paramount importance. As the writer wonders, what will this market bring? What isn’t stated, but implied, is:

• How long will this market last?
• How can I time it to move from cash flow to growth?

Quite simply, you cannot know any of those things. You have to go with historical growth calculated along with growth assumptions, population & job trends, available real estate and desirability (along with a few other things) plus experience and then you blend those all together so that you come up with a target area and property type. Easy, right? 🙂

In the mean time, you absolutely must acquire properties within those parameters that will pay for themselves based on the down payment you have, the loan product you choose and the expenses you expect (and don’t expect).

Real estate investing is part science, part voodoo and a little bit of luck mixed in doesn’t hurt. (See California’s 20% a year growth. How ’bout the guy who sold it all at peak without knowing it was peak? That’s luck.)

What am I saying? Buy your rental property, income property, investment property (whatever term you use) based on sound financial principals. Base your growth projections on sound homework. Then you should be fine.

Sooner or later you have to decide who you are going to listen to when it comes to real estate investing. Newbies have the hardest time deciding.

Many would be real estate investors begin to get interested from the shows they see on tv whether they be the HGTV or A&E variety or whether they be the infomercials put on by Carlton Sheets. Or maybe they read all the way through a Bob Allen newspaper ad.

The studious would be investor may even go to the bookstore and find the real estate section and be amazed at the variety of books available concerning real estate investing.

There are books on:

• Short Sales
• Buy & Hold
• Fix & Sell (Flip)
• Buying Tax Liens
• Subject To
• No Money Down

And I haven’t even scratched the surface with that list. Confusion can set in. Should I listen to the REALTOR that gets a commission when he sells me a house? Should I listen to the “real estate investor” who seems to spend more time selling thousands of dollars of books and tapes than he does investing in rental property? Should I listen to my best friend’s friend who says he’s making a fortune in flipping?

I feel for you if you are a newer real estate investor. I went down a lot of these thought highways myself when I was getting started. But ultimately I chose a path of real estate investing that matched both my ability (financially and time-wise) to my values.

You should do the same.