October 29, 2007 · 8:32 am

Kansas City Real Estate Investing

Kansas City real estate investing is alive and well. And counter to the rest of the real estate market things are beginning to really heat up for the active real estate investor. In fact, I actually have more ready, willing and able buyers than I do properties I feel great about recommending.

But I believe that is changing. The properties side of the equation, anyway. You see as the high inventories begin to creep into the holiday season many sellers are beginning to get a little more flexible as far as their expectations are concerned. I’m seeing in the desperation of their agents.

“Motivated seller.”

“Make offer!”

“Owner may finance.”

These are all signs that the real estate agent and seller are feeling the pressure. (By the way, isn’t it odd that the National Association of REALTORS is running it’s a great time to sell commercials here in the Kansas City market? Really?) And when people feel pressure from within they tend to bend where they wouldn’t bend before.

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October 26, 2007 · 3:24 pm

Kansas Jayhawk…Football?

Be sure to tune into ESPN2 tomorrow at 6:00 pm (Central) to watch the Kansas Jayhawk football team continue their march to the inevitable BCS Championship game.

Watch as these Jayhawks grind out yardage against the once proud Texas A&M faithful and…

…I’m sorry. I had to stop and laugh. It’s hard to say Kansas football and BCS in the same sentence. But who knows? If Florida can win titles in basketball (which I still consider sacrilege) then why can’t Kansas win one in football?

I invite you to give me even one good reason we can’t do it!

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October 26, 2007 · 8:40 am

Proceed With Caution On Your Real Estate Investments

The basics of real estate investing have never been more important than they are right now. I read a headline on Yahoo! that Countrywide Home Loans has announced a loss last quarter of $1.2 Billion. I read in the Kansas City Star that some analyst are expecting this real estate correction to last into 2009.

And while I cannot tell the future any better than you I can tell you that perception can become reality. For that reason alone I urge you to make sure that when you are purchasing your next income property that it makes sense financially to do so.

Listen, markets go up (we like that) and they go down (we like not so much). During a Seller’s market it might be tempting to purchase income property on more of a “speculative” basis. A little negative cash flow may be acceptable so long as there is a belief that you will make money on the appreciation on the back side. I’m not advocating this! Just merely pointing out behavior.
But the real estate market here in Kansas City has come to a standstill, overall. Yes, there are definitely some areas of town where appreciation is still happening. Population growth and housing demand don’t stop just because the credit crunch hits. But there are also many parts of town where days on market is soaring and prices are softening.
As I have always advocated and now yell from the mountain top, do not purchase income property you cannot afford to keep. Make sure that you are honest with yourself on the expense expectations including capital improvements and vacancy. Make sure rents will cover your PITI PLUS the improvements and vacancies mentioned.

Don’t gamble with your retirement worth having. There is too much at stake. Now, if you are in a position to buy and buy right now, you should be smiling. But if you are in need of selling because you got caught speculating, you are probably nervous. You should be.

Just look at the slippery road caution sign. It doesn’t say stop. But it does say proceed with caution and be aware of the pitfalls. The same is true with your real estate investing.

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October 24, 2007 · 10:46 pm

Changing Relationships

I love it when I see real growth out of my clients. I had about a twenty minute conversation this evening with a gentleman I helped to buy his very first home three years ago. I said his first home. Not his first real estate investment property.

Today, he owns more property than I do. Seven to be exact. He had called for some advice regarding a particular concern he had. Hopefully I got him the answer he needed. But as we talked I asked him questions and gained insight to some things he was doing.

It seems I’m still his mentor in many ways. I’m about 16 years older. I’ve been working with real estate longer. And the advice of mine that he has followed has really provided him with some sweet, sweet equity positions. But I feel the relationship changing. Changing for the better.

It’s a lot like when I talk with my fifteen year old, now. There was a time when I told him everything he needed to know. I helped him get dressed. I helped him fight his fights. Now I sit back amazed at the path he is taking. The answers he comes up with himself. Amazed at the man he is becoming.

Sure, I’m still there to say “what about this” now and again. But my role isn’t so much to dictate as it is to advise. My boys, both literally and figuratively, are growing up.

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October 24, 2007 · 11:05 am

Calculating Returns on Real Estate Investment Property

When I calculate returns for my real estate investment property here in Kansas City I am usually worried more about what my equity return is than any other issue concerning returns.

What do I mean by Equity Return?

Quite simply, the money that you have tied up in the real estate investment. For instance, in your first year your equity will be:
  • Your down payment.
  • Any difference between what it’s worth and what you paid for it.

A couple of years later (say the 5-8 year window I talk about for trading in/up your real estate investments here in Kansas City) you equity will be:

  • The difference between what you sell it for minus what you owe (including your down payment).

So keep in mind you’ve had principal reduction going on (unless you went with an interest only loan, which could have been a good strategy depending on your situation) in conjunction with appreciation to raise that equity.

Here in Kansas City when you first purchase an investment property I would encourage you to make sure you are getting at least an 18%-22% return on your equity investment. But as you can probably figure out 6 years later that equity investment return will probably have been reduced by as much as 7%-10%.

Why? Because your accelerated depreciation has been exhausted on most facets of the personal property in the rental property and the percentage of net equity to value has steadily dropped, therefore lowering your leverage.

Knowing how you measure what a successful real estate investment property is provides you with the fist step in knowing whether or not that particular house is the right house for you and your investment property portfolio.

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October 23, 2007 · 11:28 am

As California Burns…

Remember the people in southern California today in your prayers. I can imagine replacing my house. But replacing the memories, the photos, the keepsakes…those things you can’t replace.
***
If you have your money in 401Ks and IRAs you are going to want to read this from last week. It’s worth your time. Sound financial planning takes more than one vehicle. So go read Jeff Brown’s Trojan Horse.
***
As I understand it the workshop I’m doing at UMKC regarding real estate investing already has more students registered than I usually speak with at one time. I’ve liked the smaller groups in the past because of the active participation. It will be interesting to see how this goes. You can register for this class by calling 816. 235.1448.
***
I was speaking to a would be real estate investor on the phone today and she said she went to a 3 hour course on REI and the only answers she got was to buy the books and tapes they had to sell. Gee, that sounds familiar.
You DO NOT have to spend thousands on books and tapes to be a good real estate investor. Work with someone that has a vested interest in your success. You could be reading one, right now.

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October 22, 2007 · 11:59 am

A Real Estate Joke: Rated PG-13

A businessman met a beautiful girl and agreed to spend the night with her for $500. They did their thing, and, before he left, told her that he did not have any cash with him, but he would have his secretary write a cheque and mail it to her, calling the payment “RENT FOR APARTMENT.”

On the way to the office, he regretted what he had done, realizing that the whole event had not been worth the price. So he had his secretary send a cheque for $250 and enclose the following typed note:

Dear Madam,

Enclosed find a cheque for $250 for rent of your apartment. I am not sending the amount agreed upon, because when I rented the place, I was under the impression that:

  • #1 – It had never been occupied;
  • #2 – There was plenty of heat; and
  • #3 – It was small enough to make me feel cosy and at home.

However, I found out that:

  • #1 – It had been previously occupied,
  • #2 – There wasn’t any heat, and
  • #3 – It was entirely too large.

Upon receipt of the note, the girl immediately returned the cheque for $250 with the following note:

Dear Sir,

  • #1 – I cannot understand how you could expect a beautiful apartment to remain unoccupied indefinitely.
  • #2 – As for the heat, there is plenty of it, if you know how to turn it on.
  • #3 – Regarding the space, the apartment is indeed of regular size, but if you don’t have enough furniture to fill it, please do not blame the management.

Please send the rent in full or we will be forced to contact your present landlady.

***

Thanks you to Al S. for sending this way.

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