Wednesday, February 28, 2007

Investment Real Estate In Kansas City: Don't Stop

Chicken Little loved to say the sky was falling. And if you read all of the newspapers you will see that they like to do the same when speaking of real estate. The media loves all the fodder regarding stagnant growth, reverse growth, minimal growth, large inventories, etc. But, and you need to listen here, it really doesn't make too much of a difference if you own investment property, especially here in the Kansas City area, and you own it for the long haul.

If you've read my blog for any length of time you know I'm not a big proponent of Buy & Sell strategies. Buy & Hold income property is a whole other subject. Inman News is a great portal to keep up on real estate news. And today I read an article on Inman that reported that the home-price index fell 0.7% in the fourth quarter while rising 0.4% compared to the same period of time the previous year. A mixed signal but relatively flat, none-the-less.

However, (read the article) it goes on to speak of growth since 2000. Detroit is the worst city on the index with a rise of 19.51% since 2000 and Miami had the highest rise at 180.87%!

We can assume that Detroit will not face the correction that Miami will. (We don't know, but it's an educated guess.) And neither will Kansas City. But lets say Kansas City appreciated somewhere along the lines of Denver at 37% and Dallas at 23%. (I'll use the 25% number since I believe we aren't Denver but a little nicer than Dallas...oh, I can see the angry emails now.)

Example: Paid $150,000 for duplex in 2000. Appreciated 25% over the 6 years and now has a market value of $187,500. For the sake of argument, we can say that it really appreciated 27% but over the last year dropped 1%. Doesn't really matter. The point is your equity grew on appreciation alone by $37,500. Your remaining principal is now $111,230 (or so assuming you put 20% down at 7.0% back in February of 2000) so your tenants paid your loan down an additional $8,770 on your investment property. That's total equity growth of $46,270.

Therefore, your initial $30,000 cash investment is now worth $76,270. A 254% increase. Are you getting that? You had 25% appreciation on the property but because of leverage you had a 254% increase in your money. How are your stocks/bonds doing?

And I have not even mentioned Cash Flow Before Taxes or Depreciation. Two more of the 4 benefits when owning investment real estate.

Tuesday, February 27, 2007

New To Real Estate Investing? Look Out For Expenses!

I've covered the topic of NOI (Net Operating Income) before and if you are new to real estate investing you may wish to go back and read those posts. But the key to knowing your NOI is knowing the actual expenses. Here are some obvious expenses to look out for;

  • insurance
  • property management
  • leasing costs
  • grounds upkeep (lawn, snow removal)
  • maintenance costs
  • vacancy

Here are some expenses you may not readily think of but you'll need to account for.

  • hidden maintenace costs future/sinking fund (ie, the roof passes inspections but only has a life of 5-7 years left.)
  • non-performing tenants (rent rolls show $795/mo but you find out after closing they are 30-60 days behind)
  • HOA (numbers look great until you throw in that $375/qtr. HOA fee that cares for exterior maintenance but everyone on the block has peeling paint and wood rot)
  • utilities (who is responsible for these?)
  • rental licensing fee (Wyandotte County has a fee for rental properties and Kansas City, MO is considering one)

Just a few extra things to think about when purchasing income property. Remember, the key is to have a property that makes you money and not an investment house that costs you your vacation each year.

Monday, February 26, 2007

The "Ego Wall" When Negotiating Real Estate

I just finished reading a great post over on UrbanDigs regarding his particular strategy concerning negotiating to help his clients receive the lowest price possible when purchasing their property. It's a good read and has sound thinking behind it. Worth your time.

My only concern is that I have found over the years that there is an imaginary Ego Wall that exists and you do not want to get crushed by it.

What am I talking about? Well, it has been my experience that there is a point at which a seller will negotiate in good faith and a point at which he will be insulted, challenged (or any other word you would like to throw in) to the point that he will be less malleable towards making the lowest deal possible to get the transaction done.

And just like Noah (as a buyer's agent) doesn't know how a seller will react or where he will go on his counter offer (if he even offers one once he's been put off) I seldom know either when working for the seller. As Noah correctly points out almost every seller comes with their own unique set of circumstances and goals.

So while I understand, support and have used the low ball strategy I also caution my clients that when you low ball it still must be reasonable. Because it is my belief that once you make the seller an enemy you may have cost yourself money.

Saturday, February 24, 2007

New Urbanism, Smart Growth, Whatever: Just Do It

Before I get started let me just say this. I am not an environmental radical. I do recycle. I drive a small car. I'm for smart growth. I'm for anything that lessens our dependence on oil. However, I also live in our real, modern America and I have a minivan to drive around my family of six, and that vehicle currently uses oil. I live in the capital of suburban sprawl right here in Olathe, Kansas and I've been known to leave lights on for days at a time.

New Urbanism and Smart Growth do need more attention. Especially here in the heartland where land is so plentiful and cheap that we tend to squander our natural resources without much thought. Clean up this blighted area and recycle the land with new homes, schools and businesses? Nah, just tract out another 100 acres down by Spring Hill and start building!

There are economic, sociological and governmental forces here at play that are too large for just one guy to make a difference. (And talk about a dysfunctional city family here in the metro...KC doesn't like Overland Park, Olathe doesn't like Lenexa, everyone fights with everyone over business...) But I would at least like to bring it to the attention of some of you out there.

On this post you will find several links to sites that I think are worth your time to check out. Building & Philosophy sites, a National Geographic site, community sites like Kentlands in Gaithersburg, Maryland, Cherry Hill Village in Michigan and Orenco Station in Oregon to name but a few. (Imagine Zona Rosa with housing right around it so that people could safely walk to the shops and dining without having to drive!) There are even many blog sites concerning urban policy and growth.

I see hope for this train of thought here in the Greater Kansas City area. After all, the condo/loft boom in downtown and the River Market areas are a direct result of people young and old wanting to live in a community that they are actually a part of. To walk to work and dining and entertainment. To not have to negotiate I-35 each and every day.

I have even seen a few builders here in the KC metro put together some neo-traditional housing neighborhoods. Yes, they lack the overall efficiency of a true smart growth neighborhood and are often built out on empty acres miles from shopping and business centers but they are a baby step in the right direction.

True, we are Kansas City and we have different lifestyle traditions than the people on either coast. No matter how nice, spacious and well put together an all brick, three level town house is people here are probably never going to be crazy about living in one. But maybe we can mix a few in along with some well designed single family homes and surround these around a business center? Maybe we can move forward on the Light Rail for Kansas City down to Waldo. (This subject is sure to bring about a comment or two!)

I don't pretend to have all the answers to our growth problems here in the United States. Many with my political point of view believe we have no growth or environmental problems. But I think that it is short sighted of us to not look towards the kind of city and neighborhoods we are leaving for our children. To continually strive to make a better city than what was given to us and to have affordable housing, clean air, jobs and first class educational facilities is what I believe most of us want . We just have to come to agreement on how this is to be done.
So long as the discussion is civil, I welcome your emails and comments. Reasonable people can debate issues and look for places of promise even when the disagree on many points.

Kansas City Real Estate: A Spring Thaw

Let's face it. It's been a pretty tough selling season since late November. First there was Thanksgiving followed by the Christmas season. (Yes, houses do sell during this time of year but a greatly reduced pace.) Then came about 1 month plus of snow on the ground and 4-20 degree temperatures.

This week I have noticed more traffic on my homes than I have seen in a while. The weather has broke and people are once again thinking about making a move when it comes to buying their next home and possibly selling their current one.

For sellers this is welcome news.

Friday, February 23, 2007

March Madness is Coming!

Oh, baby! I can feel it. March Madness is just around the corner. With 3 games left the Kansas Jayhawks are tied for first in the league and have a chance at their 50th conference championship. Folks, Blair Kerkoff of the Kansas City Star did a great job talking about what an accomplishment that is.

Anyway, for those that know me well you know I'm nuts about Jayhawk basketball. Here are just a few of their successes;
  • 2 Helms National Championships
  • 2 NCAA National Championships
  • 12 Final Fours
  • 49 Conference Championships
  • 14 Members of Naismith Basketball Hall of Fame
  • 54 All American selections
  • Third all time in wins

Oh, and by the way...they are the only school to have 4 basketball arenas around the country to be named after their alumni.

Thursday, February 22, 2007

Keller Williams Realty + Trulia + Google Base = Sold Listings

One thing I base my real estate business on is that the more places you can get your listings posted on the higher chance of success there will be of securing a qualified buyer. And beyond that, if I can be the person the clients contact when they find the home online the better off it will be for all involved in that no one will know more about the listing than me.

Anyway, I'm very excited that Keller Williams has signed a partnership agreement of some sort with Trulia and Google Base. Just today I tried to find my listings on Trulia and found all of them. It's extremely accurate and up to date. Furthermore, when the client clicks the listing for more information it takes them directly to my website! From there they can continue their search or bounce around my website to find out more about my unique services.

Anyway, I think it's great. Give the links a try and see where they take you. And let me know your take on the issue.

Chris Lengquist
Keller Williams Realty
Diamond Partners, Inc.
Olathe, KS

Wednesday, February 21, 2007

Depreciation: You must Bifurcate!

Bifurcate depreciation? I first heard of the term when I attended one of Tom Lundstedt's workshops on calculating the returns on investment property. (If you haven't been, you should go. Or just order his CDs online. I don't say this very often but he is worth every penny.) Anyway, it's a $10 word to say separate.

I've referred to the 4 Benefits of owning rental property before but surprisingly I get very few comments or questions regarding depreciation. With tax season here, I thought I would hammer it home.

Pay very special attention to what I'm going to say next: Most rental property owners are improperly depreciating their income property because they are using a tax preparer who is unaware that you can bifurcate your depreciation. It may be costing you thousands!

There are 4 ways you should be breaking up the depreciation of your investment property;

  1. Land - no depreciation permitted.

  2. Building - depreciates over 27.5 years for residential or 39 years for commercial.

  3. Land Improvements - depreciates over 15 years. (driveway, landscaping, stairs, exterior lighting, etc.)

  4. Personal Property - depreciates over 5 years. (carpeting, appliances, etc.)

Hear Me! Most of you are only depreciating the Building! Stop doing that! We are entering the tax season and you need to know this so you can quiz your tax preparer. Still don't believe me? Watch this example.

EXAMPLE 1: $200,000 duplex located in Overland Park, KS and the tax assessor says the land is worth $34,500. Depreciating the remaining number as the Building on your first year schedule will yield you a tax savings of $1,901. ($165,500 x 3.48% = $5759 x 33% tax bracket = $1,901)

EXAMPLE 2: $200,000 duplex located in Overland Park, KS and the tax assessor again says land is worth $34,500. A Cost Segregation Study shows you have a breakdown as follows;

  • Building at $127,500.

  • Land Improvements at $17,000.

  • Personal Property at $21,000.

Now your formula works out to a tax savings of $3,131. That's a $1,230 increase in saved taxes! ($127,500 x 3.48%) + ($17,000 x 5%) + ($21,000 x 20%) = $9,487 x 33% tax bracket = $3,131.

Please, I'm begging you (and I don't generally do that unless you have KU basketball tickets I need) to do your homework on this and make sure your tax preparer does as well. After all, whether you depreciated your property correctly or incorrectly, you will have to pay the depreciation recapture when you sell. Unless, of course, you do a 1031 exchange. (So long as that is the smart thing to do. A whole other way to go is discussed here by my friend in San Diego.)

Is A REALTOR Worth The Money?

I'm a real estate agent, so you know how this is going to go. But let me see if I can make a compelling case as to why you need professional representation.

People think they are paying their real estate agent to get their house sold. And to a degree they are right. But what is "sold"? When I sit down in my listing appointments and talk with a Seller one of the things that I think is important for them to understand is my general philosophy. I don't believe I can sell anyone a home. Whether it's for personal use or to be used as an income property. It's too big an asset to get sold. People pick and choose their houses carefully based on a very wide variety of criteria. In short, if a Buyer doesn't like it they can and will move on to the next possibility.

And usually, a home will sell through a co-op agent. Someone else will bring and represent the Buyer. I'm there to market the home in a variety of ways including electronic media, print, word of mouth, signs, mailings, etc. My job is to drive enough people through the house that are ready and able to buy a house to secure a qualified Buyer. And then my work begins.

I tell anyone who will listen a brand new agent can market your home. They can read enough books on how to advertise, hold an open house, etc. But a brand new agent usually will lack the experience necessary to negotiate inspections, hurdle title difficulties, answer an appraiser's questions, work with mortgage officers and underwriters and their frequent and sometimes unusual demands. Then there are the last minute snafus with the furnace...

In the last month I've had several inspections from down under. Massive things wrong and big dollars attached. And not clearly visible without detailed inspections. Keeping the deal together can be daunting and sometimes impossible. But if there is a way, an experienced agent can work it out, get creative, think outside the box. (Are there any other cliches I can throw your way?)

I know many a person who have successfully bought or sold their houses as unrepresented Buyers or Sellers. However, I know many more people who had a contract and the deal fell through. Possibly these two reasons had something to do with it; 1. Lack of experience to know to prepare and/or how to solve the issue. 2. Direct communication between the Buyer & Seller (with their egos involved) may not always be the best path to take. Sometimes, it's good to have an intermediary.

Tuesday, February 20, 2007 - Find & List Rental Housing

Looking for a place to rent? Or are you a property owner looking for a good tenant?
You may want to check out I had heard of this site sometime back but had forgotten about it until earlier today when I was bouncing around the internet between appointments. I was blown away.

The site is pretty impressive and is a good resource to find your next rental house, or, if you are a property owner, to list your home. Go to the site and check it out. If you have had any experiences with before drop me a comment or an email and let me know how it went for you. I'm curious to know!

Reading: A great source of real estate knowledge

I've heard an old axiom that went something like this: "There are two ways to learn; 1. By your own experience. 2. By someone else's experience."

So true.

On the right side of this site you will see two books advertised for sale. Is it because I need the $0.86 or so I'll make from you buying the through this website? (I do have four it won't be turned away!) It is so that you can read two very well written books with slightly different perspectives about real estate investing. I've recommend these two books before and I still haven't changed my mind. They stand up in any market for any community.

Whether you've been at this for a while or new to the game or just thinking about real estate investing you should take the time to read or re-read these books.

Monday, February 19, 2007

A Home Inspection? What is that?

Many of us have lived in a home for the better part of our lives. We're used to living in them, used to using their components and even used to repairing them when we see problems. So why would anyone need to hire a home inspector? I mean, really, how hard is it to see a defect in a home? Can't everyone tell if a faucet is leaking or an automatic garage door opener doesn't work?

To answer that, let's ask the question, what is a home inspection? That’s the easy part - A home inspection is a visual examination of the readily accessible components of a house.

That’s the simple answer. But looking a little closer, there are many components of a home. They include the structural systems, the foundation, the roof, the mechanical systems, the electrical system, and the plumbing system, among others. All systems are independent, but are designed to work in conjunction with one another. A home inspection will give valuable insight into the condition of all of these components, and help to identify those that may be in need of repair or replacement. This is especially valuable information for those that are ready to buy or sell a home.

Consider this analogy: If you have a pain in your neck (other than your boss), you might consider going to your family doctor, or general practitioner. Your doctor might then refer you to a specialist for a more thorough evaluation of the specific problem in your neck. Your doctor may be a very good doctor, but he or she is not a specialist in every aspect of the human body. In much the same way, you can consider a home inspector as a general practitioner regarding a home. Your inspector can point out the obvious, and can even give you an indication of the condition of the systems or components of the home. Your inspector might even suggest that you consider hiring a specialist to look at a specific component (such as a HVAC specialist for the furnace, or a plumber for the water heater).

A good home inspector has been trained in all aspects of the components of the home. He or she can readily identify and describe the condition of each component. Inspectors understand how the components interact with each other are trained to identify material defects, operational defects, and other indications of problems that may exist in a home.

A thorough home inspection will take between 2-4 hours for the average home of approximately 2000 square feet and will cost between $250-400 on average. In this time, a home inspector will operate and visually inspect all the readily accessible components of a home. A thorough home inspector will evaluate the major systems of the home, including those listed above. The inspector will give you a list of the items of in the house that need some type of attention or repair, and will even let you know when a specialist is warranted for a particular component of the home. During this evaluation, most inspectors will encourage you to follow along and ask questions.

The inspector is there for you. It their expertise and time you're buying. Make the most of it, attend the inspection, and ask questions. It is an excellent opportunity to learn a lot about the home.

Until next time….

John Clason, ASHI Certified InspectorCrown Home Inspections

Ask the Inspector

Approximately once a week, I'll post a blog regarding some aspect of home inspections, and the home inspection process. In the mean time, feel free to email me directly if you have questions, or if you have a topic that you'd like to see discussed. You can reach me at or on my cell phone at 816-305-4624.

John Clason, ASHI Certified Inspector
Crown Home Inspections

Sunday, February 18, 2007

KC Star: Prices reel from robust toward bust

For those of you not from the local area, the Kansas City Star has an article in today's paper that has a really helpful flash graphic to help show the local economy's housing condition. It's a good read and a cool graphic.

Personal note: None of this should be a surprise to anyone watching the market. Again, long term Buy & Hold is a great way to invest in real estate. But be very wary on Buy & Sells (flipping) unless you are sure of the buy or you have deep pockets.

Friday, February 16, 2007

Learn to Invest in Real Estate 101

Shameless plug here:

A workshop to help neophytes and the experienced alike know how to determine profitable from not profitable income property BEFORE they buy. February 24th, 2007 starting at 9:3o a.m. at the office of Keller Williams Realty, Diamond Partners, Inc in Olathe, Kansas and lasting until 11:00 a.m.

I will speak from both knowledge gained and personal experience on what to look for, how to measure it and why one should consider real estate investing. Either go to my website or email me to register. Space is limited as I keep the class sizes small to allow for as much interaction as possible.

There is no charge for the workshop and you will not be asked to buy any books or tapes. It's low key and information based. Hopefully, when you decide you need a real estate agent, you will think back to me! So register today.

Blues. Beer. BBQ.

If that saying sounds familiar you must be a fan of B.B.'s Lawnside Bar-b-q. Located off 85th Street in Kansas City, Missouri this long time eating establishment is one of my favorites for a night out with my girl. The smoked meats are magnificent with a BBQ sauce to compliment them. (My favorite is the beef brisket...but that's true of any good BBQ.) Good beans and fries. Great atmosphere. Heaping portions. Cold Boulevard beer. Do I need to go on? They even have a good cajun selection for those of you so inclined.

Run by Lindsay Shannon (you may have heard him on 101 the Fox where he does a blues show) and his wife Jo this place is pure BBQ fun. National and local blues acts play there just about every night of the week that they are open. Two of my favorites, D.C. Bellamy and Four Fried Chickens and a Coke are coming in the next few weeks and I'll be there for at least one of the shows, if not both.

Make sure you visit their website and book a night that you and your special ones can go out for a good time. They even have a deck you can dine on. (When the weather is right and that seems so long ago!) There are many BBQs I like to frequent. This is the most fun.

What Should I Own for an Investment?

I've written about the theories of Single Family Homes vs. Multi-Family Homes before. But it has been a while so I thought I would cover it again since it is one of the more frequent questions people seek council on.

Single Family Home

  • + Appreciates with neighborhood, not rents.
  • + More people want to live in SFH than MFH so easier to rent.
  • + SFH rents seem to take a little more pride in the home, IMO.
  • + Resale can be to just about anybody.
  • - Money down will usually have to be more to get it to break even or cash flow.
  • - Rents for a lesser value on the Gross Rent Multiplier.
  • - 6 units of SFH could be all over the place instead of in one location.
  • - 6 units means 6 roofs that will need replacing, 6 lawns that need mowing...

Multi-Family Homes

  • + More security for many investors. After all, if one unit vacant still have other income.
  • + For newer, young investor it's great to live in one side, rent the other (helps when qualifying for loan) and then you can move on and rent other side.
  • + Maintenance all in one place. Only 1 roof per "x" number of units.
  • + Can cash flow at a much greater rate than SFHs with much less invested.
  • - MFHs can be in the middle of "rental" neighborhoods thus limiting their selling power to only other investors.
  • - Tend to appreciate along with the value of rents not neighboring properties.
  • - When purchasing over 4 units you'll need a commercial loan with a very large down payment and the bank will want landlord history.
  • - Dealing with many more tenants and thus may want a property manager.

Thursday, February 15, 2007

Mortgage Rates Today

Here are the "Averages" charts from today's Kansas City Star.

Investment Mortgage Common Snags

Today is a pretty big day here at BBQ Capital. Our first guest speaker. Let me introduce to you Steve Tremaine of the Bank of Blue Valley. There are three mortgage guys I recommend and trust and Steve is certainly one of them! He's a straight shooter and easy to talk to. When something comes up I go straight to him and he gets it fixed. No last minute changes. No extra fees. No bull. Now, this is his first treat him nice on your comments.

_____ _____ _____ _____ _____ _____

Solving the financing puzzle for your investment properties can be quite a hurtle to say the least, it helps to work with a loan officer who knows the common snags and has outlets and resources to solve problems and save you thousands. Be sure to ask your loan officer how much experience they have in financing non owner occupied properties.

Common snags include:


Seasoning is the time period for the previous 12 months prior to your transaction and specifically deals with any other transactions on the subject property. If the property you have purchased 2 months ago for 150,000 and rehabbed is now appraising for 225,000, seasoning requirements say that if the house has sold or been listed 12 months prior to your refinance or sale transaction you must use the lower of the values, either the appraisal or the previous sales price. This can really throw you a curve ball if you are trying to sell the house and your buyers’ lender can’t get them a loan on it because of the seasoning issue. It can also be tough if you are trying to refinance the property to hold it as a long term rental property. The solution is to use a lender that does not have a seasoning requirement or buy a house that was never listed.

Higher investment rates:

Rates are always higher on investment property but there are ways to soften the blow. Many lenders do not have steep rate hits if your loan to value (LTV) is below 75%. “What if I don’t have 25% to put down” you may ask, just put down 10% and then do a second mortgage for the remaining 15%. This is known as a 75/15 combo; both loans can be 30 yr fixed rates with no balloons. Your second mortgage rate will be higher but the bulk of your loan will be at a much lower rate saving you thousands of dollars over the years. The other way to save money on interest rates is to buy down your rate but be sure to do the math; your break even point may be more than five years out so you want to make sure you are holding the property long term if you go this route.

No landlord history:

This often bites the heels of a new real-estate investor’s debt to income ratio. The two houses you have bought this year are both rented and cash flowing but when you are buying your third house, your loan officer tells you that your debt to income ratio is too high because of the debt of the two new mortgages. This of course makes no sense because you have them both paid for by your renters. When you haven’t had a landlord history for 2 years you cannot use the rental income to off set the debt of the mortgages. The solution to this problem is to do a reduced documentation loan which would be stated income or no income (no ratio) documentation. You pay a higher interest rate for these but hey, it’s a write off!

Tuesday, February 13, 2007

Web 2.0 ... The Machine is Us/ing Us

I originally saw this at Rain City Guide. (See link to side.)

Social Serve - Affordable Housing Connection

It's a snowy day here in the Heartland. (Come to think of it, I cannot think of a single day since January 7th that I haven't had snow on my front lawn. That's not common here.) So I'm thinking of a couple of properties that I manage that will come vacant this spring. Both are owned by landlords that do not mind Section 8 tenants so long as they are properly screened and have money for security deposits.

Social Serve is a .com that I have used previously with pretty good results. If you are a landlord or a property manager you can use them to list your vacant rentals and people who have qualified for housing assistance can cruise the net looking for a place to live and find yours! The last time I used them (fall of '06) I probably received a call a day through the service for the first week the home was listed and about a call every three days after that till we selected a suitable tenant.

Social Serve does not screen the tenants. That's your job. They don't pay the rent. They really don't do anything except provide one more place for you to get the word out so that you can get that income property bringing in income, again. Give them a try. They are in many states across the country. I've been pleased.

BBQ Capital...a shorter URL

Earlier this morning I registered the domain name It just seemed that circulating the name was entirely too long and was being mistyped by folks...including myself. So now you can find us either way. If you have already linked to this blog, thank you. The link should still be in operation as I have simply forwarded the new domain to this site. RSS should work, as well. Let me know, however, if you discover a problem. Thanks!

Now for those of you uninitiated to Kansas City the reason for the name is quite simple. Kansas City has the best bar-b-q in the world! Oh, I can hear it now. The Memphis, Carolina and Texas contingents screaming at the top of their lungs "foul!". But truth is truth.

It was once said that Memphis has it's style of BBQ. As does Carolina and yet Texas another. But Kansas City is the Constantinople of BBQ. All the styles, including Kansas City's own, are here. You should plan a vacation to dine at them all. You'll need a few months to accomplish that. Followed by about 6 months of recuperative exercise training! Occasionally I'll feature the different BBQs of Kansas City. So look forward to that!

Monday, February 12, 2007

Where Is This Real Estate Market Going?

There is an article in Sunday's Dallas Morning News talking about the inventory overhang that is going on in much of the country causing appreciation of current home values to remain stagnant and new home starts to drop sharply. And then there is the article by an economist published on the National Association of REALTOR's website pretty much saying the same thing but with a smiley face.

I've also seen articles talking about how we bottomed out in 2006 or will bottom out in the first quarter of 2007. Or maybe the second quarter. The point is...who can know?

In my opinion, and I'm going to go opposite of most of my glass is half full breathren, I think 2007's selling seasons (Spring, Summer & Fall) will bring more of the same that 2006 brought. Sellers are going to have to be realistic about the condition of their property relative to what else can be purchased. Price, condition, location are primary with a limited pool of buyers. Buyers are still not going to be able to "steal" homes because many sellers have refinanced and refinanced to the point they cannot discount their homes because there is no equity.

The elephant in the corner is foreclosures. We are already at record levels here in Johnson County and Kansas City in general. If they continue to increase rapidly over the next six months it could really begin to affect appraisal values in many, many neighborhoods. When appraisal values cease meeting sales prices (a situation that happened in an upper middle class neighborhood recently that an associate of mine is working with) we are going to be standing on the edge of a slippery slope.

The unspoken benefit of this could be that housing becomes more affordable. Take for instance the investor. Being able to purchase a slightly depressed property (SFH or multi...doesn't matter) allows the owner to rent for less or to pocket a few extra dollars. If it rents quickly, the latter is probably the case. But if it takes a month or two to rent then the landlord might be a little more willing to drop his rate a little bit (staying within his cash flow parameters because he bought it cheaper than his fellow landlords) and causing a situation where the tenant now has a more affordable home.

Here in the Heartland I do not believe we are in for a "thump" or a crash. Nor do I believe the hype that we've weathered the storm and that this spring will bring green grass and roses. I do believe we will remain stagnant with the possiblity of moderate growth. In other words, partly cloudy with a breeze from the south that has a 10% chance of bringing rain with it.

Sunday, February 11, 2007

Income Property Pricing: Work with the Experienced

Let's get a few things straight about my real estate services. If you are looking to sell a large parcel of land, I am not your agent. I can refer you to the best agent in town for that, however. Luxury home buy or sell? Again, I'm not your man. My office does have probably the best REALTOR in town when it comes to luxury homes, though.

I am a Residential Investment Property Specialist. In 2006 75.4% of my business was working with folks like you looking to purchase or liquidate or exchange an investment property. (The other 24.6% was with "regular" home buyers and sellers. Fist time buyers are a blast to work with!)

It just drives me crazy to see some of the pricing of income properties here in the Kansas City area. Invariably when I'm speaking to the listing agent I will find out that the pricing is based on "comparables". Well, that's all well and good, but what does it have to do with whether or not a property will cash flow at the area's going rate? What are the vacancies? Expenses? What is the landlord responsible for versus the tenants responsibilities? These are questions I'll need to know in order to determine the Net Operating Income. (Will the property "pencil"?) And not just me, any experienced investor will want these numbers.

The long and the short of this post is to say this...If you are an income property owner looking to adjust your position in the market please interview your agent carefully. Figure out his/her expertise and base your decision on that. Not how cool their website it. Price is the single biggest factor in determining how and when a property will sell. And you know that. But what is the realistic price?

If you are an agent with someone asking you to list their rental property or help them find some either learn the numbers or refer the client to me and I'll pay you a referral fee. After all, it would be in the best interest of your client, wouldn't it?

Saturday, February 10, 2007

Brick Duplex $150,000 Overland Park, KS

I don't generally pimp my properties on this blog...but the Seller says sell and just dropped $9,900 off the price. That makes this duplex a 10.4 Gross Rent Multiplier. That is unheard of in JoCo. Email me immediately if you have any interest. See it here.

Friday, February 09, 2007

Flipper Nation

I almost fell down laughing when I watched this...

Flipper Nation: The First Flip

There's more where this came from at:
If you cannot view this video, you can check it out at YouTube instead.

Random Thoughts While Pondering...

...that Yahoo! Maps says it's only 2,094 from Olathe, Kansas to Vancouver, British Columbia. Do I feel a family road trip coming on?

Boulevard's Pale Ale, brewed right here in Kansas City, has to be one of the best beers I have ever tried from anywhere.

I know where there are 4 duplexes in pretty good shape in a pretty good blue-collar type neighborhood in Wyandotte County, Kansas. (Kansas City) Asking price is in the $90's for each and rents are $550 per side. They are not my listings. So email if you want more info.

Do you watch Boston Legal? It has to be the most clever show on television. I have to admit I don't watch much tv (unless Jayhawks are playing) but I have a standing appointment on Tuesday evenings for this show. Denny Crane!

Why do so many photos of women in real estate look nothing like the women themselves? I swear, in some cases, there is absolutely no resemblance.

It would be bad if he Chiefs actually rename Arrowhead Stadium for some corporate sponsor. It would be tragic if the Royals renamed The "K". The great Ewing Kauffman epitomized everything right with Kansas City. Keep his memory alive.

Thursday, February 08, 2007

Kansas City Real Estate

If you ask me where I'm from, I'll say Kansas City. Sure, Olathe is where I actually live. But most people around these parts, when traveling, will say KC. If you know the area they will then break down the actual part of the city or the appropriate suburb.

Overland Park, Olathe and Lee's Summit...all major suburbs of Kansas City, MO, were all ranked very high in the Most Livable Cities survey that came out last summer. Known for their local economic impact, excellent school districts and quality of living those three cities garner a lot of attention for transplants looking to relocate here.

Like most cities, the cultural happenings are all downtown on the Missouri side. Home of the Royals (MLB), the Chiefs (NFL) and Wizards (MLS) Kansas City shows it's passion for sports. Did you know more NCAA Basketball Final Fours have been held in Kansas City than in any other city in the country? Soon the College Basketball Hall of Fame will be opening at the Sprint Center in the new Power & Light District. The Nelson-Atkins Art Gallery is as nice as many I visited on the east coast. Our parks and boulevards keep the city beautiful. And the fountains....they don't call us the City of Fountains for nothing.

The Crossroads area is great if you like local artists. You simply have to try First Fridays when you get here. Brookside for a great neighborhood feel on a night out. The Country Club Plaza for luxurious shopping, dining and romance. The Northland area is growing and growing and growing. Johnson County is/has been the economic engine that makes ole KC recognized. (Though, by in large, it is the epitome of what is right and wrong about suburbia. Talk about your Desperate Housewives. And endless miles of SUVs for those long (1 mile) trips to get groceries and go to soccer games.)

Yes, Kansas City is on the move and deserves your attention when considering where to live, where to locate your corporate headquarters or where to move your investment dollars. Our housing is constantly on the national median. Appreciation is good. Disposable income very good. Don't believe me? Follow the links and see for yourself. Or better yet, schedule a visit. Give me a call while you are hear and I'll buy you a beer a one of the local watering holes. Or if you prefer, show you where to take your kids for a great time...Crown Center.

What is Your Criteria for a Good Investment Property?

I believe real estate is the greatest vehicle out there for most people to create true wealth. But most people think it will happen without any long term planning. Or sacrifice. Or effort. Nothing could be further from the truth. And if you are going to have to put in time, effort, money and thought to this venture shouldn't you also have a clearly defined target in mind?

Determining your criteria should be #1 on your list of things to do when starting out (or re-starting out) on your real estate income property career. Are you a twenty/thirty something with a good, steady income and $20,000 or less to invest? Or are you a mid-forties/early fifties investor with high income, a good nest egg and other interests beyond your work and holdings? These two categories would probably have very different ideas of what would fit their criteria when owning a "successful" rental property.

Here are some things to consider;

  • Cash flow or appreciation or a mix of both
  • Below market value home that needs upfront repairs (and therefore a good chance of instant equity after money/time investment) or a turn key property with current tenants
  • Inner city, suburb or fringe city property
  • Maintenance provided property or one you can maintain yourself
  • Close to home or anywhere with a property manager

Of course, the loan vehicle you use could greatly sway the cash flow issue. Are you conservative and older or are you younger and have more time? If the latter, maybe an interest only or negative am loan would work to increase your holdings faster. If the former you'll want to consider your time line for retirement and income goals at that time.

Rental properties can provide the Golden Parachute for the common man that we hear the corporate executives get. (Well, maybe not a $2,000,000 buyout with only 24 months of service...but along those lines.) To discuss this issue further I invite you to email me or leave a comment. Your input is appreciated.

Wednesday, February 07, 2007

Principal Reduction - The Sweetest Benefit of Investment Property

As we have discussed before, there are four main benefits when you own investment property that add up to one big benefit in the for you and your family. Again, the Big 4 are Cash Flow Before Taxes, Principal Reduction, Depreciation and Appreciation.

But let us talk, just for this post, about Principal Reduction. Assuming you have purchased the right property (not the one mentioned here or here) your other three benefits are kicking in. But PR is my favorite. Not necessarily the biggest return...but my favorite. Why? BECAUSE SOMEBODY ELSE IS BUYING YOU A HOUSE IN YOUR NAME!!!

Think about this. Every month someone scribbles a check to you for rent. Inside of that check is your interest due, your extra cash, your expenses AND an amount that is designated towards your principal. Not a great amount at first, but pay down they do...for you! (Unless, of course, you've gone with a negative am loan...which I'm not too crazy about for our market here in Kansas City. I see cause for them on the coasts...but not most cases...of course everything is a case by case basis...have I covered all my bases yet?)

Month after month, lease after lease these people (we'll call them tenants) are going to work, earning money and helping you to purchase a house so that when you are older you can retire in comfort. Personally, I think it's awfully nice of these tenants to do this and that is why I don't mind the occasionally call from them about this or that.

What are your thoughts on the subject, Hobson?

Monday, February 05, 2007

Zillow, Craig's List...The Internet & Real Estate

The single greatest change to real estate in the last 10 years is easily summed up in one word: Internet. Formerly, real estate agents had all of the knowledge when it came to homes, home values, what was or would become available. And they guarded this information! Heck, when I lived out in DC I had a real estate agent friend who used to get me thermal copy print-offs of certain houses and then threaten me to within an inch of my life if I told anybody that she had given it to me. It seemed it was a violation of, if not the MLS rules, the agent code.

Today with a visit to any REALTOR's website John Q. Public can easily access tens of thousands of listings in his home area complete with basic information and multiple photos, satellite views and virtual tours. The public can easily compare prices between what is out there and make an informed decision about which houses to see WITHOUT having to rely on the real estate agent.

So to what value is the real estate agent today?

I'm glad you asked. Go to a site like Zillow. Check out the property values and asking prices? Are they relevant? Accurate? Complete? Craig's List is becoming a growing player in real estate and I know many who use the site. How complete is it? For that matter, how honest are some of the sellers. These are great sites. But can they give you the intangibles as well as the raw numbers?

I'm all for sharing housing and sales information with anyone that wants it. Jackson County, Missouri last year started allowing anyone to go on to their website and see what closed sales were for any given area within their jurisdiction. (Much to the chagrin of many of the old time agents.) I think it's great. But the professional real estate agent still belongs in the arena. After all, even if you are the most savvy buyer out there, you do all your research and prepare your own contracts you still will have less experience negotiating and "walking the contract through to close" than even some of the most inexperienced agents.

How many homes will the average buyer/seller live in through their adult life? Three? Five? Seven? Jeez, I participated in more transactions than that in my first six months of business...not including my own purchases before becoming an agent.

Do the Internet portals help you with school information? What about commercial development news or whether a neighborhood may be transitioning up or down? Yes, there is definitely a place for he professional agent today and in the future. Job function may be evolving, but the job is still in place. Today more than ever I'm really an agent for my community and area of expertise than a keeper of housing knowledge.

Johnson County Rental Housing In Balance

On the front page of USA Today's February 5, 2007 edition was a story titled Renters will dig deeper in 2007. The gist of the story was that with scarcity of housing in many parts of the country combined with the fact that rental home owners had to pay more for those units renters were going to see an increase in their rents this year beyond inflation. In fact, the article says that rents are 14% higher since 2004 while income has grown only 4%. Hmm, I smell a problem for many people.

And here in the suburbs of Kansas City we too have a situation in which I believe rents are beginning to firm up and, in many cases, beginning to ease up from where they have been for nearly three years. But overall, I believe we still have balance in the rental market.

How did we get here? For the past three to four years rents have been soft because the best prospective tenants were also the best prospective home buyers. With a mere $1,000 or $2,000 invested (not too much more than a security deposit) a previously good tenant could now be a homeowner. This placed a downward pressure on rents because more landlords were scrambling for an ever decreasing pool of qualified renters. Investors were still buying income property but they weren't getting the rents they needed to make a good investment a great one. Cash flow suffered, in most cases.

However, now foreclosures are at record levels in the Greater Kansas City area. Lenders are beginning to look twice at some borrowers and with creeping interest rates many tenants are happily remaining tenants. Plus, with the boom we've had over the last five years anyone that wanted to move has probably done so. Which brings us to where we are today.

There are still some neighborhoods with an unusually high vacancy rate. I notice them most in the outlying areas of Kansas City like Grain Valley, Liberty and some parts of Wyandotte County. But here in Johnson County it is not unusual for me to drive through a "rental" neighborhood and see one For Rent sign for every 75-85 units. And that is a pretty darn good situation.

I think that there is still enough competition to keep rental rates from escalating more than 1%-3% this year. But overall, in most parts of the KC area and Johnson County, especially, I see a pretty good balance. Tenants have enough choices to make good decisions and Landlords are able be a little choosier than they have been in the past. Slashing rents and offering drastic incentives is probably a thing of the past. Raising rents 5%-10% seems out of the least at this time.

Saturday, February 03, 2007

A Profit In His Own Town...

I've always heard that you have to get 100 miles from home before anyone will really listen to you as an expert. And I don't know if I'm an expert, but I'm pretty darned knowledgeable about the Kansas City income property market. I say that not to brag but to tell a story as I get geared up for the Kansas v Texas A&M game this evening.

In town with me today and tomorrow is a gentleman from the Seattle area here to purchase a property...or maybe even two. He owns property in his home city and one here, currently. When I ask him if he is going to add to his Seattle holdings he says it's doubtful because the "numbers there don't pencil out." He has some ties to Kansas City so he got in contact with me and came out to look around at what was currently on the market.

Showing him a few properties in Overland Park really helped him to understand how good we have it out here. It's not necessary to put down 40%, or 50% or even worse 60% to get an investment property that will break even or produce a little Cash Flow Before Taxes. No, Overland Park provides good clean rental houses that "pencil out" with 20% down, or 25% down if you are looking to install a property manager. (And if you are looking at KC property from Seattle, Washington...I would advise that.)

Heck, if he didn't like Overland Park and Olathe so much I might even take him over to certain parts of Wyandotte County, KS or Jackson County, MO where they cash flow with only 5%-10% down!

The amazing thing to me as a professional real estate agent is that I can talk till I'm blue in the face with a lot of "locals" and they are constantly worried about everything under the sun. Bring in an outsider and they get smiles on their faces.

Owning real estate for investment purposes is hard work. It takes financial stability, quick wits and a desire to improve your life on down the road. There will be inconvenient repairs and tenants that may drive you a little crazy. But when you are sitting on 6-8 properties on down the road with at least an 80% equity position you'll be glad you took the time and made the effort to do so. Give Kansas City properties a chance. If outsiders can see it, shouldn't you?

I'd love to hear your comments on this or why you think other areas might be better.

Thursday, February 01, 2007

Freaky Fridays

On a whim I have decided to devote Fridays on my blog to miscellaneous ramblings and venting in general on all things that come across my path including but not necessarily related to real estate. And since it's my blog...I can do this.

Reason #458 to purchase a Mini Cooper from Baron Mini in Shawnee Mission, Kansas: Yesterday it was 17 degrees, I started my car and let it warm up. I then went outside (where it had been parked at my office) threw on the heater and WHAM a 10" crack appeared on my windshield. I got out and looked at it but couldn't see a rock chip so this morning I drove up to Baron. They looked at it for 20 seconds and then booked me a car and a repair for tomorrow. The service there is always fabulous!

How about them Kansas Jayhawks? Big game this Saturday against Texas A&M and ESPN College GameDay is going to be there!

Real estate agents that cannot return the key to the keybox or leave a front door unlocked drive me crazy. It's really simple. Treat the home being shown like it is your own. End of discussion.

I am assuming that since they are fast food that Chick-fil-A sandwiches are not good for you. But do I love that #1!

When will the snow melt here in Olathe? I'm sick of it. If I wanted to live in Minneapolis I would move there!

And yes, I'm aware it's not Friday...I just may not have time to post tomorrow!!! And I'm a rebel who makes his own rules...