Friday, August 31, 2007

Sock Puppet's Bad Photos A Laugh Riot


Does making fun of others help you to feel better about yourself?
Does you feel superior when you can laugh at the ridiculous behavior of others?
Then you really should spend time on Athol Kay's blog. It's a must read to make you realize that you are not the worst employee or REALTOR on earth!

Thursday, August 30, 2007

Do You Have A Coach For Your Investing Business?

When I was in my early twenties I read a book that helped define how I would live my life. Loving college basketball the way I do I had always admired Coach John Wooden's accomplishments on the hardwood. So I decided to read his book They Call Me Coach.

If you haven't read it I strongly suggest that you stop right here and click the link and buy the book. You won't be disappointed.

The reason I bring this up is that I believe that John Wooden succeed where other coaches haven't for a variety of reasons;
  • He had good moral fiber.
  • He strived to be excellent.
  • Character was as important as talent.

He didn't just teach the kids how to play basketball he taught them how to live life. He went beyond coaching and became personal mentors to more than just a few of his players. And in doing so he created a dynasty that might never be repeated in college basketball.

Chris. This is all very nice. But I don't come to BBQCapital to read about college basketball or Coach Wooden. I come to read about real estate investing. Or more specifically Kansas City real estate investing. Besides, didn't he coach at UCLA? I thought you were a Jayhawk fan.

Don't you see how they are related? (And I am a Jayhawk through and through. But I still respect success and the effort it requires...unless it's Missouri.)

Tonight I was reading the September 2007 edition of REALTOR magazine. One of the articles was a rather lengthy one about why more real estate agents should be courting real estate investors as their clients.

Darn! It's supposed to be a secret! (Though I'm not too worried.)

One of the great quotes in the article was from Chad Dixon, ABR, CRS and designated broker with Hearth & Haven in Chandler, AZ.

"I've found quite a few clients who mistrust real estate practitioners. These clients are looking for someone to help them build wealth, not just sell them something."

In the words of my friend Jeff Brown, "duh."

Chris. This is getting on my nerves. What has this got to do with me? What does Coach Wooden have to do with me? Why are you wasting my time?

I'm not wasting your time. You can click away at any moment. This article has already been too long for anyone that is not a serious real estate investor. But those that know this blog know I'll tie it together sooner or later. So...



The Big Finish

The question I want to ask you, know matter where in the country you are, is, "are you working with a real estate agent that sells houses or a real estate agent that is a real estate investment advisor?"

There is a huge difference. Every city has qualified real estate investment advisers. Probably almost a dozen in any given metro. But are you interviewing properly to find them?

Any agent wants to sell houses. But if I were you I'd be looking carefully at the qualifications of the person helping you in your attempts to build wealth. What is their understanding of the measurements of real estate investing? Can they calculate returns? Or give you a basic understanding of tax planning? Or refer you to professionals that can make sure you are on the straight and narrow with these very large assets?

Many an agent is extremely good at what they do. They can stage a home, market a home and successfully walk their clients from listing to closing with barely a hiccup. But when it comes to investments they aren't really sure of the right path at the right time. (Same is true when asking an investment advisor agent about staging your luxury home. What would he know?)

Coach Wooden was the best of his time. IF a kid were good enough to get on his radar he should have thrown himself at Coach. He would help him with the basics of basketball like any coach. But he would also teach him the magic, the mental toughness, the character it would take to succeed in the game. And in life.

Who is your coach when it comes to real estate investing? Are you allowing him in? Are you keeping him abreast of your every move in your quest to become great?

When you stray away from the coach and the team and the system, bad things can happen. I don't want to upset one of my investors but this is what happened to him. He made a move he didn't want to tell me about for reasons I'm still not clear on. I've never held him back from purchasing a property he found on his own. (But when he needs an agent he better use me!) This investor took a left turn and invested $20,000 into an investment situation in a manner that I would never have allowed him to take. At least not without certain guarantees and tools to protect his interest.

Now I see him losing most if not all of the $20K. That's real money. And I feel badly for him. Fortunately, he's the kind of investor that will learn from the mistake and press forward. And now I think he sees the need for a team, a coach, a counselor. That's what Coach Wooden was. That's what I want to be.

Kansas City Investment Property: Right In The Middle

Yesterday morning I had the pleasure of meeting with three New York/New Jersey area real estate investors who had come to Kansas City to see what the potential of investing here. They had apparently spent the better part of the week researching tax lien houses and parts of the city, well, I'm not too crazy about from a real estate investing standpoint.

Yes, I realize I may upset them with that last sentence. But I believe I said the same thing as we sat and talked for about 2 hours in the Marriott Courtyard lobby area. All three were sharp. All three seemed to be well funded. And it was my impression that all three see the Kansas City area as a place for for at least part of the real estate investing portfolio.

You all know me to talk ad naseum about the benefits of Kansas City real estate investing. But I'm going to give you another reason. Silly as it may sound.

Ease of access.

Whether you are a real estate investor from New York, Florida, California or Texas you can get to Kansas City in two hours. Non-stop. Through multiple airlines. Take Express Jet, or Midwest Airlines. Those are my two favorites. Then there is are the big boys that you are used to.

A round trip flight to Los Angeles' Ontario airport is only going to cost me $230 this winter, and it's non-stop. At least on XJet. Kansas City's airport has grown in passengers served, airlines and flights over the last two years. It's an easy airport to get in and out of (though relatively boring compared to most other airports) sits at the junction of two highways that will get you anywhere in our area.

If it sounds like I'm promoting the Kansas City airport...okay. I just want you to know that if you are thinking about investing $25,000-$35,000 into a property anywhere in America, you can check out Kansas City for only a $230 flight. Sounds like a business trip to me. I'll buy the BBQ.

There are, of course, many reasons to own income property in Kansas City. (Two of the ladies flinched yesterday when I said I could get them cash flowing duplexes with capital investments as little as $20,000-$30,000.) Cash flowing investment properties in good neighborhoods, that is.

Wednesday, August 29, 2007

Please Explain!

It just happened again! Can somebody out there explain to me the logic of driving 35 mph on a 40 mph road and then running the yellow light to make it through? (Leaving me to wait through the light!!!!)

If you are one of these idiots, er people, please explain. I'm begging you. Are you driving below the speed limit to be safe? Then why run the light?

We both could have made it if you would just drive the 40 mph!!!

Okay, I feel better. :)

Real Estate Investment Property Criteria


I've written in the past about knowing what your criteria is for your real estate investment properties. Single family or duplex? Tri-plex or apartment? Urban or suburban? Etc.
But I want you to look at it from another angle, as well. What kind of tenants are you hoping to attract? I don't mean from a racial or religious standpoint. (Or any other standpoint that violates the federal Fair Housing laws.) I mean from a economic standpoint. A life-style standpoint.
For instance, if you purchase a smaller 3 bedroom two bath home 3 blocks from the University of Missouri Kansas City, what kind of tenants do you think you might get? How would that be different from a 1/2 duplex also with 3 bedrooms and two baths just 3 blocks away from an elementary school here in Olathe?
Waldo seems to attract a certain kind of tenant. So does the Armour area of Kansas City, Kansas. And again, that is different than what you might get in Blue Springs.
Think about that when deciding what kind of property you are going to add next to your investment property portfolio.

Tuesday, August 28, 2007

Overland Park, Kansas Rental Property For Sale

I just wanted to let you know of a couple rental property opportunities for sale in Overland Park, Kansas;

Overland Park 5 Unit Apartment Priced at $425,000
100% occupied with close to no vacancies for past two years. Gross income of $41,100/yr.
Overland Park Single Family Home For Sale Priced at $79,500
2 bedroom, 1 bath w/newer water heater and electric update. Would rent for about $750/mo. Will take about $2,000 to update and get ready to rent. But minor stuff.
Call me today to discuss these and other opportunities I have identified here in the greater Kansas City area real estate investing market.

From Home Ownership To Renting: An Investment Opportunity Awaits

In today's Kansas City Star Business Weekly section Chris Lester writes on the subjects of rising foreclosures, too many subprime loans and historical home ownership trends. It's worth the read if you want to look it up on KansasCity.com. Or do something really radical and buy a copy!

Ah, who am I kidding? On my whole street I think only about 5 of us still take the newspaper. But that's another subject for another time.

Chris does make the point that historical home ownership in this country had, for decades, run between 63-66 percent of all households. During the recent real estate boom where money was cheap and easy that percentage climbed up to 69.2%. Then Chris writes (paraphrasing here) that we should look at the 66% mark for home ownership much like we look at the 4%-5% mark for unemployment. About maxed out.

And I think it's a great observation.

So what does this mean to the real estate investor?

Well, if we are at about 68.5% home ownership and heading back to around 66%, then there are a lot of people who need to rent houses and there are going to be a lot of houses available to put them in. Chris suggest that maybe apartments is a way to go. But I would argue that...to some degree. Houses and duplexes, in my mind, are always a better way to go.

I think what hurt most of these people who are going through the pain and suffering of foreclosures wasn't so much the house payment. It was the expectation of home ownership. They were used to renting. If they were late to the landlord, and late on a consistent basis, they would just move and maybe or maybe not get sued later.

When they had problem as a tenant they would call a landlord and it was his responsibility to get it fixed...and pay for it. Now when Mr. & Mrs. Subprime had the furnace go out there was no one to turn to.

Any bump in the road on income turned into a crisis. Any repair a choice between fixing the house and eating. $4,500 to paint the exterior of your home to protect it's value and integrity seem like a mountain when you are living paycheck to paycheck.

Some of these people should never have taken on home ownership. Or they should have purchased more modest housing. Now the blame game is going on.

As a REALTOR I can tell you that I sat across the table from people and told them they should not buy this house. But they had a pre-approval letter and the will to do so. Backing from mom or dad helped, as well. So what was I supposed to do as their agent? I counseled them. I encouraged them to move down their expectations. But am I to refuse helping them? Please.

I sleep at night just fine because over my 5+ year career I don't know of any homes or home buyers that have gone into foreclosure. But even if one had I would still feel okay because I told them what I thought at the time.

But I stray from my main point. (As usual.) The point is that the rental market across the country and here in the Kansas City area is strengthening. It has been for about the last year. I can remember "free months" and "no security deposits" not too long ago. Those stopped and now rents are actually creeping up. While house prices are modestly increasing, stagnant or dropping ever so slightly here in our metro.

That smells like a real estate investing opportunity to me.

Monday, August 27, 2007

Tenant Screening Service & Post On Lease Options


Lisa Wells of Landlord2Landlord has authored a very nice piece about lease option purchases and how they may be of benefit to today's sellers. In this tougher buyer's market sellers are going to have to explore other opportunities if they absolutely have to sell.
Opportunities like:
  • Pricing the house right the first time.
  • Chasing the market down.
  • Getting top dollar by lease-optioning.
  • Renting.

These are not all the options a seller has at their disposal. But if you go the rent route, or the lease option purchase route you are going to want to know you are getting a quality tenant or potential buyer.

I recommend always using a tenant screening service to cover your backside. Whether you are a property manager or a owner of income property. It always pays to do your due diligence.

Do Auctions Make Sense When You Are Investing In Real Estate?

In the past few months I have had the opportunity to interact with a couple of the larger auction companies here in Kansas City. And my question is, are auctions a great way to add to your real estate investment portfolio?

So I thought I would ask the experts. Today we are going to hear from Robert Mayo of Mayo Auction & Realty as well as Greg Duncan of Cates Auction & Realty. I want to thank both for taking the time to answer the following questions while not knowing how the other would answer. I hope you, the reader, will benefit.


Thanks for visiting guys. Why auctions?

M:
Auctions are an effective vehicle to buy and sell real estate. The primary reason is that the seller knows when the property will sell, and the buyer has the opportunity to eliminate negotiating and buy at market value.

C: Simply stated, auctions let sellers sell on their terms and let buyers buy at their price. Auctions are the most efficient method available for buying and selling homes, land, and commercial property. They are simple, quick, and transparent.

What do you think the biggest misconception of an auction house is?

C: Whatever a person’s misconception might be, somewhere there is an auction company that will match that expectation. Since we are a professional firm that specializes exclusively in real estate, some people are surprised that we don’t operate a gallery or accept consignments of personal property. Some are surprised that we are selling millions of dollars of real estate each year. Others are surprised that most of our properties are not “in distress” and that many of them are first time to market. Some people are still surprised to find that we aren’t sporting huge belt buckles and cowboy hats!

M: The biggest misconception of a real estate auction is that the buyer is unable to obtain financing. Although most auction transactions are conducted without contingency, including but not limited to financing, most professional auction companies will allow a 30 day window for closing. This provides ample opportunity for the buyer to utilize financing.

Is a real estate investor likely to be the high bidder at an auction or the prospective home owner?

M: This really depends on the property and the terms of the auction. In many cases there are both investors and owner occupants participating at real estate auctions. At the end of the day it is very similar to the traditional transaction in that every property has a potential pool of buyers. Our goal is to get that pool of buyers involved in the auction. In regards to who the high bidder is, it just depends on who wants it more.

C: Yes. Real estate auctions are attractive to investors who are selling as well as those who are buying. We regularly work with both. Sellers appreciate the speed of the transaction, the ability to plan around the sale, minimizing carrying costs once they have decided to sell, selling “as is”, and avoiding the complications of contingent offers. Buyers like working with motivated sellers and many follow auctions watching for certain types of properties to come up or looking for certain price ranges.

How involved are real estate investors in the auctions you hold?

C: Very. Many investors are on our email and mailing lists. Many are regulars at our open houses and our Auction Showcase events (where multiple properties are sold gallery style).

M: Real estate investors are involved in most of the auctions we conduct.

What piece of advice would you give to an experienced real estate investor looking to utilize auctions as a source for either acquiring or liquidating an income property?

M: In regards to buying, my advice would be to use the same tools that you currently use to evaluate an income producing property. I would also recommend that they do all of their due diligence prior to the auction and come prepared to bid what the property is worth to them.
In regards to selling, it is important for the property owner to choose a method that will meet their specific needs. It is also important to evaluate the reputation of the company that they will be choosing and to make sure that they have a clear understanding of the auction marketing plan from beginning to end.


C: Understand the market in which you want to operate. Auctions are an excellent way to buy and sell real estate, but they don’t ignore basic market realities. Examine your goals. For every potential deal, be sure you know what matters most to you and what matters least. Ask questions of the auction company. Be certain they are experienced in the kind of real estate transaction you are considering and that they have a full professional staff to support the process.

Do you co-op with a real estate agent like me when I bring an investor to you? (I know you do. I’m just trying to let people know it’s okay…somehow I will make money.)

C: Yes. We work closely with other brokerages and offer commission sharing to both referring agents as well as buyers’ agents. Partnering with other agents is an important part of how we do business.

M: Absolutely! We Love to pay both co-op commissions and referral fees to agents who either bring a buyer to the auction or refer a seller for the consideration of an auction. Our philosophy is that "It doesn't matter how we split the pie, as long as we have a pie to split." First and foremost it is our mission to put our clients needs first, and that includes offering the property to the broadest audience available, and paying other professionals for helping put the deal together.

***
There was actually another question about reserve vs. absolute auctions. But in the interest of space I've decided not to print the answers here. But feel free to call either company to get the definition. I'm sure they'd love to speak with you.

Sunday, August 26, 2007

A Day Trip Around Austin, Texas & Fantasy Land

For those of you that want to see an embarrassing photo of me...

Here you go... From rerevealed.

And for those of you thinking you are doing good. You probably are. But have you thought of this...

Seasons of Investing: When It's Time To Dig In

I just answered an email from a real estate investor where the investor was more or less updating me as to his situation and asking about other opportunities in the Kansas City area marketplace. And I feel I'd like to share some basic beliefs that I have concerning his situation here. No names, of course.

It is my belief that real estate investing should work for you, not you working for your real estate investment properties. By that statement I mean that you should use maximum leverage to acquire your properties. Leverage to the point of cash flow, however. In very few cases would I ever recommend or okay purchasing an income property that you know will bring red ink every month.


Let's take a look at this situation and see what you would advise.

  • Household income of $150,000/yr.
  • Primary home with mortgage and price reflecting that kind of household income.
  • One single family home as a rental property with about $200/mo positive cash flow. This property is in a solid growth area of about 5%-7% historically. Even this year I would expect 2%-4%.
  • A downtown loft with negative cash flow of about $30/mo.
  • Set to close on another downtown apartment this fall that will most likely bring break-even cash flow at best, probable negative cash flow to some small degree.
  • The downtown housing market for condos is currently over-built, though not terribly so. I see great growth opportunity here as downtown Kansas City continues to update and rebuild. But we're talking about a long term forecast for profit here. 6-8 year hold period to realize expected gains, in my opinion.
  • One more condo in a very affluent KC suburb that breaks even.
  • HELOC that is nearly tapped out.j
  • Few cash reserves that I know of.

I'm not sure about you, but when I look at that I don't see immediate danger, but I don't necessarily like what I see, either.

My recommendation:

  • Build a cash reserve!!! A few months vacancies will put the hurt on a situation like this. With the HELOC nearly tapped out there needs to be some liquid help somewhere. A minimum of 3 months of cash to cover all mortgages is what I'd shoot for before considering anything else.
  • After the cash reserves are built, re-evaluate the market and current holdings. Most likely you'll want to sit tight and collect the rents. Keep them rented!
  • After the cash reserves are built, then you can save up more cash for your next investment properties. There are great opportunities in today's market place. Go get one.

Listen, I'm a real estate agent recommending that this investor NOT buy at this time. Maybe they'll go somewhere else and get someone to help them. But I don't think it prudent.

Keep in mind, for this individual I'm recommending not buy. But for those who practice real estate investing and have cash and good credit, you can pick up some nice properties at this time. I have about 6 identified right now. Call me.

Saturday, August 25, 2007

Once Again, Your Credit History Matters

We are back to a place and time where your credit history matters. For some, that's good news. For others...

There has been a lot of talk about Countrywide, failed lenders, the credit crunch and the liquidity crisis of the secondary mortgage market. But here is a fact, for those with a little cash and great credit the housing opportunity still exists.

We had about a 4-6 year run where people with marginal to bad credit histories could buy houses with little or nothing down. Heck, even real estate investors with scores as low as 660 could buy non-owner occupant homes with no money down. (How smart was that by the lenders?)

Heck, as long as they were giving money away I bought a rental property with a 100% loan. Though I'm not now whining that next year one of the loans adjusts when the ARM matures. I took the time to understand the loan I was getting.

But that has nothing to do with anything other than to say that your credit history is going to help you or hurt you for the next 12-18 months as the economy and the lenders adjust to the current lending standards.

When I was 21 years old I was newly married and had moved to Suburban Washington, DC. When I arrived I literally only had $78 to live on until my first paycheck from my new job. That's kinda tough. As soon as I got paid and my wife had her first check we ran out and bought stuff to reward ourselves. On credit.

That was well and good until I realized that people had extended me more credit than I could handle. Those darned people! It got ugly. Bill collectors would call. My new wife would cry. Even my Dad called and told me that if I didn't get this straightened out it would haunt me for years and years to come.

I took his advice. I got a second job. And ate a lot of Hamburger Helper. Though only after having paid a couple of the bills more than 30 days late. Everything got under control and two years later when one of our cars died I decided to go buy a new one. (Having learned that I should only get one I can afford.) They quoted me an interest rate but after having run my credit bumped it up.

Wow. My Dad was right. And I was mad. Not at the evil lenders. At me. I had gone through 15 years of education and had not learned thing about handling money. But was it "their" responsibility or was it mine to learn what I needed to know?

Most of the easy money is gone. But I keep telling my real estate investors that it shouldn't concern them too much. At least on the acquisition side of things. After all, you should have reserves planned before going in to a new purchase. You should have at minimum a 5% down payment to even make most properties that I would recommend break even after ALL expenses. More likely, 10%.

With cash reserves, a 10% down payment, a solid credit history and steady employment you will have no problems finding a lender.

Friday, August 24, 2007

First Time Home Buyer? Be Smart.

No one can see into the future. But first time home buyers can be smart by knowing what should happen in the long term future.

We are in the middle of a real estate correction throughout most of the country right now and that leads to opportunity. Want an example?

Today I go to closing with a young married couple in their twenties. They were looking for a duplex to buy (smart move) because they wanted to live in one side and allow the other side to pay for 68% of the expenses. And they hired me to help them find such a place.

After evaluating the market and weighing the possibilities I ended up recommending to them a bank owned single family home. Why? The home was ugly inside and out. Peeling paint. Stained carpeting. Out dated lighting fixtures. Not up to snuff to most home buyers.

The home was priced at a place that investors didn't like it because there is not enough room to rehab and sell. Home buyers didn't like it because it wasn't move in ready. But this couple liked it because a more thorough inspection and pencil to paper showed that after costs of acquisition and repairs they would be sitting with a 10% equity position, day one! Without figuring in their down payment.

There are other properties like this available in the Olathe School District and around the Kansas City area. Around the country, for that matter. If I were a first time home buyer I think I would follow this model. Look for something with a 10% equity position (more is okay) or a duplex.

Thursday, August 23, 2007

News Of The Weird

So I'm out pre-viewing properties yesterday afternoon in the Waldo neighborhood of Kansas City. A property I was most particularly interested in was a 2 bedroom, 1 bath and 1 car detached garage being offered at just under $60,000. That's way under market and I wanted to know why.


When I get there the owners are home and are gracious and show me around. While it's not much to some people's standards they seemed very proud of their home. Nice, quiet folks. I mean them absolutely no disrespect.

After viewing the inside of the home I said I'd like to walk around the outside. The husband volunteers to unlock the garage for me. While waiting for him to unlock the garage I notice the open crawl space door with what looks like tons of trash in it.
Now for those of you unfamiliar with a crawl space, it's not a basement but rather about a 3 foot high foundation (in this home's case, anyway) around the outside of the home that supports the floor joists and allows room for the home's mechanicals. Usually bare dirt or gravel are there under the home.
I wanted to take a closer look to see how much trash would have to be cleaned out. So I stick my head in AND THIS HIPPIE DUDE ASKS ME WHAT I WANT!

It made my heart stop! I've walked the streets of SE DC as an investigator/photographer and I've been in many situations. But I was prepared for those. I was not prepared for some dude LIVING IN THE CRAWL SPACE OF THE HOUSE.

Now, if that's not crazy enough I go back over to the gentleman at the garage and he doesn't say a word. Like it's normal. Proceeds to show me the garage and it's improvements. NEVER EVEN MENTIONS THE GUY! But I know that he knows him because dude's backpack (your typical hippie gone-for-a-month issue backpack) is in the secured garage.

Crazy. I've seen live chickens living in houses. Dog feces everywhere and even open drug use while looking at a house. But living in a crawl space? First time, baby. First time.

Wednesday, August 22, 2007

Another Real Estate Investing Lesson...For Free

I'm telling you folks, the real estate investing lessons you get on this blog (some ego, right?) and on Jeff Brown's BawldGuy Talking blog are unbelievable.

Do you know there are "Gurus" out there who make you pay THOUSANDS (did I emphasize that word enough) for about 1/4 of the knowledge that you can get from BBQ Capital and BawldGuy Talking? I said THOUSANDS!
Here is your next free real estate investing lesson. You'll have to make the jump to Real Estate Investing For Retirement - Timing The Market - And Fools.
Be warned. This is a real estate lesson. It reads like a college course. It's not light and breezy and witty. It's down and dirty and may take 2-3 readings to glean all the information given. If you take your real estate investing business as seriously as you should, you'll read this lesson.

Missing From Kansas City: Me & My Blog

Hey! Where was my blog? A google screen kept coming up saying "server error" for the last couple hours. My blogging time! I would complain strenuously but I don't pay anything for this blog site. But I can still whine about it, right?

Sorry for the inconvenience.
***
As some of you know I went down to Austin, Texas for a few days to the Keller Williams Realty MegaCamp that they put on for producing agents. It was well worth the trip just to meet with Lani of r.e.revealed and BR of Realtor Genius.
Both are outstanding people. You can read more about social networking and the power of blogging here if you desire. But I must warn you. It has nothing, absolutely nothing to do with Kansas City or real estate investing.
***
Speaking of real estate investing. I'm more charged up that ever. As I stare at the mortgage industry problems, the ARMs coming of age problems and the prices stagnating or having modest growth here in Kansas City. I just get excited about the possibilities. No, I'm not a positive speaker or thinker.
But folks, if you have good credit and any kind of money to invest you should really, seriously and most definitely be thinking about moving some capital into real estate investments. At least here in the Kansas City market. I'll talk more about that later.
Thanks for visiting!

Monday, August 20, 2007

Interview With A Young Kansas City Real Estate Investor

Folks, I'm in Austin,TX right now (what a town!) and don't have time for photos to pretty the blog up. But I wanted you to know about this young Kansas City Real Estate Investor that I have had the honor to help for the past few years. His name is Ryan. Enjoy.

****

How long have you been investing in real estate and what got you started? And would you mind sharing your age?

I bought my first house July 2005. I am 26.

What is your area of focus? I mean, Buy & Hold, Buy & Sell...

Primarily Buy and Hold. However, I have one property under contract with a lease option to purchase agreement. Additionally, I have a potential buyer for another home that is currently being remodeled.

You like to use construction loans to purchase homes. Tell a little about your thinking there.

Using construction loans is a good method of financing when a home is in need of serious repairs. Additionally, it is good way to avoid using any of your own money. Refer to the simple figures below:

Purchase Price: $80k
Repairs: $20k
Total Loan Amnt: $100k
After Repair Value $120k

Based on these numbers you have created $20k in "sweat equity" without using any of your own money. (Note: construction loan usually have an interest rate of prime + 1. This is much higher than a typical 30 yr fixed loan.)

If you are planning to hold the property it is wise to refinance the construction loan with a long term loan. When refinancing you can essentially use the 20% “sweat equity” as a down payment. By leveraging your equity for your down payment you avoid using your own money and get a better interest rate.

To date, what has been your biggest success?

Since my investment strategy is aimed more towards buy and hold… I would have to say my biggest success would be the amount of property I have been able to accumulate in the two years of investing. Additionally, the amount of equity I have in my real estate holdings.

Your biggest regret?

I really don’t have any regrets. Although, I have made a ton of mistakes. But with every mistake I make I would like to think I learn something from it.

I guess one regret would be that I didn’t start investing in RE while I was in college. With all the free time I had it would have been fairly easy to manage / own a few rental properties.

Investing in rental property can be tedious and move at a slower pace than some people like. To this you say what?

Rental properties aren’t going to make you rich over night. But over the long-run if you are able to grow your RE portfolio and pay off the loans you can generate a sizable monthly income. Also, the properties will continue to appreciate – further increasing your wealth.

Buy and Sell strategy in a good market is obviously more fast paced. If you have a reliable source for finding good deals and good people working for you then you really can’t go wrong. But you could probably say that about any business.

Anything you would like to add, say or preach about?

Just for the record. I am by no means an expert in real estate. It is something that I enjoy doing and will continue to do until I am old and hopefully retired.

Saturday, August 18, 2007

Get Service

I don't know if you need the reminder. I do.

I stole this from John Novak's active|rain blog.

UrbanDigs Talks Subprime ARM Resets

Take the time to go over to UrbanDigs and look at the ARM resets due in the next 12-18 months. Kinda cool.

Back Away From The Ledge: It Will All Be Okay...

Concerned? That's okay.

Distraught? Calm down. It's all going to be okay.

Fed drops discount rate 1/2 point from Ardell DellaLogia.

A Billion Here, A Billion There, And Pretty Soon You're Talking Real Money by Jeff Brown.

Friday, August 17, 2007

Appreciation: #4 Benefit When Investing In Kansas City Real Estate

Appreciation is your friend when you are a real estate investor. The knowledge that your rental property will escalate in price over time is comforting.

Now, with all that is going on in the coastal markets with a major correction to their real estate values because of unreal appreciation over the years mixed with a very volatile situation in the mortgage markets right now I need to clarify what appreciation is and what it isn't.

Appreciation is your friend when you balance it with the other three benefits of real estate investing. Taken into consideration using sound financial principals appreciation will help you to build that Retirement Worth Having.

Appreciation used as dice at the craps table can make you rich. Or terribly bankrupt. Banking on appreciation alone while ignoring other financial considerations is called real estate speculating and not real estate investing. I've been saying this for five years. Now people understand.

Here in the Kansas City real estate investment market we have always pretty much penciled in 5% to 7% appreciation. No, not every year is there. Some years higher, some lower. During this period of time, for evaluation purposes, I'm inclined to use 3% to 5% as a measuring stick until things turn around.

Remember, our goal here in Kansas City is to hold our investment properties in about a 5-7 year window. So one year of great or bad appreciation isn't going to make or kill us. We are working on the law of averages here.

Here's What I Think About Countrywide, Saundra McFadden-Weaver & George Brett

Countrywide has gotten themselves into a pickle. So has just about every major lender out there. But with Countrywide having to tap into an $11.5 billion dollar line of credit it sends the message that the secondary loan market is in trouble, big trouble.

"The asset-backed commercial paper market has virtually shut down," Friedman Billings Ramsey wrote in a research report. - Source: Kansas City Star

My opinion is that we are in for more turbulent times than I had initially understood. A tightening of lending standards wasn't possible in a self-policing sort of way by the mortgage money market. So now, as a matter of economic principal the market is doing it for them. Another classic example of how free enterprise works. But it can be mean as hell.

If you are an "A" borrower you should still be okay. Make no mistake about it, there are still lenders out there that want your business. But follow this advice from yesterday's edition of The Washington Post.

"What I'm telling people is that they should not shop around for the lowest rate necessarily," Binstock said. "Go with the lender who you think is going to be there in the end."

***

Saundra McFadden-Weaver, a former Kansas City Councilwoman, was found guilty on mortgage fraud charges yesterday here in Cowtown. She still proclaims her innocence, naturally. But based on my experience with the real estate boom, especially where it pertains to "flipping" houses, I have no doubt she is guilty.

But is she being selectively enforced because she is a former Councilwoman? I think it doesn't hurt. I've put together entire files and sent them to the Kansas Banking Commission without so much as a response from them that proved mortgage fraud by a wealthy "lender" located here in Overland Park. But I guess he didn't have a name. And the victim was a barely English speaking immigrant. Not sexy enough, I guess.

***


It was 27 years ago today that George Brett raised his batting average to .400 by going 4 for 4 against the Toronto Blue Jays. He finished the season at .390. Oh, so close. But George, the memories you gave this young man that grew up in Kansas City are priceless.

Thank you for giving Kansas City it's greatest sports hero. You stand with our greats: Len Dawson and Buck O'Neil.


Thursday, August 16, 2007

My Friend Geno In Chicago Talks Catholic

For those of you that have never been introduced to Geno Petro up in Chicago...you have really missed something.

No, he has nothing to do with real estate investing. But of all the real estate bloggers out there his writing is up there at the top.

His post Ol' St. Joe Is Good To Go is one of the best reads I've had lately. Well written with a point in there somewhere. Actually, many points. Geno, thanks for the laugh.

Depreciation: #3 Benefit When Investing In Kansas City Real Estate

Did you know that the IRS allows you to depreciate your real estate holdings? Of course you did.

Quick. How long does it take?

Right. Twenty-seven and a half years (well, that's not exactly accurate but we're talking about our government setting this up, right?).

Also, wrong. Did you know you could break out your depreciation? Sure, the building has to be depreciated over 27.5 years. But what about your personal property within the house? i.e. carpeting, lighting fixtures, appliances, etc. Five (5) years! At a much higher percentage.

And land improvements can be depreciated over the course of only 15 years. What are land improvements? Landscaping, sidewalks, stairs, driveways, etc.

All this is called Cost Segregation. And it's too complex for me to explain all the benefits of accelerating your depreciation here. Feel free to do some research on the web or ask your tax planner about it. But sadly, it's over the heads or beyond the knowledge of many tax "specialists" as well.

Make sure that if you choose to take advantage of Cost Segregation for your rental income properties that you have a tax preparer that understands what Cost Segregation is!

Further Proof Of Kansas City Real Estate Bubble Bursting!!! A Must Read!

See, I can tell who watches the national news and/or cable news networks. They are constantly asking me about the real estate bubble bursting and how bad is the market?

Here I have actual proof of the Great Kansas City Housing Bubble Burst of 2007. From today's Kansas City Star they report that sales are down on data reported for April - June compared with last year...

Check out these numbers if you want further proof!!!!

  • Florida - down 41.3%
  • Nevada - down 37.5%
  • Arizona - down 23.4%
  • Maryland - down 21.1%
  • California - down 19.8%
  • Kansas City area - down 0.7%

I don't know about you but I was staggered by our numbers. I've been wrong. We are in a huge crisis here in the Kansas City area. Sell. Sell NOW! Slash prices by 15%-20%. But just get out! Live on the streets if you have to. But don't take that chance.

What? We still have very modest appreciation? Darn. I was hoping for more headlines!

Wednesday, August 15, 2007

McMansions A Lasting Legacy Of The Housing Boom - Gee, Thanks

I've often had people raise their eyebrows when they see where I live. A very modest 4 bedroom home in the heart of older Olathe. Problem is, I can't stand a lot of the newer construction and it's uniformity. The lack of trees.

Heck, just look down the street in a neighborhood built here in the last 10 years and you will see EVERY driveway has a dark colored SUV and the front yard has an 8' tall oak tree planted dead center. (Where it will eventually block the view of the house for decades to come.)

No, if I'm going to live in the suburbs I'm at least going to live in an older neighborhood. Cheaper, too.

Here's an aside: One of my favorite stories as a REALTOR are the people who want me to discount my fees because they don't have enough equity. How could that be? They keep telling me about their trips to warm places in the winter and that SUV outside is less than a year old. (Home equity loans. That's how. Now I'm supposed to subsidize that?)

Anyway, here is a great read over at Inman about the lasting legacy of the housing boom we experienced.

Principal Reduction: #2 Benefit When Investing In Kansas City Real Estate

This week I have been reviewing the 4 Benefits of real estate investing. And today I want to re-tackle the #2 benefit of principal reduction. Actually, I've done this before and I'm not really sure that I could do any better. So click the "before" link and read. Also be sure to read the comments because a great alternative is discussed.


Personally, I love the fact that each month I collect rent a portion of that rent is going towards the reduction of my loan balance. I love that my tenants are buying me a house! But Jeff Brown makes a great argument about using interest only or negative am loans to accomplish even greater growth.

Jeff has been doing what I do for about 30 years longer than me. So do you think I'm going to say he's silly? That's 30 years of real world experience. I listen when he talks. But on this subject, I still take it case by case.

In a faster growing market I think the advice to go interest only makes sense all the time. Here in Kansas City when investing in real estate I want to weigh the options of what the rent will bring, down payment involved and how high I expect the growth to be over the next 5 years. (A forecast, at best.)

Kansas City real estate is currently still on an upswing, growth wise. Though much slower than several years ago. Heavy inventories and rising foreclosures have dampened our normal 5%-7% growth to around 1%-3% in a lot of areas. Still not bad when considering the coasts.

So be sure to look at alternative mortgages when buying your next Kansas City real estate investment property. But get some advice and do some calculations before deciding to go with either. Sharpen some pencils and go to work. Make an educated decision.


Your thoughts, Jeff?

Tuesday, August 14, 2007

Cash Flow Before Taxes: #1 Benefit When Investing In Kansas City Real Estate

I have spoken before about the 4 Benefits of real estate investing. And in many parts of the country the first benefit, Cash Flow Before Taxes, is very hard to obtain. But here in the Greater Kansas City area it's pretty tough not to do...at least if you come in with some capital.


I've posted the formula for determining cash flow before taxes before here. If the term in new to you I would really encourage you to go back and study it.

The key to remember is that just because your rent will cover your PITI (Principal, Interest, Taxes and Insurance) that doesn't mean your new rental property is cash flowing. Heck no. What about property management expenses, if any? How about utility costs when there is a vacancy? (Are you gonna let those water pipes freeze in January when the house is empty?)

Other costs to consider;
  • Vacancy rates.
  • Maintenance fund for general repairs.
  • Lawn care fund even if tenant is mowing.
  • Sinking fund for that roof that looks like it's almost done, or the furnace, or the water heater, or the foundation, etc.
  • Administrative costs like LLC expenses, travel and tax preparation.

That's not an all encompassing list. But unless you want your personal account to continue to kick in for your rental property until you sell it 5-7 years from now you will probably want your rental property to pay for itself, right?

Monday, August 13, 2007

The Four Benefits Of Real Estate Investing...Again

I was talking today with someone who had found me on "the web." As I spoke to him about the four benefits of real estate investing I realized that it had been a while since I had done a post about them.

Now, if you already know them, feel free to skip this post. Or take a refresher. Since about 60% of my visitors each day are first time visitors I'm going to assume many of you have not stopped by before.

Here are the 4 Benefits of Real Estate Investing...as I see them. (Quick, if you've been here before see if you can name them before moving on!)

  1. Cash Flow Before Taxes
  2. Principal Reduction
  3. Depreciation
  4. Appreciation

(How many did you get? If you got all four, congratulations! I'll give you a gold star if you'll send me a self addressed stamped envelop.)

Yes, there are other peripheral benefits. Leverage. Everyone knows about housing. Easy loan qualification. But the financial benefits can be boiled down to these four.

Do you know how to calculate them? Better learn. What is appreciation in your area? Historically? How will you be utilizing depreciation?

All those are good questions to help you successfully calculate the returns each and every rental property is bringing home for you.

Here's a tip for you seasoned investors. If the last time you calculated the four benefits was when you were considering purchase, perhaps you need to do it on a yearly basis. Remember, as time goes by depreciation schedules begin to take a dive. Could that equity in the one property be better served in two? Just a question. The numbers will probably give you the answer.

The Danger In Reading About Real Estate Investing

There is a real danger when you only "read about" real estate investing and then try to apply that. And I don't care if you are talking about Loral Langemeier's Guide to Wealth Cycle Investing or you are reading my blog.

But today, I'm going to talk a little about Loral's book. I picked it up because everyone I run into says they've read it and it's great. Unfortunately, I didn't preview before buying. Where can I go to get my $24.95 back?

I didn't find anything too Earth shattering under the cover. Sure it was an okay read and it skimmed over many different options. But that's the point, isn't it? It's just skimming.

I am in real fear of someone reading her chapter on Real Estate and then deciding to become a real estate investor. But not quite in as much fear as if they've watched some show on A&E.

What she does, she does well. She covers the basics and moves quickly from topic to topic. She gives just enough information that I question whether she knows the details or holds those back until you pay for her coaching. If you are not knowledgeable enough to discern the difference, you could get yourself in serious trouble.

Her whole philosophy on buying $45,000 rental houses is flawed. (Where are those located and in what condition? Do you have any idea the headaches $45,000 houses can become?) She is also happy about the fact, or at least not worried, that these homes won't have any appreciation. Excuse me? Isn't that one of the reasons to own real estate investment property? She advocated NOT buying in high growth, high appreciation areas...at least to start. And her explanation of depreciation is incomplete at best, incompetent at worst. There is so much more to know on that topic alone.

Listen, I don't know Ms. Langemeier and she is probably ten times more wealthy than I am. And obviously much more knowledgeable on a whole host of issues. I'll grant you that. But on THIS SUBJECT I want to be clear...don't invest in real estate just from what you read.

I recommend two books on this blog and you can find them in the right hand column. But you can't rely on them 100% either. For instance Gary Keller's pie-in-the-sky examples are comical. I like the worksheets he uses. But the examples are not available in most markets. (Any market?) And John Schaub's refusal to buy anything but single family homes is not a tenet that I hold dear.


If you want one more example just take a second and think about the Bible. Here God gave us an actual manual to use to live our lives in peaceful coexistence with one another while serving His needs and His kingdom. And yet, how have we screwed it up? We have 3,000 denominations (or more?) because no one can agree on exactly how every verse should be interpreted.

So it's no wonder real estate investment pundits cannot do any better.


Sunday, August 12, 2007

Rental Housing Registration In Kansas City

The Kansas City Star ran an article in the Local section of the paper today titled More cities keep eye on landlords. I found that the article clearly presented the issue revolving around rental property licensing that is being proposed in several areas around the Kansas City metropolitan area.

(Although I still find it annoying that every weekend the KC Star insists on running some horrible foreclosure related photo from the west coast in the business section. Note to KC Star, if you cannot find the problem here then don't take the photo. You keep insinuating the real estate meltdown is here, as well. And you know it.)

Let BBQCapital be very clear where we stand on the issue or rental housing registration and/or licensing;


  • Rental licensing is not acceptable. It is simply a tax and an additional burden to the investment property owner.
  • Registering rental properties and having an individual with sole responsibility is okay here. (No hiding behind a LLC to shirk your responsibilities.)
  • Administrative warrants (used by the City of Lawrence) to inspect rental property without the permission of either tenants or landlord is blatantly absurd...regardless of what the federal court of appeals says.
  • The City of Mission ordinance that allows the city to conduct an inspection of the property when requested by the tenant is a solid compromise.
  • Tenants should treat their rental homes with respect and care.
  • Landlords should treat their tenants with respect and care and maintain their Kansas City area investment property to a clean and safe standard.

Agreeing with Dan Kelly of Landlords, Inc. in Kansas City a city should spend more time worrying about code enforcement. If a rental house is becoming a blight on the neighborhood then code enforcement should act. Having registered owners, actual individuals, will allow the city to go after the owner and not have the owner "hiding" from the violations because the city doesn't know whom he or she is.

And our last point here will be this: Landlords, it is to your benefit to maintain your properties! You will attract better tenants, collect higher rents and sell for more money. Why is this so hard to get across? If you don't, if there is mold in the basement or a roof leaking then a tenant should have the right to have the city come in and work on their behalf. It wouldn't have happened if you had maintained the house, right?

Here in Kansas City landlords can evict a tenant for non-performance (no rent payments or tearing up the house) a lot easier than in other parts of the country. Believe me. The flip side is they should have rights too when the landlord is guilty of non-performance.

In the words of Stuart Smith of Mission (as quoted in the Kansas City Star) "If you can't afford to keep the property up, you shouldn't have bought it in the first place."

Saturday, August 11, 2007

Don't Worry, Be Happy

One of my real estate investor clients and I were on the phone this morning and she expressed to me concern with all the mortgage woes going on. We are passively looking for another property for her and she was worried about her ability to secure a mortgage on another property.

Although I didn't outright say "Don't worry, be happy" it was the theme of my response.
I took the necessary time to explain what I believe got us into this mess and that I believed it would probably go on a while longer. But that, in her case and in the case of many/most of my clients, it would have no bearing.
Why? Because most of my clients only own 2-4 rental properties. Most of my clients have household incomes well into the six figures. Most of my clients have credit scores that will make your nose bleed. And most of my clients have healthy and available liquid assets.
Not to say I don't work with anyone. But I have to work with those that can qualify to own investment property, right?
No matter how tight credit gets, in my opinion, if you are able to put down 10% and stay under the "10" limit and find a property that works under your criteria then you will be able to acquire that property. At least the clients that I am speaking of.
Now, if you have four loans out and they are all 95% LTV or more, then you are probably going to have problems. You need to spend the next year or two getting those ratios more in line. Otherwise, don't worry, be happy.

Friday, August 10, 2007

Why Bureaucracy Makes Me Crazy: FreddieMac Stinks!

I generally try to play nice. But I've had it in this situation. This might be a long one so you'll want to buckle on the chin strap.

On July 9th I wrote a post about needing an investor to help bail out a woman who had gotten suckered into a fraudulent lease with option to purchase.

A Quick Recap

A single mom (SM) with two kids entered into a lease with option to purchase in November of 2006 with the "help" of two criminal, er for libel reasons I'll just say incompetent or uneducated, real estate agents. She made a $2,500 down payment and paid rent on time. That is until she was notified by the Federal Home Loan Mortgage Corp. that the loan had defaulted and that they were foreclosing.

The owner had been taking her money but not paying the mortgage. Now she was supposed to get out unless she could buy the rental home. Because of credit and cash availability she could not. So she calls me to see how I might help.

The Numbers

Our SM had been paying monthly rent in the amount of $1,025/mo. The payoff on the home to make Freddie Mac whole was approximately $106,991.67.00 give or take $17 and some change interest a day after July 27. A quick review of the home and the neighborhood told me the following;

ARV of the home is probably $128,500-$130,000 even in this market. Much needed repairs include exterior paint, wood rot repairs, heating and air conditioning replacement and some other miscellaneous projects.

With my contractors, I figure this is $5,000-$6,000 in repairs. Add in a fee for me of $3,000 for putting the deal together quickly and you have a cost of purchase at $115,000-$116,000, plus closing costs.

The Solution

I brought the "deal" to an investor who was able to help. Provided they would make some money. We negotiated with the SM and her attorney a lease-option that would last 36 months. That's a long period of time, yes. But in this case it was to both party's benefit. Monthly rent would be $1,025/mo (fair market rent) with the SM paying for all repairs $250 or less.

The investor would get the wood repairs finished and the house painted immediately. Heating and air conditioning would stay in operation as long as possible but would, in any case, be replaced before the SM took sole possession at the end of the lease-option.

For every month the mom paid the lease on time she would be give a $50 credit towards closing costs. Purchase price on the home in 36 months would be $132,500 (probably about $10,000 under expected value.)

Do the Math

Everyone wins;

  • The single mom gets to keep her house without any more down payment, the rent stays the same (until year three when it goes up $25/mo.) and if she performs her end of the deal gets to buy the house under market and in good condition.
  • The investor gets to help the single mom AND make about $13,000 after expenses plus reap the tax benefits along the way. Oh, and some paltry cash flow. But they double their money in.
  • Freddie Mac gets to sell the home, get it off the books and not lose any more money.
  • The real estate agent (me) makes $3,000 for putting it all together.

So why can't we do this?

Because Freddie Mac refuses to sign a purchase contract with my investors. It's against policy. They wouldn't be getting "fair market value" for the home because all they would be getting is the payoff. What idiots! They will only take a payoff. But my clients cannot get the money through a first mortgage unless Freddie Mac signs a purchase contract because according to every underwriter I've spoken to that's a Freddie Mac guideline!

But let's do the fair market value route, shall we?

I told you ARV is about $128,500 - $130,000. Let's take $130,000 and subtract the repairs at retail. Now we are down to about $122,000. But that's if you can find buyers who don't mind repairing anything without added benefit. What's that worth? No one can really say. But in a market full of homes for sale, let's just say $5,000.

Now we are at $117,000. (In case you think I'm not being fair there is another REO in that neighborhood in similar condition that is still for sale after 90 days on the market, for $115,900. ) So let's put it on the market at $119,900 What's the cost of an additional 90-120 days (if they are lucky) sales time? Don't forget admin, winterizing, inventory and other costs. $3,000?

Also, let's not forget two things;

  1. No one will pay list price. If someone can get another home $3,000 less in about the same condition, why wouldn't they?
  2. REALTORS. Now you have two agents to pay. Not just one.

But let's figure this. Sales price of $114,000. (On a great day!) minus the extra holding costs of $3,000 and the selling agent fee of (2.0%) $2,280 and the buyer's agent fee (3.0%) of $3,420 and you have left $105,300.

How is that better? And that's if they get a good price for the home.

Now congress wants to bail out more bad mortgages. From the looks of it, that might be a better idea than letting Freddie Mac make business decisions.

In the mean time this single mom gets screwed again. This time by the people who are there to "help" the mortgage market. She'll have to move, again. Lose her initial investment. Make her kids go to another school. Shall I go on.

Glad we have policies in life. They really help people who cannot think independently.

Real Estate & Investment Related Reading

I thought I would take a moment and share some reading worth reading.

Here is a real estate investor site that I found not too long ago that I kinda dig. It's raw, emotional and experience based. Take a leap on over to Building An Empire.

Yasgur's Farm is for sale. Of course, everyone under 30 asks "Who the heck is Yasgur?"

If you want to read an investor's blog where the author has an uncanny ability to cut through the bullsh%t, then you might want to go on over to Lording the Land. I think I've mentioned him before and he's not for the feint of heart...

Thursday, August 09, 2007

Real Estate Investing Is A Lot Like Sex

Real estate investing and sex have a whole lot more in common than you might imagine.

  • Everybody at least wants to try it.
  • You can read about and research it on the internet, but sooner or later you just have to try it.
  • Nobody does it right the first time.
  • You get better as you go along.
  • No matter how good you get you sometimes regret it.
  • Both can end up costing a lot of money.
  • Both can end up being very rewarding.

One of the major advantages of real estate investing, however, is that you can have a personal coach right there with you to help you avoid the pitfalls. (I suppose you could in sex, too, if that was your thing.)

Other advantages might be that once you've sold a rental house, it's gone. It probably won't tell all the other rental houses what a lousy landlord you were.

Or that you never took the time to get the house properly ready for action.

Or that you're cheap and never spent a dime once you got what you wanted. (I'm talking about the rent. Get your mind out of the gutter.)

Make no mistake about it. Both should be tried in life. Just keep trying till you get it right.

Other comparisons are welcome in the comments section. But keep it clean, this is a real estate investing blog...not, well, you know.

Wednesday, August 08, 2007

Frankly My Dear, I Don't Give A Damn

At parties people ask me what I think of all the bad news about the real estate market. At grocery stores people ask. At a reunion party for one of my son's social groups tonight people asked.

Frankly, I'm getting tired of answering. I've gone through this before. Here in Kansas City we didn't get the 15%-20% appreciation rises they got on the coasts. Why do you think we should get the same size corrections they speak of on CNN, MSNBC and Fox?

Jeez. Here's the deal. If you don't need to move, don't. If you do need to move, do. Why is it going to matter? If you are losing on the selling side a case can be made you will more than compensate for that on the buying side. And three years ago is as irrelevant now as three years ago was to that time period then.

If you are a real estate investor you can either sit on your hands and watch the market worrying yourself to death or you can get in the game. Want to know something? If you wait three years the market might, or might not, be hotter than now. How is that a good thing while you are in buying mode?

One of the best pieces of advice I ever got was a guy that told me "start where you are." It's fun to talk about shoulda's and woulda's and coulda's. I do it all the time. But FIDO. (Forget It, Drive On.)

Here's my last point and then I'll stop. Tomorrow, in a good market or down market or par market, I'm going to get up and go to work. From there, things seem to work out. Ad astra per aspera.

Equity Share For Kansas City Real Estate Investing

We all learned from a young age the importance of sharing. But now I want to talk to you about sharing in a matter than can be profitable to you and me. I'm talking about Equity Sharing for Kansas City real estate investing purposes.

This blog is blessed with readers from around the country. The readers are usually very interested in real estate investing in particular and have a passing curiosity or serious interest in Kansas City. And I'm fully aware that the reason some readers have never pulled the trigger on a Kansas City investment property is because they are wary of the "hassle" owning an investment property a number of miles from their home.

In short, they don't yet trust their ability to find the right property or the right property manager and they don't want to have to come into town to clean things up or worse, to have to liquidate the property quickly at a loss because things haven't worked out. Real or not, those are real fears.

THE PROPOSAL

Here is what I propose. Right now I'm looking for 1-3 real estate investors who have the money but not the time to purchase and own more real estate investments. You will qualify for the mortgage, put in the money for the down payment (10% minimum), pay the closing costs and put 3 months operating expenses in a checking account to cover the income property's cash needs for the duration of the equity share. Total cash outlay will be expected from $15,000 to $35,000, depending. After closing a quit claim deed granting me a 50% Tenant-in-Common share to the rental home.

My responsibilities will be to carefully select the right investment property to purchase and to sell you on why this rental property won't cost you any additional funds. In essence from that point I act as landlord. I will screen and select tenants, manage the month-to-month operations of the investment property and report to you as often or as little as you wish for the duration of the equity share.

During the duration of the equity share YOU take all the tax benefits afforded an investment property owner. We keep the monthly cash flow in the operating account and at the end of the year the excess cash flow, if any, goes to me. If there is a buyer's and/or seller's commission when we liquidate that is mine.

At the end of the pre-determined equity share duration (5-7 years or when we reach a decided equity threshold) we will liquidate the property. When the sale is complete you will receive your entire investment back first. Then any of my real costs will be reimbursed. Whatever remains, we split 50/50.

THE BENEFITS

Money Man benefits include;

  • Safe real estate investment in the stable economic environment of Kansas City.
  • Safe real estate investment with an experienced real estate investing real estate agent.
  • Passive growth within a reasonable window of time.
  • All tax benefits afforded residential investment property owner.

My benefits include;

  • No money out of pocket.
  • Own shares of properties using just my knowledge and experience.
SUMMARY

Of course we would put all this down on paper with the help of a qualified real estate attorney. But basically, you'll supply all the money, I'll supply all the time and we'll both reap above average returns in a rather failure proof manner.

To read how others utilize the equity share arrangement (to prove I'm not off my rocker?) you are welcome to visit here and here. And do your own research. For a basic cold water in the face approach see here. Hey, I'm just trying to give you the ups and downs so you can make an educated decision.

I look forward to hearing from you.

Tuesday, August 07, 2007

Get The Protection You Need When Buying Income Property

So I was watching my son get ready for football practice yesterday. (Before I get started too far, how cool is it that Frank Seurer, the ex-Kansas Jayhawk and ex-Kansas City Chief quarterback, is his head coach? And that the kids get to play a scrimmage in Arrowhead Stadium the day of the Kansas City Chiefs v Miami Dolphins pre-season game?)

Anyway, back on topic, here is a short list of items that the boy had to suit up in to protect himself while playing the game of football;

  • Helmet
  • Chin Strap
  • Shoulder Pads
  • Thigh Pads
  • Tailbone Pad
  • Hip Pads
  • "Privates" Pad

I mean, the boy is going out to have fun but has to protect himself against the very real dangers of getting hurt.

Just like a real estate investor...especially a first time investor. Here is my short list of protection you should put on before buying any income property;

  • Excess funds account of 2-4 months
  • Knowledgeable investment real estate agent
  • Knowledgeable property manager
  • Knowledgeable tax planner
  • Knowledgeable real estate attorney
  • Knowledgeable investment mortgage professional

Because you don't want to get hurt, perhaps seriously, with your real estate investments. Proper real estate investing takes professional skills, time tested theories and patience. It's not magic. Just like the Green Bay Packers of the Lombardi era could tell you what play there were going to run and still succeed you need to be able to run a very predictable play to get the right income property for you and your circumstances.

It's not rocket science, this real estate investing thing. But maybe it's a little like football.

Unlisted Kansas City Investment Property For Sale

I know of a few unlisted Kansas City area investment properties currently for sale. Another real estate agent that I know has these pocket listings. Take a look and call or email with any questions. (Sorry no photos.)

Shawnee Mission Parkway & Metcalf area
Prime Johnson County location. 4 duplexes all with vinyl siding, 3 bedrooms, 2 baths and fenced yards. Heating/air is older but roofs are about 8 years old. Asking $225,000 (pretty firm from what I understand) with rents of $975/mo/side. 100% occupancy.

Olathe, Kansas single family homes
In the older part of Olathe. Not great homes. Not terrible homes, either. Smaller and priced between $85,000 and $95,000, depending. 100% occupancy. $700-$750/mo per house.

Monday, August 06, 2007

Numbers + Emotion = Kansas City Investment Property

Anyone that reads my blog for more than a day knows that I love the numbers part of Kansas City investment property. If the numbers don't make sense you should just pass and go on to the next rental house possibility.

But numbers are not everything when it comes to selecting your investment properties. Given that we are human beings with different emotional needs and judgement processes we cannot discount our feelings when choosing our investment property.

The time when I see this become the most subjective is when I'm working with newer investors who are considering the purchase of a first duplex to live in half and rent the other half. I'm working with two such investors right now. It's a great way to start. Believe me. But there's also the human element of "do I want to live here for a year or two?" to be considered, as well.

It's not that the duplexes the couples have been shown are beneath them or, all in all, in bad shape. It's just that the available inventory, by in large, is not up to the standards they have set for themselves, even in their current apartment situations. I get that.

So I've been encouraging them, and continue to do so here since they are both readers, to know that numbers are important. No doubt. But if the numbers are reasonably close to the other investment property choices out there, though slightly lower, but have a much better school district and/or neighborhood feel and/or updated everything, then that counts, too. (That is a complicated sentence that I'm sure my 8th grade teacher Mrs. Sanders would mark through with her red marker.)

Keep the numbers in mind when you purchase a prospective Kansas City investment property. If you are going to live in half for a couple years it's okay to let those numbers "slip" a little bit. (I said a little.) Because the rents will more than likely catch up and exceed on the numbers quotient before it's over. And you need to be proud of where you live, investment property or not.

Sunday, August 05, 2007

Wonder Woman, Me, My Boys & Barbecue

Warning: No real estate or real estate investing will be discussed here during this post. But stay tuned...

Every year before school starts we have a tradition in our family. I take the boys on a "Father/Son" trip. Nothing fancy, and really no rules. We get away for a day, or two, or three.

It started when my oldest was entering Kindergarten.

1998 - Thurmont, Maryland: Cunningham Falls, camping and canoeing
1999 - Cooperstown, New York: George Brett's Hall of Fame induction, camping
2000 - Assateague Island, Maryland: camping, wild horse chasing and swimming in ocean
2001 - Move from Maryland to Oklahoma scrubs this year's F/S trip...I regret that.
2002 - Jet, Oklahoma: crystals digging, bat cave and OK sand dunes "Little Sahara"
2003 - death in family created "rain out"
2004- Dallas: Six Flags (first with Brandon after adoption)
2005 - Osage Beach, Missouri: Camping, jet skiing and cave exploring
2006 - Hutchinson, Kansas: Camping @ Cheney Reservoir and Smithsonian Air & Space Museum
2007 - St. Louis: Gateway Arch and Six Flags


Anyway, as you can see this year we went to the Gateway Arch in St. Louis. We got there early and went up. If you've never been, I don't know why. The view from the top is awesome. And the museum below the ground is pretty informative and well done.

Then we headed on over to Six Flags. But on the way I spotted a BBQ. You know what that means. We pulled into the parking lot for some early grub before heading on into Six Flags. The place is called Super Smokers.



Immediately I liked the feel of the place, though I was prepared to dislike it. My past experiences with St. Louis BBQ hadn't been good. I mean, how could a city equidistant from Kansas City and Memphis not have a good barbecue tradition?

Anyway, I was a little alarmed when I noticed the menu had items like Nachos. Is this a real BBQ? But I will make allowances because, again, BBQ isn't part of the city identity in St. Louis.

All fears were relieved when I got my beef brisket sandwich and beans. The meat was moist and tender with a smoky flavor and the beans were good. Several sauces were available and I liked the sweetness of the Kansas City sauce and the smokiness of the Championship sauce. The Texas sauce was vinegary, as you would expect. I didn't care for it too much.

The owner also happened to stop by our table and was very, very personable. He even gave me a rib to try which was moist and tender, as well. It had a dry rub? I could taste the smoke but there was another flavor in there as well. So I would recommend a stop there. It would be worth your time. Just don't get the nachos. Go to a Mexican restaurant for that. :)

At Six Flags we had a great time, of course. The coolest ride for me was the new Tony Hawk. It's a roller coaster and the cars you ride in spin 360 degrees around continually while you ride. That's pretty cool.

I met this wonderful woman there, as well. We instantly connected but alas, she had to run off to save the world. I guess it was never meant to be.


Friday, August 03, 2007

Weekend Reading For Real Estate Junkies

First we're gonna take you over to the Real Estate Zebra. Took me a few visits to figure out he's a REALTOR and a basketball official. So you know I'm gonna love him. Anyway, read this: Real Estate is a Team Sport.

Then you may want to jump over to BawldGuy's Chasing Chump Change Cash Flow - Sacrificing Tomorrow's Dollars For Today's Pennies.

Lastly, and this is shameless self-promotion, take a visit to Blogger Spotlight; Chris Lengquist. Someone actually cared about my thoughts regarding this whole blogging thang.

Gen Y Will Be Your Tenants

I was reading through my copy of the REALTORS Commercial Alliance Report last evening and specifically a story titled Who Are Tomorrows Renters?

Thought I would share a couple of exerts from the article:

"I'm really bullish on multifamily demand" says Leanne Lachman, president of Lachman Associates...

Projections by the Joint Center for Housing Studies at Harvard University estimate that around 2 million new households will be formed between 2005 and 2015. Rising interest rates and booming growth in many traditionally renter demographics make it likely that apartments will receive a proportionately higher share of that growth than they have in the last few years.

Between now and 2020, 4 million Americans or more will be turning 18 each year.

While an average of 31 percent of all U.S. households rent, the number jumps to 74 percent of those under 25 years old and stays at 59 percent for households between 25 and 29 years of age...

Some households rent as a lifestyle choice, avoiding the costs and inflexibility of home ownership. Indeed a 2006 JCHS study found that some 20 percent of renters had incomes above $60,000. However, the majority of long-term renters are there because of economic necessity.

I find this all a great indicator of growth. Especially in the areas of town that will appeal to the upcoming youth. Close to business centers, nightlife and where space is affordable. Know of any areas that fit this description?