Sunday, September 30, 2007
Saturday, September 29, 2007
I would like to introduce a new blog to you by Eric Moore, Esq. with Ghafoor, Cook and Associates in Independence, Missouri.
(Not actual portrait.)
Eric and I had lunch over at BB's Lawnside BBQ about a month ago. I was very impressed with his focus on real estate and real estate investing law.
It is my hope that we will be able to get him to do a guest appearance here every now and again. But until then, stop by his blog at Kansas City Real Estate & Zoning Lawyer.
Friday, September 28, 2007
Thursday, September 27, 2007
Some people think I live a pretty exciting life. Ah, the world of real estate investing. Living the in the life of the BMW driving & Starbucks swilling elite of Kansas City.
If only it were that cool.
Let's see. First I left the house earlier than usual to meet a contractor at a house getting a rehab job. Then it was off to meet an HVAC guy to inspect a furnace. Afterwards, I stopped by two duplexes I needed to see to examine whether or not to tell my clients about. Then I did grab lunch (Arby's - I used a coupon for the Jamoca shake) on my way to a closing.
Family responsibilities came next. Dinner, football practice and tickle time with the girls. Then off to the home office to run numbers on 4 properties so I can send them off to a client tomorrow morning.
That's right. I ran numbers for an hour. Examining expenses, income and forecasting future repairs, appreciation and rent rates. Figuring equity rates of return, cap rates and cash on cash.
Pretty exciting, huh? No. But that is why you don't see any HGTV or A&E programs about the real estate investors that buy right, rent at good to great rates and then sell when appropriate. When is appropriate? I don't really know at this point. But I'll tell you when you get there. Maybe 3 years. Probably closer to 5-7 years. Rest assured, I'll let you know when the time is right.
Real estate investment analysis is not sexy. But if you want to have a retirement worth having, it's necessary.
Wednesday, September 26, 2007
The really great thing about the home buying process in the Kansas City area is the 10 inspection period allowed for in the standard Kansas City Regional Association of REALTORS contracts.
Recently I had an investor that had worked out a pretty sweet deal on a duplex in the Kansas City area. Sweet that is as far as we could tell.
Now I'm pretty experienced at spotting potential problems. Furnaces, basements, roofs, etc. Heck, I even know what a mud tube looks like and can spot suspect wood damage. But inspecting homes everyday is not my gig. That's why I encourage the hiring of a reputable, professional termite guy. Especially here in the Kansas City area.
Getting back on story, I knew or suspected I knew, that the house had termites or had had termites. I even conveyed this to the buyer and showed him why I was suspicious. We kept that in mind on the offer and assumed a $1,000 or so in repairs.
Hold the phone. After the termite guy gets done inspecting it during the inspection period he shows me a tunnel I missed that spreads to basically everywhere in the house. He starts poking his screwdriver through floor joists all over the basement area and again on structural, load bearing tri-lams.
No matter how sweet our deal was, it wasn't going to be enough to cover all this. And we were figuring the long term liability was too great EVEN IF we could get the seller to come down further.
I've seen extensive damage before. There is repairable. There is not repairable at a price that makes senses. This didn't make sense. Best to move on. That's the beauty of real estate inspections.
Tuesday, September 25, 2007
My friends from Austin, TX are hurting. A brother and father was lost. When I learned of it yesterday I thought back to when I was driving around with no life insurance, or health insurance for that matter. My wife and (at that time) only son's future were completely out of my control.
I'm older now. I've been blessed with more. And while I still have no control over the future I am able to have a life insurance policy large enough to help out. A house or two to sell if necessary, as well.
But unless you are extremely blessed from the beginning most people in America spend at least part of their 20's and maybe 30's without significant life insurance. Go back to those days, at least for the moment. And think how you would have needed your friends, family and acquaintances to step in if necessary.
Posted by Chris Lengquist at 8:32 AM
Monday, September 24, 2007
Now that I'm back on the subject of Kansas City area real estate investing I would like to tell you about this 9 year old duplex for sale in Belton, Missouri.
Asking Price - $164,995
Rents - $750 per side
Occupancy - 100%
Leases - 1 year. Expires 3/31/08 & 8/31/08
Bedrooms - each side has 3
Bathrooms - each side has 2 full
Taxes - $1,630
Insurance - approx $617 (per seller)
I do have copies of the leases if you would like to review. Both are Section 8 occupied through the Housing Authority of Southwest Missouri. One is a longer term tenant that the owner/seller feels isn't going anywhere.
For those of you unfamiliar with Belton, Missouri, it is a growing suburb of Kansas City and is located right off the US 71 Highway as you are heading south. This duplex for sale is located in the heart of the original Belton area and is surrounded by a good mix of single family and all brick duplexes. The neighborhood has held up very well throughout the years.
For amenities that your tenants are looking for the duplex is just 2 blocks ~ from Scott Elementary and the Belton School District has a great reputation. There is also plenty of shopping and access to the highways just minutes away.
Go ahead and run those numbers through your calculators. I believe you will like what you see.
Sorry I'm off topic, again. But I open up KUSports.com this morning and find conditioning drills have started for the Kansas Jayhawk basketball team. Ahhhhhhh.
Can you smell that?
The basketball season is oh so close. Can't wait.
Will Brandon Rush be back 100%? Will Missouri improve under Coach Anderson this year? Will KState be a train wreck with the new head coach or a pleasant surprise? Who will win the Big XII? The tourney?
Sunday, September 23, 2007
All I keep hearing about is how great the economy would be going if housing would pick up and we didn't have the sub-prime debacle. As if housing didn't carry the economy for a number of years while Greenspan buried his head in his hands pretending not to notice.
Well I have a question for you: Has anyone purchased a gallon of milk lately?
Confession time. I will occasionally help out around the house by purchasing the groceries. But I never pay attention to the prices I just get what I'm told to get and run it through the cash card.
Well Saturday I decided to pay attention and I'm sorry I did. Milk was/is $3.55 a gallon! Now this may not sound like a big deal but my kids drink about 6 gallons a week.
When did milk get so expensive? Heck, when did groceries get so expensive? Maybe it's not just the ARMs adjusting up. Maybe, because of the cost of our precious oil, everything is shooting up?
Posted by Chris Lengquist at 11:05 PM
Friday, September 21, 2007
I'm not sure why a real estate investor won't take care of their Kansas City rental property but it just seems to me that drainage problems and rental property go hand in hand.
Fixing a basement in Kansas City can be very, very costly. Heck, if you put in a 4" wall brace every six feet and you have 140 linear feet of basement wall you are going to end up with a bill close to $9,000 for repairs. And that's if you don't need any other major corrections...which is highly unlikely.
Some simple things you can do to protect your rental property investments;
- Water the lawn when there has been no rain for an extended period of time. Especially about two feet out from the foundation. If you think your tenants won't water because they pay the bill offer them a $25 rent credit to offset their water bill.
- Make sure ALL downspouts have elbows on them at the water exit. Otherwise it's like a blasting tube for water during thunderstorms. I've seen holes as much as a foot deep dug by the foundation walls. Not good.
- Add those $15 flexible black pipe extenders to your downspouts to get the water directed to the closest slope away from your rental house.
- Add dirt around your foundation so that you have a one inch drop away from the house before you have gone more than twelve inches away from the foundation.
- Avoid buying rental property in Kansas City at the bottom of a hill if there is no berm or drainage systems to direct the water away from or around your rental property.
This list is by no means all inclusive. Nor will it insure that you never have a foundation problem. But it sure as well help keep your negligence from being the doom of your Kansas City rental property. And how much do you think any of those items costs, anyway?
Posted by Chris Lengquist at 8:03 AM
Wednesday, September 19, 2007
I was going to be cute or obnoxious here and say that the Fed dropping rates a half point doesn't really have too much bearing on the long term real estate investor. But that simply would not be true, would it?
But my point would be made, all the same.
There are at least a dozen bloggers smarter than me on the subject of the Fed and it's relationships to the overall economy. I'm just a Kansas Jayhawk who works with real estate investment property day in and day out.
Interest rates go up. Interest rates go down. Unemployment rates go up. Unemployment rates go down. Vacancies go up. Vacancies go down.
The point? That owning real estate investment property is not a short term deal. (Yes. Yes. I know flipping is. But I'm not talking about that.) It's finding the RIGHT property that will meet your criteria today. Cash flow before taxes. Expected appreciation. Expected vacancies and rent rates, etc.
Here in Kansas City I really do not see any reason to worry. If you are buying for that 5-7 year trade-in window why get too worried about the daily fluctuations of interest rates? No. I'm not advocating careless disregard. But if you keep waiting for them to drop further you may miss a rental property that was worth thousands more.
Conversely, if you rush to buy an income property because you are terrified rates will go back up at the next meeting you may buy a rental property that would have been better left to someone else.
Follow these headlines carefully. But keep you eyes focused clearly on the goal. Then follow your plan.
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Posted by Chris Lengquist at 12:47 PM
Yesterday I posted a short article titled Do You Like To Play Russian Roulette? And I joked that you don't want to do a financial analysis of your potential investment properties if you like to live life on the edge.
Of course, I was joking. (Though some didn't seem to think it was funny based on an email I received.) You do need to do a financial analysis of EVERY property you are considering for your investment portfolio. Every one of them.
Net Operating Income can be the key number when working your financial analysis for these rental houses. How do you determine Net Operating Income (NOI)?
Gross Operating Income
Net Operating Income
Pretty simple formula, huh? Wait. How do you know what numbers to plug in? It's critical you know the actual rent values of that rental property AND that neighborhood. It's critical you can determine the vacancy rate. It's critical that you know each and every expense.
What expenses should be included? Anything that costs you money to run that home. Insurance, real estate taxes, repairs, HOA dues, management, utilities, advertising, supplies, mileage, signs, miscellaneous. Get the picture?
Once you have all of those numbers (ever heard of a Schedule E?) then you can get down to putting pencil to paper.
Tuesday, September 18, 2007
"The rent covers my PITI so I bought it."
Monday, September 17, 2007
After having read the Kansas City Star's feature in the business section this weekend on real estate investors I have a statement I'd like to make:
Overall, I thought the Star's feature was fair and somewhat balanced. It told of the underside of rehabbing and it gave consumers other avenues they may wish to explore without having to sell their house at 60% of ARV.
Saturday, September 15, 2007
Friday, September 14, 2007
As I get busier my focus gets narrower when it comes to Kansas City real estate investing. I am spending a week or two putting together a list of my core values. Cliche I know. But telling, never-the-less. So look for that coming soon.
- Has at least 10% cash on hand.
- Has a good to great credit score. (680+)
- Is ready to act now.
- Can be tolerant of a couple months vacancy over the winter, if necessary.
Nothing to do with real estate investing, but my 12 year old son who has never played football before is now starting at left guard and coaches are telling me how fantastic his practices are. This kid needs to be great at something. Perhaps this is it?
I am re-reading Building Wealth One House At A Time by John Schaub. I am still really impressed with it.
You can never have too many good contractors to turn to. Seems like they flake out after a period of time. Keep a reserve.
Posted by Chris Lengquist at 9:11 AM
Thursday, September 13, 2007
Originally posted on my ActiveRain blog...but I liked it so much I thought I would bring it over here, too.
You can make quite a bit of money on the purchase of your next investment property. Yes. I said the purchase. Right now with inventories in Kansas City at historical highs and colder weather just around the corner I believe real values are going to be out there to be had. (I saw 3 today!)
TIP: Look for vacant houses in bread & butter neighborhoods close to transportation centers. Days on market of 60 or greater will play into your purchase plans. Days on market at about the 170 day mark are prime targets. The real estate agent with the listing is probably ready to lose the listing and will do just about anything to make a deal work...and salvage at least some commission.
Knowing what the true market value of a home is that you are going to bid on is of paramount importance. Work with an experienced real estate agent or appraiser to figure value. After true value has been established you are now trolling for properties that you can pick up 10% under market...or greater.
But don't get greedy. Walking into a home with 10% bonus equity is sweet. Don't screw it up by asking for too much. Again, experience, leverage and intuition are going to come into play here. Oh, and as from an ethical standpoint, try not to use inspections as a back-door negotiation tool. It just annoys everyone and usually doesn't work the way you want it. If there is a glaring defect deal with it in the initial negotiations for the purchase of the said investment property. At least that is how I want it handled for my investors purchasing property in and around Kansas City.
If you have done your homework you now have a home ready to go for rental purposes. Maybe you bought it turn-key or maybe you had to get some repairs done for some additional sweat-equity. Either way you were careful to find a home in a clean, desirable neighborhood with not too many rental properties.
Hire a good property manager, or do it yourself. Advertise like crazy. Use craigslist, Hotpads and rentometer to figure out how much and to get the word out. Screen your tenants carefully but understand that the reason we have so many renters in the market right now is because their credit isn't allowing them to buy. Be careful on their credit history but not too picky. Remember, to weigh different items in the credit report differently. Again, you may need to be working with an experienced property manager to help you assess risks.
TIP: Why hold out for and extra $25-$50 a month rent when you could have had it full a month and a half ago? It takes quite a bit of time and money to make up for even one month's vacancy. So get it filled with a quality tenant as fast as possible at a fair price.
EVALUATING WHEN TO SELL
Each year, yes I said each year, you should be re-evaluating whether or not to hold on to that income property or to sell it. Let's take a traditional 6 year scenario here with a fully amortized loan (sorry Brian and Jeff - for example only...we'll counsel them at the table later) at 7% and an average of 5% a year appreciation.
Purchase Value $100,000
Purchase Price $ 92,000
Value after 6 years $134,000
Equity growth after 6 years $39,379
minus sales/exchange costs of $7,700
Net equity growth $31,679
(By the way, calculate that return based on your original $18,400 investment...and that doesn't count allowable depreciation and a minimal/growing cash flow before taxes.)
Would now be a time to sell? I don't know. Depends on you, your criteria, risk tolerance, growth schedule, years to retirement and current real estate market. But I can tell you one thing; By pulling out that $50,000~ you can probably now own two properties and let those grow twice as fast!
REAL ESTATE INVESTING IN KANSAS CITY
Listen, I'm told all the time what a great move buying just a few rental properties made in the lives of individuals. I know darned good and well that most readers of my blogs think that the majority of my clients own 10, 20 or 50 rental houses. And that's just not true. Most of my real estate investors own between 1-6 income properties.
Have some fun. Sit down with a calculator. Work out growth projections and different strategies based on your goals and see how few income properties it really takes to make a difference in your life. But start. Start with one. Just start.
Real estate investing can be very profitable, rewarding and fun. It can also be extremely damaging to your financial situation and moral and a nightmare to deal with. Which of those two scenarios would you prefer? Then get started today with someone that can lead you along the path.
Allow me to offer my services. I'm a real estate agent that specializes in helping people with their residential investment property here in the Greater Kansas City area. Myself and my team are at your service.
Keller Williams Realty
Wednesday, September 12, 2007
Brian Brady is a left coast mortgage professional who often writes things that are right on time. Here is a link you'll want to follow regarding mortgages and how they can be/should be used.
Perpetually Poor Or Willingly Wealthy ? It's The Amortization, Silly !
If I were young again...
I remember when...
This is what I'd do differently...
Here I sat yesterday speaking with two completely different twenty-somethings about the possibility of investing in Kansas City real estate. Sharp individuals with different hopes and dreams and goals.
It was literally all I could do to not stand up, jump across the table and grab them by the collar and scream "Do it! Just do it! Get started today!"
If you are 40+ you know what I'm feeling. Investing, whether it's in Kansas City rental housing or a 401 K or mutual funds or anything, is so much more rewarding as years go by. (Assuming proper management, growth and all the usual lawyerly asides.) The younger you start, the more you'll end up with. It's just a fact.
And I, too, think of the "what if's" and the "I shoulda's" but here is the deal: No matter where you are today it's time to start. It's time to start investing today. Now.
Now as a real estate agent that specializes in Kansas City investment property you might expect that I'd urge you to invest right here in income housing. And you'd be right! For many, many people real estate investing has been the ticket to greater wealth than any other path they could have taken.
Is real estate investing right for you? There are some questions you'll have to get answered and some due diligence on your part that will have to be undertaken. Start today. Now. Don't "I shoulda" yourself again.
Monday, September 10, 2007
Here is an update on multi-family housing for sale in Johnson County, Kansas. There are currently 54 duplexes or apartments for sale. I would only recommend about 5 of them based on what I've seen, condition and price structure.
There are some folks out there that think real estate agents make too much money. That is funny to me. Usually (always) these people work at some job where they put in their 40 and go home. Complain about their job they do. (Did you catch the Yoda structure of that sentence?)
Anyway, the point is that I'm out socializing last evening and all anyone wants to talk about is the current real estate market. I'm out at my son's football game Saturday night and I get two phone calls regarding real estate matters. The phone almost always rings when I'm having dinner with my family. And while I ignore it until I'm finished eating everyone hears it and it's on their minds.
So "some folks" may not like what I'm gonna say here but "Mind your own damn business and if you want to make more money do something different. And quit worrying about what I make or don't make."
These same "some folks" aren't feeling bad for me when I've invested a thousand dollars in time and money and a seller decides not to sell. Or drive a buyer around to 10 houses and they decided not to buy. So quit chastising me when times are good for me.
Okay, I feel better.
While I'm ranting, Blogger no longer seems to allow me to dump certain comments. Why? I got spammed over the weekend by some "person" with nothing better to do than add links from my blog. I'd love to dump them. If the jerk, er person, keeps spamming I'll have to turn on comment moderation and nobody wants that.
So two things;
- Blogger, put the trash cans back on my comments section so I can get rid of these stupid ads that no one will read anyway.
- Spammers, leave me alone and get your own readership.
(Can you tell the Chiefs got killed yesterday with no hope for the season? Looks like I'll have to spend my football season rooting for the Washington Redskins and against the Raiders.)
Posted by Chris Lengquist at 8:36 AM
Saturday, September 08, 2007
Admit it or not, every pilot has a fear of being lost. Or worse, landing at the wrong airport. Now, no pilot wants to be lost. And certainly no pilot wishes to land at the wrong airport. Safety issues aside (too small a runway?) think about the paperwork and embarrassment that pilot will endure.
As I was reading Jeff Brown's latest post the thought of being off course and ending up in the wrong place occurred to me, again. Jeff's point is that people hit a comfort level and cruise from that point on. And while this is certainly true within real estate investing circles and life in general, I also believe another key factor is thinking you are on course to your destination only to find that it's the wrong airport.
To a pilot low on fuel and short on nerves the sight of a desired airport out the cockpit window is a sweet, sweet sight. The planning, the effort and the goal all laid out before him from 5,000 ft.
Relate that to retirement planning. I'm only 42 and sometimes get tired of the daily grind. Imagine when I'm 60 and all my efforts have come to fruition...or so I think...turns out I thought I was landing at RVS and the pilot's lounge tells me I'm at MKO. Oooppps.
During your journey to retirement there is no doubt you are the pilot in command. The ultimate decisions and consequences rest with you. But may I make a suggestion? Contact air traffic control for flight following. They are happy to do it for you and will alert you to obstacles or bad weather in your way. They'll basically leave you alone unless you need to hear from them.
Consider what I do, and what Jeff does, as ATC flight following. We just want to make sure you get to where you thought you were going...safely.
Friday, September 07, 2007
Okay. Let's put an end to the question of whether or not you need a real estate license in the State of Missouri in order to hold yourself out as a property manager.
As I said in an earlier post today I called the Missouri Real Estate Commission at 573.751.2628 and left a message concerning this whole issue. A few minutes ago Joe Dinkler with MOREC called me back and said that I can quote him. But since I don't have a tape recorder or a photographic memory, I'll summarize.
(By the way, the photo above is probably a little harsh.)
In order to offer for rent, rent or hold any kind of rents in the State of Missouri you must be a licensed real estate sales person or broker. Unless... The only unless offered by Mr. Dinkler was unless the person doing those duties was an EMPLOYEE of the property owner. And an employee is not someone who is under contract with an investment property owner.
ANY third party transactions must use a licensee. He went on to state that there is a lot of confusion in the Kansas City area because Kansas does not require a property manager to be licensed. (Until they reach a certain threshold. - My words, not his.)
I hope this clears up the issue. I wish I weren't right. Mr. Dinkler says he answers that question almost everyday. Feel free to call him if you wish.
A reader here of BBQ Capital has responded to an article I wrote a couple days ago titled Property Management In Kansas City. You can see the comment by clicking the link. The basis of his comments are that he believes that either myself or his property manager is wrong about this.
So you'll see in the comments where I quoted some of the Missouri Rules & Statutes. It's seems clear to me. But confusion still seems to reign.
Therefore, I have put in a call to the Missouri Real Estate Commission to get this interpretation cleared up once and for all. (I've had this discussion before with a broker making my argument and a property manager making his.)
Let me say right here and right now that I hope I'm wrong on this. My life will become so much easier if I can quit worrying about whether or not a particular property manager operating in Kansas City is licensed or not.
The MOREC answering machine promises answers in 24 hours. Is that human hours or government hours? Who knows. But I'll keep you posted.
Thursday, September 06, 2007
One of the great strategies when negotiating real estate of any kind, especially investment real estate, is to know what the highest price you will pay will be BEFORE you begin the negotiation process.
Here in Kansas City, a good rental property will be many things. But one of the most import things it will need to be is profitable. Profitable rental property is not an accident. It is by design.
Before I let any of my clients begin bidding on a home I encourage them to know where their Stop Line is before beginning They can share that number with me if they want. But I'd rather they didn't. I'd rather they keep trying to get the best deal possible until they get to that line and then just tell me, "that's it. No more."
I'll understand. Honest. When you are figuring your numbers for your investment property you need to know where it is profitable. Why go above that number?
Wednesday, September 05, 2007
Tuesday, September 04, 2007
If you are a real estate investor looking for below market rental properties you need to realize that Cash is King, but Time is the Motivator.
Yesterday I was reading Jim Crawford's post titled In the Current Real Estate Market Cash is King Negotiating the Sale of a Home With A Cash Buyer. I found the post to be well written, on topic and especially helpful to the real estate investor looking to expand his or her portfolio.
But I do want to hone his argument to a finer point. While Cash is King most sellers receive cash (or equivalent) at the closing table. So it's not the cash that will motivate the seller to sell below his asking price. Rather, it's probably the time and ease the cash buyer brings.
Cash buyers can close next Tuesday. Time. It's the motivator.
A "borrowing" buyer can get cash equivalent but it's going to take a couple to a few weeks and is subject to underwriting standards. To someone under stress or really motivated to move on, time will equal an undisclosed amount of cash. And the less the time, the greater the time to cash equivalency will be.
Are you following me here? Saving a seller one more mortgage payment is easily worth that payment. Probably a premium above that, too. Helping a seller to get out of town to join her husband with the kids will be worth "X". Relieving a cash strapped single mother of three working two jobs to make ends meet, and relieving her of that burden this week, is worth something to that overworked mother.
It doesn't matter the motivation of the seller so long as you tap into it. I think you'll find that in many cases it boils down to timing. How that timing relates to their situation is what you have to find out...and use to your advantage since you have cash. After all, you are a real estate investor, aren't you?
Posted by Chris Lengquist at 7:25 AM
Sunday, September 02, 2007
Did you notice mortgage rates dropped again? Just further proof of what I've been saying. If you have good credit and some cash to invest in real estate, now is the time. The market conditions are really stacking up in your favor.