Thankful Real Estate Investing

Thanksgiving is just around the corner.  So it’s time to count our blessings.  I for one, am glad I’m a real estate investor and that I am real estate agent for real estate investors.  It’s a busy life.  But it’s lucrative.  My work allows me to support my wife and kids and to pay for college and, well, a vacation every year.  Sure I work hard.  Sure there is risk.  But who said life should be void of hard work and risk?

I am thankful for each of our clients that has put their faith in us.  We are not perfect.  But we always try to do the right thing.  Of course, working with all these real estate investors on rental houses has led to us owning a property management firm, as well.  That has allowed us to provide better service for our clients and to grow 5 Kansas jobs. (With no governmental subsidy.)

Property management isn’t glorious.  But it’s needed.  It isn’t easy.  But it isn’t rocket science, either.  We are happy to serve real estate investors from all over the country.  Thankful, really.

I hope you, too, are thankful in your line of work.  And thankful for your family and friends.

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Managing Your Own Rental Properties May Be Costing You Money

I sat down with a very nice retired man the other day to discuss his eleven rental properties that he manages himself.  A fellow realtor was trying to convince the man that he shouldn’t be managing his own rental properties because it was costing him money.  And after hearing all the facts, the realtor was correct.  This man was costing himself a considerable amount of money by not letting myself or another property manager manage his rentals.

You see, he has a tenant who has only been partially paying for the last year.  I said year! When I learned additional facts about the story I knew that the situation was even worse, but I won’t go in to those here.  But suffice it to say the tenant was short paying by about $400/mo leaving a deficit of about $4,900 for the last year.

Then there was the additional tenant staying in the home causing damage.  Then there was another of his eleven properties that had pets that he didn’t initially know about. And he has two vacancies.  So, essentially, he has 4 properties under-performing.

Now, one vacancy out of 11 isn’t too bad, normally.  But both of these vacancies have been for many months.  And now it’s mid-November.

His chief objection was that a property manager costs him money.  And he’s right.  But as near as I can tell, he’s losing about $3,150/mo not using a property manager.  My cost would be somewhere around $780/mo to manage those 11 properties. Throw in some leasing fees and you might be up to $1,100/mo.  Might.  But he’d still be in the black by about 2K a month on his rental properties.

So is property management costing him money?  I’d say “no”.  But, I was unable to convince him of the value of my services.  He’s concerned about the monthly fee and being nice to his tenants, the same tenants who are breaking his leases and abusing his demeanor.  I wish him the best.

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Get Rich…Slowly

Real estate investing isn’t new.  It isn’t exciting.  It isn’t quick.  Real estate investing is “Get rich slowly.”

I’m sorry if that doesn’t excite you.  I’m sorry if it’s against everything every seminar guru wants you to believe.

There is a difference between real estate investing and real estate speculating or a real estate job.

Here in Kansas City, real estate investing means buying quality properties, taking care of them as well as the tenants and then letting time march on. As time marches on you can usually depend on appreciation at or above (slightly) inflation, the fact that your tenants are paying down your mortgage for you and that REI is creating tax benefits for you that you may forget to calculate in to the equation when you get started.

Dave Ramsey said on the radio the other day that the stock market generates a 12% return per year if you look at the average from the beginning of time. Real estate will do that, too.  And better when you calculate everything and buy in good neighborhoods…and has the added benefit of providing quality housing for people who need such.

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Kansas City Royals In The World Series

I will not be accepting calls after 7:07 pm CT each game day until this thing is settled. :)

Kansas City

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Stupid Tenants? How About Stupid Owners?

Property managers and rental property owners love to talk about how stupid tenants can be.  Well, it’s my experience that investment property owners can be equally stupid.

NOTE:  Yes, my use of the word stupid is meant to illicit a response. Perhaps ignorant would be a better word. Webster describes ignorant as lacking knowledge or information as to a particular subject or fact”.

Landlords and Owners, here is something you need to know: Tenants that move at the end of each lease cost you money!

It’s my general rule of thumb that you need to keep tenants on average about 18 months to make sure you are making money.  Especially if you are using a property manager.  Why? There are so many costs to changing over tenants.

  • Vacancy
  • Utilities
  • Paint, carpet, repairs
  • Lease out fees if using a property manager

I see owners squabble over repairs that will cost them $175-$200 and piss off tenants because they won’t fix something.  Then the tenant leaves, they end up with 30-45 days of vacancy, some electric bills to pay and more.

If your rent rate is $1,100 /mo and you take in to account some of the other expenses you may have cost your self $1,500 – $2,000 over a $200 repair.  Is that good math?  Am I missing something?

This isn’t a rant.  But I see it happening right now with an owner who is new to investing.  I am not mad at him.  I actually am trying to educate him.  But I seem to be losing the battle sometimes.

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Filed under Investment Property, Property Management

Investment Property Case Study

Real estate investment gurus love to talk in terms of “no guarantees”, pro formas and about deals from 10+ years ago. But I want to give you an Investment Property Case Study from right here in the Kansas City real estate investing universe.  The following is real though I will not give addresses or client names, etc.  Not only is it real, it’s still going on right now.

In 2011 I had two fund managers from the Los Angeles area of California come meet with me about investing in rental property here in Kansas City.  They wanted returns formulated on rents being two times investment.  That is to say they wanted an all in price (purchase, closings costs, rehab) to be $40,000 if the rents were $800/mo.  Easier said than done in any neighborhood you’d actually want to live in.

So I took them out and showed them around.  Then I sat with them and asked me to make it more of a 1.6 ratio or 1.7 to get in to better neighborhoods with better houses and better schools. After showing them what I could do, I went to work.

From May of 2011 to March of 2013 we acquired 56 rental properties.  Most were in 2011-2012 when the market was just waking up from it’s downfall in 2008-2010. What would these numbers show if we had started acquiring in 2009!!!????!!! Most of the properties were 3 bedrooms with 1-2 baths.  All were in Missouri in Kansas City, Raytown, Independence, Grandview, Gladstone, etc.

After the closing we would set to work rehabbing to rental standards.  Then rent at or slightly below market as quickly as possible.  With this strategy we’ve been able to hold these properties to about 6% vacancy.  All investment properties were paid for with cash.

I’m not going to break down everything. Not for this post.  But most of the expenses listed below were generated in the first 30-40 days after purchase…during the rehab portion of the property life. The rest of the expenses have been since they have been generating income with tenants in them.  Expenses include repairs, rehabs, insurance, management, utilities when vacant…literally everything except taxes, which will add up.  The income has been generated from the first tenant through to today.

Here you go.  This is why owning rental property is a great investment.

Purchase & Closing Costs          $1,944,191
Expenses                                       $1,267,330
Total Investment to date    $3,211,521

Total income to date             $1,212,159  

The current value is based on comps with minimal additional repairs/improvements to the income property.     The cost of sales would have to come off the value including but not limited to repairs for inspection requirements, realtor fees, closing costs including title fees, etc.  Figure about 12% -15% cost of sales with all that in mind.

Current Value                          $3,807,500

Now there are differing ways to calculate your returns and I’m not going to go in to details because of the spread of months between the first and last purchase, time line of the repairs, etc.  But no matter how you look at it the real estate investors that came to Kansas City have come out okay.

Fusing these two sets of results is my favorite way to look at it.

Current Value                                $3,807,500
Purchase Price + Initial Rehab  $2,792,623
Cost v Value Differential     $1,014,877

Total income to date                   $1,212,159
Expenses since rehab                 $ 420,398
Positive Cash Flow                 $791,761

As I said there are professional accountants out there that will give you several different formulas and of course all of this does not include the property taxes, as I noted above.  Those taxes could add up to a takeaway of about $90,000.  I just don’t want to take the time at this time to go in and add them all up. But in any case, those numbers are significantly better than the numbers my IRA returns.  :)

Now, you may not have $3M to invest. Neither do I. But you can do one house. Or two.  Get started today.  Your retirement will thank you later.

If you have any questions about investing in real estate here in the Kansas City area, please, do not hesitate to contact Chris Lengquist at 913-568-1579.

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Filed under Investment Property, Kansas City, Kansas City Real Estate

Investment Property Inventory Down

Johnson County, Kansas is where I live. It’s in suburban Kansas City and the investment property inventory possibilities from the multi-family housing stock is down right now.  There has been significant competition in the bids for the “good” properties. I’ve said it before and I’m saying it again.  “The worm has turned.”

It should be noted, however, that I still notice a significant difference in the movement of investment property on the Kansas side versus the Missouri side of the state line.  Missouri investment property candidates are selling, but at a much slower pace.

I only write all this to let you know that other investors are back in the Kansas City market.  I noticed this pick up in about mid 2013 and it’s steadily built.  No boom, mind you.  And I consider that good.  At least for our market.

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Filed under Kansas City Real Estate, Real Estate Investing