Get Rich Slowly Through Real Estate Investing

There are many forms of buying, rehabbing, selling houses that are called real estate investing.  Especially here in Kansas City where our relatively low prices make it easy for east and west coast money to come in and attempt to manipulate our real estate market.  Yet, I’d like to purpose to you that the best way for most rank and file, mom and pop if you will, real estate investors is to get rich slowly through real estate investing.

No.  It isn’t sexy.  No. I don’t get to stand up in front of big crowds, play loud music, speak super fast and tell tales of a deal I did six years ago like it was yesterday.  But I do get to help many professional wage earners to secure their retirement worth having through the strategy of buying right and holding the property through successful property management whether that be through their own efforts or that of a professional property manager.

Take the following scenario available in Johnson County, Kansas ( a suburb county of Kansas City, MO) in the town of Olathe.

Ranch house priced at $185,000 because the owners have been in there quite a while and it needs some (quite a bit) of updating.  New carpet, paint, fixtures, etc. The After Repair Value is around $195,000 – $205,000 depending on said updates. So not nearly enough to flip, but again, a ranch home in Olathe, Kansas with great schools.  A solid rental house for years to come.

Let’s say you buy at $180,000 (I have no inside knowledge, just an assumption) and put 25% down ($45,000).  That leaves a remainder to be financed of $135,000 and let’s just say that you get an income property interest rate of 5%.

Principal and Interest  equal $724.71/mo. 

Now we have to figure expenses, right?  For updating, I’m just gonna throw in about $12,000 for all those updates we spoke about. I believe you could do it a little less expensively and yet we are working the property up to the standards that today’s renters are looking for when they lease a home.  So yes, you can skimp.  And yes, it will cost you vacancy time.  In other words, you need to have your home up to the same standards as the homes around you.  That will be an immediate cash expenditure, bringing your total investment up to $57,000 in the home.  (The down payment plus improvements.)

Now lets talk about rents.  A quick look around on a few rental website and comparing some of the 400 plus homes we manage at Ad Astra Realty, Inc Property Management and I believe the rents will be between $1,450 and $1,525.  So let’s say $1,475 as the rents. Is that okay?

Expenses will matter, too.  We need to account for insurance and taxes and let’s add in some property management, a few unexpected repairs for the year and utilities while the place is empty….which brings up vacancy.

Historically speaking, we used to count vacancy somewhere in the 10% range when doing these figures.  Yet, since 2008 I have been hard pressed to find vacancies above 5% here in Johnson County, Kansas.   So I’m gonna use 5%.

Now it is math time.

$17,700  Gross Rents minus
$     885  Vacancy
$  1,200  Insurance
$  2,682  Taxes (2018)
$     200  Utilities
$     900  Repairs
$     500  Misc (because)
$  1,976  Property Management (includes lease-out)
$  8,697  Principal and Interest

= $660 Cash Flow Before Taxes  (Wooohooooo! You’re rich.)

No, $660/yr cash flow isn’t gonna make you rich.  Heck, that is only $55/mo m/l.  And if you are the type that manages your own rental homes, well, you can add another $1,976 to your earnings.  But since most of my sales clients hire me to manage their properties, I thought I’d add that in.

What are the other ways you are making money on this home?

Well, let’s see.  There is Principal Reduction.  The fact that your tenants are making your house payments for you is terrific!  Consulting an amortization table I calculate that your tenants have paid $1,829.53 of your balance in the first twelve months.  (Of course, that goes up each year because of the way home mortgages are amortized.)

Then there is Depreciation.  You get to tell the government your home is worth less each year.  (What a great country!)  That is another of the 4 Benefits of Real Estate Investing. That’s another $5,200 m/l in benefits of the property.

Interest totals $6,704 after a year.  We get to deduct that as well.  So with Depreciation and Interest we create roughly $11,900 of deductions.  Say you are in the 32% tax bracket and after subtracting those deductions from your Net Operating Income of $9,357 you have created a tax savings of $813.

Now let us figure your return.  Your total benefits without appreciation add up to

$   660  Cash Flow Before Taxes
$1,829 Principal Reduction
$   813 Tax Benefits
Total benefit of rental home before appreciation is $3,302.

You invested $57,000 in the home between purchase and fix up.  So your overall return the first year is roughly 5.8%

Is that good? Is that bad?  I don’t know.  Maybe you are making more than that somewhere else?  Everything is relative.

Appreciation is where the magic happens though appreciation is only something I can tell you happened as I simply cannot predict what it will be.  I can use history.  Through the ups and downs of the many economies I have seen in my real estate career since 2002 I can show you that in Johnson County, Kansas appreciation has been pretty darned close to a 3.5% straight line.   So can we use that?

If I have your permission then, let’s just say that the $195,000 appreciates 2.5% in 2019 as that is about where I expect it to be.  (Again, I never really know.)  That adds on $4,875 in benefits.  Now you have the 4 Benefits all together and that totals $8,177.  So your return skyrockets to 14.3%.  Follow me?

The real money made in real estate investing in the Kansas City suburban city of Olathe is in the appreciation.  Time is working for you, not against you.  And your tenants are paying down the house all the while!

It’s getting rich slowly through real estate investing.  Pencil it out another ten years and see the equity you will have and the return that grows as rents creep up while your payment remains the same.

Now obviously, I cannot guarantee any of this.  I can only tell you what has worked for me and my clients since 2002.  If I can be of any service to you, don’t hesitate to contact me.  I’m easily found.  Just look in the Contact Information up and to your right.

 

 

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Filed under 4 Benefits of Real Estate Investing, Olathe, Real Estate Investing

Understand Your Criteria When Buying Income Property

When it comes to securing your retirement through rental properties it is best if you understand your criteria when buying income property.  Today I sat down with a fellow realtor here in the Kansas City area and two investors that own one rental property with plans to add many more.

What I found is what I usually find.  You see, I asked them what their criteria was for what they were looking to acquire.  I’m not picking on them, I’m really truly not when I say they did what most newer real estate investors do… they went silent.

Investment Property Criteria Part 1

Investment Property Criteria Part 2

kansas city investment property criteria

Those links above the picture are the links to a series of videos I did for real estate agents seeking to work with investors and for the investors themselves.  Here are a few things you should know what you are looking for before going too deep in to your next investment property search;

  • What return are you expecting?
  • How do you measure the return?
  • Location?
  • Bedrooms?
  • Single Family Home or Multi?
  • Rehab or Turn-Key?
  • Is the school district important?

I could add a whole bunch more.  Or, you could watch those videos.  Listen, I know the videos are boring.  I don’t know how to make real estate investing more exciting unless I stand in front of a rented garage full of luxury sports cars and half dressed women.  Oh wait, for the gurus out there I’m sorry (not) if I offended you.

 

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Costa Rica Investment Property

So I’m never very far from real estate investing.  And these past few days have been spent learning a little more about Costa Rica Investment Property.  Well, to be truthful, it has really been more of a time for my wife and youngest daughter to make some memories and get away.  For those of you that do not know, we lost our oldest daughter back in February 2018. It’s been rough adjusting.  Part of my grief, I guess, was putting bicycling and writing about real estate to the side.

costa rica real estate investing

These last five days here in Tamrindo, Guanacaste, Costa Rica have been quite therapeutic.  Between the bicycling, zip lining, surfing and snorkeling I have been paying attention to the real estate market.  Here are a few of my off-the-cuff observations;

  • There is more property than demand.
  • However, prices are not bargain.
  • Obviously, the closer to the ocean the higher the cost.
  • My preference? Up the mountain a bit with a great view.
  • For the right property, marketed correctly, there is money to be made.
  • Or at least a “free” vacation home for yourself.

For the last year or so I have been reading up about Costa Rican real estate law, etc.  There are issues with squatters if not properly managed.  While the government and economy are very stable it is still Central America…with Nicaragua and it’s every 25 years of problems right next door.  Still, I think the opportunity and the “Pura Vida” lifestyle outweigh those concerns which can be overcome.

Should you wish to follow along, keep checking back with this blog on Kansas City real estate investing…and now Costa Rica real estate investing.

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KW MAPS Coaching

So here is a fun fact; I am now a KW MAPS Coach.

Kansas city real estate investing

In addition to my duties as Broker/Owner of Ad Astra Realty, Inc ( a Kansas City property management company) I am also the Team Leader of Keller Williams Realty, Diamond Partners, Inc of Olathe, Kansas.  Those two positions are not new and many of you already knew that.

Recently, because of our success at building KW’s Olathe office, MAPS, an agent and leadership coaching company for Keller Williams, asked if I would also coach other Team Leaders for KW around the country. Sounded like fun, so here I am.

Real estate has been a very good business for me.  I want to thank all those who have provided this opportunity to me.  My thankfulness starts with each and every client that has entrusted me/us over the years to help them with their buying, selling and/or investment real estate needs here in the Greater Kansas City area.  My thankfulness also extends to;

  • My wife and family for all the time missed
  • Randy Lindemuth, my first broker at Scott Douglas Realty down in Tulsa
  • The staff, past and present, of Ad Astra Realty
  • Larry Kueser who offered me the position of Team Leader at KW
  • Dianna Kokoszka for offering the position of MAPS Coach to me
  • Mike Bastian for modeling what a coach can do for a real estate agent and team leader

There are so, so many people to thank.  We still stand ready to help you with any of your real estate investing needs here in Kansas City. We offer accountability, honesty and a sincere effort and professionalism to help you with your “Retirement worth having.”

Thank you everyone for everything you’ve done.  Ya’ll rock.

 

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Filed under Kansas City Real Estate, Misc. Real Estate, Personal Real Estate Opinions

2018 Kansas City Real Estate Investing Outlook

Hello All. Welcome to the New year.  Here is my 2018 Kansas City Real Estate Investing Outlook for both Sales and Property Management.

REAL ESTATE SALES: BUYING, SELLING, INVESTING

A Quick Look Back at 2017

Wow! What a year 2017 has been in the residential real estate world.  Here in the Kansas City area we’ve seen appreciation as high as 11% in Johnson County, KS and generally above 7% throughout the metropolitan area. It was not unusual for houses to be on the market less than 10 days if they were in good condition and priced right.

Looking Ahead in 2018 

Chris’ opinion about 2018?  It will closely follow 2017’s arch but it will be slightly more muted.  Listen, 11% appreciation is simply not sustainable in Kansas City over the long term. Housing affordability is becoming a worry even here in the middle of the country, interest rates are looking like they will tick up (though Chris has been thinking this for YEARS!) and until wages begin to catch up we will continue to decrease the amount of qualified first-time home buyers.

In conclusion, Chris thinks 2018 will be another great year for sellers, slightly better for buyers and another very good year to be a real estate agent.

PROPERTY MANAGEMENT

A Quick Look Back at 2017
The rental market continues to be very, very strong in Kansas.  However, on the Missouri side we began to see a slide in occupancy rates.

Kansas’ vacancy rates in Johnson County continue to hover at about 5%.  Missouri is creeping north of 8%. We have also noticed greater effort expended in finding the same standard of applicants as in the recent past.  This makes sense since so many of the buyers driving the sales side of the market are leaving the life of tenancy.

We have noticed that many of our tenants that experienced hardships in the Great Recession have rehabilitated their credit and are now buying.

Looking Ahead in 2018 
Tenants continue to rehab their credit and/or begin to look towards owning their own homes, especially in the Millennial Generation.  The nomadic life the Millennials have clung to is beginning to give way to the responsibilities of adult-hood and looking towards securing wealth and personal home ownership.

Chris won’t be surprised at all if vacancies continue their correction toward the historical number of 10%.  This will be a shock to the system of many investors who have entered the market since 2008.

 

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Real Estate: Highest and Best Use in Overland Park

One of the first things a potential real estate agent learns in class is that real estate is about Highest and Best Use.  You can see that happening in Overland Park, Kansas right now in this story in today’s Kansas City Star.

Most people do not like change.  Me?  I love it when our cities become better utilized. Bringing life to communities through proper zoning and use creates a better living experience and uses our resources (land, gas, utilities, infrastructure) in a more economical way. Mixing living quarters with offices and retail allows a building and all its infrastructure to be utilized 24 hours a day, rather than 9 or 10.  An added benefit is that residents don’t necessarily have to get in a car and drive a mile just to get our of their subdivision and then another mile, or two or three, to their destination for a gallon of milk or a quick meal.

Anyone remember downtown Kansas City in the 1970’s and 1980’s and well in to the late 1990’s?  It was a concrete ghost-land after 5:30 pm before apartments and lofts began to trickle in.  Later that trickle became a tsunami.   This is the reality of our cities across America.  And I for one am all for it.

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Working With Real Estate Investors

I have to admit, I’m kind of excited to be putting my “old clothes” on today and teaching about real estate investing.  I love where my life has taken me…  And this his how it all started.

There is just something about helping people secure a “Retirement worth having.” that gets my juices flowing.

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