Appreciation versus Cash Flow

Here in the Kansas City real estate investing market the conversation turns time and time again to whether you should go for the long term stability of Johnson County, Kansas versus the higher cash flow returns of Jackson County, Missouri.  Yes, there are a couple other counties you may choose to invest in. Yet, these are the big two.

Johnson County, Kansas – Appreciation
Johnson County is the home to cities that constantly show up in the “most livable” reports of the different magazines and websites; Overland Park and Olathe.  Yet there are other cities of great import; Leawood, Lenexa, Merriam, Mission, Mission Hills, Shawnee, Gardner…to name a few.

What they all have in common is great school districts.  I think most of us who live in JoCo would rank the Big Three school districts in this order;

  1. Blue Valley
  2. Olathe
  3. Shawnee Mission

In the interest of full disclosure, I chose Olathe because I have two kids that had some special needs and Olathe was a far better choice. Blue Valley is an exceptional school district for the gifted and Shawnee Mission, though it has fallen on some tougher times, it time tested and continues to exceed when compared nationally.

Let me simplify real estate for you; home values are always strong and appreciate more based on the school district. 

Whether you are rich or poor, black, brown or white, muslim or Christian or agnostic, don’t we all want the best for our kids? Therefore, when you invest in Johnson County, KS rental property just know that because the home values will be higher and therefore the returns will be lower.  Sure, the rents are higher, too, though not 1:1.

All that is to say that yes, you should buy smart.  You should put enough money down so that you have positive cash flow.  Yes, you will have a lower cash on cash return and yes, you will outpace almost all other areas of the Kansas City metropolitan area in appreciation time and time again.  Johnson County is a proven economic engine.

Jackson County, Missouri – Cash Flow
Following the exact same arguments as above, because the school districts are widely considered “lessor” the home values tend to trail that of neighboring JoCo.  Sure, Lee’s Summit sometimes ranks in that “most livable” category with a good school district.  Yet, it continually stands alone.

And make no mistake, it’s not that Jackson County, Missouri is a bad place to hold income property.  Kansas City proper ranks as a great place for the young over and over again, and KC is home to the amenities that bind a city together; art museums, great parks, a revitalized downtown, the Chiefs, the Royals and the Kaufman Center.

Yet, per capita and per household income tends to track lower, the school districts rank lower and there wasn’t the community planning involved in the growth of the city in the early days like there was in JoCo.

Again, Jackson County is a great place to live.  And to invest.  You will get better cash flow.  Appreciation, for the most part, tracks at just above inflation though last year Kansas City was one of the highest appreciating cities in the country at 9%.

Appreciation versus Cash Flow
In general, with exceptions to the rule to be found, if you are looking for a higher cash flow return you will want to be looking in Jackson County, Missoui.  If you are looking for investment property and don’t need the cash flow to live on and can wait years until you retire from your profession as an engineer, doctor…whatever… you may find Johnson County, Kansas more desirable.

 

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Example of Real Estate Investing in Kansas City

This is the tale of a small, two bedroom, one bath rental property in Raytown, MO.  I wrote this email, with some editing done for privacy, to our Ad Astra Realty, Inc property management team regarding some repairs that were being recommended to one of our owners.
This example shows the power of time when owning rental property.
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THE PURCHASE
This home was purchased with cash on 6/17/2011.  Then the home was renovated and leased out…all within a period of about 100 days.
The purchase price plus closing costs plus all repairs totaled $39,280.
SINCE 2011
The home has had an “average” performance since then.  It hasn’t been a rock star and it hasn’t been a dog.
There have been 91 possible rental months since the property has come on line.  And the rents have never been under $775/mo…we are currently marketing at $825 and have people submitting applications.  So let’s say that the home has had 5% vacancy (our MO average).  That means that home has been rented 86 months at $775/mo.
Therefore Gross Rents have brought in $66,650 m/l.
In other words, after ALL expenses the home has already paid for itself.
CURRENT VALUE
RPR, a pretty reliable price aggregate algorithm  (more reliable than Zillow because it uses actual MLS data) puts the price of the house at or about $74,000.
Realest Tax values have the price at $50,000.
And yet, the price tables I have attached tell a more complete story.  Pay close attention to the Comparison Plus report and the status; Active, Pending, Sold (in the last 181 days).
And then look at the Statistical Market Analysis report, paying careful attention to the
averages.
CLICK FOR DOC ATTACHMENTS
MY CONCLUSION
It is my belief that if this house needs a roof and a furnace that yes, that does cost quite a bit of money.  Yet, it is money well spent regardless of whether we rent or sell.
Those two items, along with a foundation, are the most expensive repairs a home will need and yet the repairs last twenty years, or so, in most cases.  It is highly probable that COMPANY X will dispose of this property before the practical life of either is dissipated to a point of needing re-replacement.
If we were to:
Sell “As Is” the value of the home is $40K m/l
Sell in Top Condition then $80,000 – $85,000 *
     *This is with an estimated $37K being spend on upgrades.
In any case, selling as is, selling in top condition or continuing to rent, COMPANY X is winning big on this “average” property.
It is my hope that this will help us all to learn just a bit more about why investing in real estate is such a great, long term thing.  And that keeping homes in good, safe, clean order is of importance whether you are renting or selling because either way, the repairs will have to be done at some point.  And while the home is in rental service it absolutely should be kept up for the protection of the asset, the benefit of the owner and the benefit of the tenants.

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Kansas City Real Estate Market Report

I thought some of you may enjoy catching up on the Kansas City real estate market report.  Simply click here to be taken to YouTube.

kansas city real estate investment property

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Kansas City BBQ – May Be the Best Part of Investing in Real Estate Here

Okay.  I love BBQ.  It’s one of the main reasons I ride my bike so much.  Well, BBQ and Mexican food.  Heck, Kansas City BBQ may be the best part of investing in real estate here.  Sure, the returns are great and our property management is awesome. And when you visit I’ll buy you a sandwich at a barbecue you’d like to try.

Kansas City barbecue

Smoke grilled pork ribs BBQ

Here are a few of my favorite haunts…

LC’s BBQ – Down in the close-in suburbs of the city, this place is my all time favorite.

Q39 – Kind of a modern, “yuppie” bbq with great recipes.

Kansas City Joe’s – World famous and quite fashionable. Great sausage.

Zarda’s BBQ – I grew up working here.  My favorite burnt ends, anywhere.

BB’s Lawnside BBQ – Good BBQ.  And, hands down, the best Saturday night.

Of course, I’ve left off quite a few that I like to visit.  Here in KC you can get in to a fist fight about the best BBQ.  The only thing we all agree on is it is definitely better than Memphis, Carolina and certainly Texas BBQ.  🙂

 

 

 

 

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Free Military Retirement Financial Planning

On May 9, 2019 I will be speaking for The Moreno Group at their Free Financial Planning for Military Retirement workshop.  I think it will be a great deal of fun.  We’re gonna talk a little about how real estate investing is a good thing for just about anyone AND as a military professional it may just be crucial to a “Retirement worth having.”

Why would I help other agents sell real estate when I sell it myself?  Well, that’s easy.  First, I love teaching on this topic.  Second, I truly believe in the power of real estate as a great investment vehicle for most people. And lastly, heck, I get to promote our property management business over at Ad Astra Realty.

If you’d like to find out more about the event and invite yourself on out, check out the link provided above.  I’m sure the Moreno’s would love to have more people hear how to maximize their retirement incomes through the buyer/seller services they can offer.

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Two Promises from Ad Astra Realty, Inc

Working in the field of Kansas City real estate investing and property management is not rocket science and yet it is not easy, either. Everyday both myself and my team look at the Kansas City market, make evaluations and recommendations as to which properties look promising and which we’d walk on by.

When it comes to property management, this is a little more complex.  So many things can go right, and wrong, with a property.  Tenants, pets, local laws and policies, weather, bad luck, good luck, etc. work as variables to make each property and each year unique.  To that end we here at Ad Astra Realty, Inc offer these two promises that we will not waiver on;

  1. We will watch your money.
  2. We will tell you the truth, even if it hurts.

WE WILL WATCH YOUR MONEY
Do you know what the #1 reason rental property owners have for moving from Company “X to Ad Astra? It’s because property owners have grown tired with their property management company not paying them on time or not giving a full accounting of their expenditures.

So when I say “We will watch your money.” I’m saying that, while not perfect, we will always be able to tell you what you spent your money on and we work very, very hard to get our owners paid on or about the 10th of each month when funds are available.  I say “about” because if the 10th falls on a Saturday or Sunday we may not fund until Monday.

We know how important it is for you to know about and to receive your money. To that end, we take our jobs quite seriously.

WE WILL TELL YOU THE TRUTH
Let’s face it, sometimes the truth hurts.  Maybe we made a mistake.  Maybe you are trying to delay and expense because money is tight and yet the tenant needs air conditioning because nighttime temps are still up around 85 degrees.

I call this “Having fierce conversations.”  And property management is full of fierce conversations because of all its inherent moving parts that were mentioned earlier.

When we have a relationship based on trust and honesty, nearly everything else can be worked out.

Thank you for taking the time to learn a little more about Ad Astra Realty, Inc.

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Sales and Property Management

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Property Management and Investment Properties

Wow.  I just realized I have now been working with investment properties in Kansas City for fifteen years now and before that two years in Tulsa.  In addition, I have been working as a property manager in Kansas City since 2006.  My how time flies.

There have been a lot of changes in my career and the investment property business since 2004 when I returned to Kansas City.  I arrived in boom. Lived through bust.  And now we are (at the end?) in another boom.

Rental property homes are at a premium right now. West coast (and East) are flooding in to KC driving prices higher and higher and returns lower and lower.  I’ve seen this before;

  • Red hot seller’s market
  • Low/Reasonable interest rates
  • 100% loans for anyone with a 620 credit score or above
  • Investor loans with 90, 95 and even 100% LTV
  • Investor loans that include rehab money

Yes, I call those times 2006-2008 in Kansas City.  The bust started in KC when the banks stopped lending in September 2008.  Of course, the coasts experienced the shift much sooner. Still, this is time is a little different;

  • While both time had/have limited seller inventory, this time there is real limited inventory…we just don’t have enough housing units
  • The new-builds happening are WAY ABOVE what most first time home buyers can afford

Does that mean we’ll not have a bust? Or even a slow down here in the Midwest?  Does that mean the buy, rehab and hold is still a great strategy…that keeps getting better?  (Note that link is from 2011…can’t get those returns or prices today.)  Does any of that really matter and the economy will still shift here in the middle of the country?

Look, I still believe wholeheartedly in real estate investing.  Owning income property is a great way to hedge inflation while earning from the 4 Benefits of Real Estate Investing. Yet, timing can matter.  All I’m saying is proceed with caution.  If you are planning on buying and renting property for the next three to four years I’d be super cautious.  If you are planning on owning rental homes for the next seven years or more, I’d say green light.  After all, time is your friend when you own real estate.

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