Paying Too Much For Rental Property

Are you thinking of buying Kansas City area real estate investment property? Are you wondering;

  • How do I keep from paying too much?
  • What part of town should I buy in?
  • How do I go about managing the property, setting the rent, screening the tenants?

These are some of the questions, and more, that you are asking yourself right now.

Paying Too Much
Look, let me make this simple. If you are a first time reader here it may take you a while to understand that I don’t mince words nor do I speak in absolutes. Here it is; It is really, really, really, really difficult to get the “bargains” all the books, tapes and seminars keep telling you about.

Real estate is on an 11 year climb. Yes, I said eleven. Sooner or later we KNOW there will be a correction to the market. There has to be. History demands it. Having said that, if you buy “at market” and you rent “at market” and you allow time to be on your side, there are precious few ways you can actually lose money.

Real estate investing isn’t easy. It is not rocket science, either.

Let’s just say you buy “at market” a 3 bedroom 2 bath home in Olathe, Kansas. Most likely, you’ll buy in the $220,000 – $260,000 window. I’ll assume you’ll put down 25% (the best way to get the best interest rates) and that you will amortize the loan over 30 years.

$260,000 purchase price with 25% down ($65,000)
Principal and Interest Payment $842
Insurance and Taxes $465
Total payment $1,307

In Olathe, this house would rent between $1,675 and $1,775 depending on the time of year, location, etc. So your Cash Flow Before Taxes would be somewhere in the $372 – $400/mo range, before property management.

This return doesn’t even take into account the other 4 Ways You Make Money Owning a Rental Property.

If you’d like to know more about our real estate services, reach out to us. We can go into depth on this conversation. I’d love to hear from you. Send me an email to Chris(at)AdAstraKC.com

You know to use the at symbol. I’m just keeping the bots from harvesting my email everyday.

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Open Letter from Ad Astra Realty, Inc

This is an open letter from Ad Astra Realty, Inc to our employees, contractors, owners, tenants and applicants.

These are interesting times. Not in my lifetime have we had a health crisis such as the one we now face. Before us is a novel coranavirus named COVID-19 and the information and misinformation surrounding top topic can become overwhelming. I will do my best to parse the information and, therefore, our response as best possible to each of you.

EMPLOYEES

Effective immediately I have asked our employees to work from home by telephone, computer and video conferencing as much as possible. When necessary, and they are in the office, I’ve asked them to keep their distance from one-another and to disinfect the building a minimum of once per day.

CONTRACTORS

Our independent contractors who primarily work on maintenance issues are, well, independent. Each contractor has a choice to make as to their exposure in regards to their health, their well-being and that of their loved ones.

MAINTENANCE

For the near foreseeable future, maintenance will be systematically prioritized as to whether this is an emergency, urgent, important or preferable. We will be in close communication with our tenants, contractors and owners to determine necessity, timing and risk.

This is NOT to say maintenance will not be taken care of. This IS to say that should contractors become harder to book and should tenants decided not to allow “strangers” into their homes for the near term, maintenance will have to prioritized properly.

OWNERS

We will continue to monitor and manage your investment properties diligently. When necessary or highly desirable, we will be in contact with your tenants and yourselves. Our fiduciary responsibilities to you have not changed.

TENANTS

We are asking each of you to stay in communication should you have maintenance issues and to exercise patience as we work with you to schedule.

We prefer when tenants make their rent payments online. Talk about your social distancing. We are also asking that for those of you who prefer to pay by check in person are asked to deliver your payment to our drop box closely located to the right-hand door of our office. Please do not enter the facility unless absolutely necessary. We love seeing you and will again… just right now we are looking to comply with the best advice our medical professionals are giving to us.

APPLICANTS

This may/may not slow down the process of renting our properties available. We hope not and will do everything in our power to alleviate any time constraints. We thank you for your patience in advance.

SUMMARY

We do not know how “big” this will get or how long this will last. If we look overseas to Iran, Italy, Spain, France and Germany, well, the forecast looks a little bleak. When we look to the past we know that most pandemics last somewhere in the three month range.

Yet, we also know that we don’t know exactly how THIS virus reacts in comparison to its cousin viruses of similar values.

We do know this; For the coming weeks we will be in new territory, inconvenienced and there will be economic impact. Of what magnitudes we can only wait and see.

Should you have any questions or comments, please do not hesitate to reach out to either myself or Jimmy. We are here to help.

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Sleep Better with Real Estate Investments

With the Coronoavirus (Covid-19) garnering headlines in regards to the financial markets all across the world, I thought now may be a good time to for a reminder about the relative security of real estate investing as part of your investment portfolio. While all around you there is panic, feel free to rest peacefully.

Look, there are no certainties in any kind of investments. Like most of the readers here, I too own rental property. I too invest in stocks, bonds and mutual funds. And, I too have watched approximately 11% of my investments in said stocks, bonds and mutual funds simply evaporate in the last week.

Yet, my real estate stays steady At least for the time being.

Most our income property investors here at Kansas City’s Ad Astra Realty are buying rental properties within the bell-curve of income for their respective states, Kansas and/or Missouri. As such, you need to know that demand is still incredibly high on the buy side. There are simply far more buyers than sellers at nearly any price below $250,000 in Kansas and $200,000 in Missouri. Vacancy for rental properties is hovering right around 5% in Missouri and 3.5-4.0% in Kansas for most price ranges.

Will Covid-19 change that? I doubt it. Not because I buy, sell and manage real estate, but because when all the hysteria is peeled back, Covid-19 isn’t as damaging as pneumonia or the flu. There are numerous stats about this.

UPDATE: This released by WHO on March 4, 2020.

As an aside, I am a believer that one day we will have a virus that we simply have difficulty combating. This may be a progression to that. I concede. Yet, it would appear to me that any disruptions to the housing market will be slow to come and short lived. In fact, if the Fed’s reaction to this is to slash interest rates further, it could be a boon for the home buyers and investors.

There is no doubt real estate investments carry risk. Being knowledgeable about those risks, hiring good help and having good insurance should mitigate much of the exposure.

As always, feel free to reach out to us with any questions, thoughts or concerns. We are here to help you obtain and enjoy your “Retirement worth having.”

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Investment Property in Emporia, Kansas For Sale

In September of 2017 I bought a cabin at Lake Kahola which is about a 22 mile bike ride away from Emporia, Kansas.  And since I usually drive through Emporia, KS on my way to and from Lake Kahola I’ve come to know the town pretty darned well.  I ride my bike there.  We buy groceries and house supplies and what-nots in Emporia.  And we eat there as there are some great little dives there.

I say all that to say I’ve really been studying this small Kansas city.  They lay claim to having the first Veteran’s Day, they are home to the Dirty Kanza some say they invented Disc Golf there, too.  You can read more at Visit Emporia.  And folks, if you are a real estate investor…this market is ripe.

For instance, I have discovered three fourplexes for sale by a co-op broker.  They are priced at $79,900 for the building with four one-bedrooms, $119,900 for four two-bedrooms, and 129,900 for the one with two one-bedrooms and two two-bedrooms.  All the rental properties are 50% leased.

While I have not yet walked the properties I can see from the pictures that there is quite a bit of deferred maintenance.  What I like is;

  • The neighborhood is solid.  I’ve ridden my bike through there a few times.
  • The neighborhood is in a great location….and not too far from the University.
  • Hospital right down the road.
  • I believe rents could be raised when condition is raised.

In my research of Emporia I’m stunned by how little professionalism there is in property management in regards to marketing and condition.  And I believe that sets us up nicely.  In that regard, we have requested rents and rent rolls a few times and have not heard back.  Sadly, this has been par for the course.

I’m guessing/estimating rents for the one-bedrooms to be in the $425 – $450 range while two-bedrooms are closer to $500 – $550 depending on condition.  Note that most are window unit air conditioning systems.

So, if you had two and two (one and two-bedrooms) your Gross Rents would be $1,850 m/l.  Take a purchase price of $129,900 and you end of with a Gross Rents to purchase ratio of roughly .17.  That’s nearly unheard of in Johnson County, Kansas and is even getting more difficult in Kansas City, Missouri…at least in neighborhoods we choose to recommend in regards to intangible value.

There are other rental homes that would be excellent buys as well.  Should you have any interest, reach out to me at your earliest convenience and we’ll send you a link to what we are seeing.  We’d love to help you with your “Retirement worth having.” by capitalizing on this market.

And the best part?  Jimmy and I have secured a local real estate broker to help us with the sales and management processes.  We have it all set up.  We just need a buyer.

Contact me or give me a call at 913-568-1579

 

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Kansas Rental House

While I’m in the process of purchasing a home for my son and his family to live in for an equity sharing agreement we’ve come up with I thought I would share the numbers with you so that you can have good awareness of what a quality Kansas rental houses looks like from a real estate investor’s perspective. So here we go..

The home is located in Olathe, Kansas in a decidedly non-rental neighborhood.  It’s your standard split entry, raised ranch sort of house with 3 bedrooms, 2.5 baths and in very nice condition.  Good school districts.  Furnace and water heater updated within the last seven years, the roof has about 5-8 years of life left though it appears in good shape.  There has been foundation work done in the past though it is hardly noticeable.  Fenced yard, great deck, updated kitchen and tasteful carpet/paint throughout.

Price asked was $210,000 and I have it under contract at $200,780…that is with me waiving my 3.0% buyer’s agent commission.  So for most income property buyers the price would be $207,000….on the market for less than a week.

I’m putting 25% down and buying .25% of the rate down to 4.625 which means my monthly payment will be $774.26/mo for P&I only.  Throw in taxes of $223.92/mo and homeowner’s insurance of $80.92/mo and you end up with a monthly nut of $1,079.10/mo.

Now, to put this in perspective, the home is about 600 sq. ft. larger than the apartment they were living in at $1,105/mo.  So right away, we’ve got a win going on for my son…and yet we are going to keep this strictly about being a Kansas City area landlord.

It is my belief I can rent this home out at $1,295-$1,325 all day long.  So we use $1,300/mo.

Immediately, if self managed, revenues exceed PITI by about $2,400/yr.  Then, there is the principal reduction.  And lest we forget tax benefits and appreciation.

For a complete and more detailed analysis of this and other properties you may be interested in purchasing, reach out to me.  I’m happy to help.

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An Open Letter to Tenants of Rental Property

Dear Tenants,

I would love to discuss a couple of items before you rent from us at Ad Astra Realty, Inc here in the Kansas City area…and beyond.

  • We really do not want to keep your deposit.
  • We are not perfect but we are human beings.
  • Do not file an application, pay the fee and ask for your money back when you don’t rent with us.

THE DEPOSIT
We seem to have three kinds of tenants… and heck, I fell under one of these when I was a tenant many years ago.  In fact, I remember once that the landlord called and said they’d be keeping all of our deposit for damages.  And you know what, he was right.  We were not great tenants. I was young, single and didn’t fully respect the man’s property.  Here’s the thing; I didn’t blame him.  I took responsibility. Here are the three tenants we tend to work with…

  1. Get all their deposit back.
  2. Get most of their deposit back.
  3. Get none of their deposit back.

A great many of our tenants get all of their deposits back.  The house is reasonably in the same condition as when they leased the property the previous year, or two or three…save normal wear and tear.  Normal wear and tear includes, but is not limited to, the carpet being worn down by walking patterns or the walls getting a little dirtier or the blinds starting to sag.  Normal wear and tear does not include chunks of wall being torn out on move in or move out, or your pet urinating on the carpet in twenty different places, breaking stove tops, etc.

When we are required to keep some or all of a tenant’s deposit the owner is the one who almost always loses out.  Most deposits do not actually cover the damages done because what most people do not take in to account is that while the work has to be done to repair the damages the owner cannot rent the property.  Therefore, there is a time loss.  And, as we all know, time is money.

As for disputing your deposit, should we keep any, we are happy to discuss.  We do a very extensive move in- move out report that you have access to on your move in, and your move out.  We take pictures of everything.  This is to your advantage, and ours.

WE ARE HUMAN
For me to sit here and tell you that we are perfect, well, that just wouldn’t be true.  We can miss things.  So if you have a challenge with us, let us know.  The best way is in writing, therefore we both have a record.  If you feel strongly about something, set up a time to discuss the matter.  Heck, you may be right!!!

Calling and immediately cussing at us because we kept your deposit because of damages, well, it is a non-starter. So is threatening to sue right off the bat.  Once you threaten to sue, our conversation is over.  We will simply advise you to contact your attorney and they will contact us.  Once that happens, we will forward it to our attorney.  There can be no more discussion between us.  Your attorney will advise the same.

APPLICATION FEES
When you submit an application you trigger a series of events that cost both time and money.  If you take the fees we pay for the credit and background checks and combine them with the time our employees take to sift, review and verify, we actually don’t even cover our costs.  So when we continually hear that our Application Fees are a scam, I know immediately this is someone who has never owned a business.  And that is fine.  Yet, on our listings, on our online application forms and before you hit APPROVE, you will see something very similar to this…

We never encourage anyone to apply for a home before seeing the inside of any property, as the $35 application fee is non-refundable. Without first touring the home, you truly will not know if it going to work for you. Applying for a property and paying a $35 non-refundable application fee before viewing it, is completely at your discretion.

Look, we know it is a super heated rental market and FOMO makes people make decisions they would not otherwise make.  Yet, if you choose several times to read this and move forward then how can it possibly be a scam on our part to get your $35.00?  Apply if would like to rent from us. However, we cannot incur the costs you initiate and then give you your money back if you don’t like the result.

Now, as with everything, there certainly may be a circumstance now and again where we will refund an application fee. Maybe it was a mistake on our part on the listing or maybe we told you a property was available then the owner reversed the decision.  We are happy to listen and examine.

Fundamentally, owning and renting housing is a business.  We are not the owners off the properties we manage.  Most of our owners are people hoping to retire one day and use owning income property as one of he vehicles to make sure they can retire.  The owners make money when they provide clean safe housing and the tenants pay their rent on time and don’t damage the house beyond normal living wear and tear.

And tenants, you want your deposits back, right?  Help us help you.  By signing the lease you are agreeing to the rules that the will govern our relationship.  Take care of the property.  Ask us to do the same when you have a maintenance concern.  Do that and we will got to bat for you, as we have in the past, if the owner doesn’t want to fix something or feels we should be keeping the deposit when they don’t rightfully have a leg to stand on.  The landlord-tenant relationship doesn’t have to be one of tension and controversy.  For most of our owners and tenants, especially when each party is looking to keep their end of the bargain, things go pretty darned smoothly.

Regards,

 

Chris Lengquist
Owner/Broker
Ad Astra Realty, Inc

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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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