A good deal of my clients come from the California, Washington and New York areas. And most of those come from the Los Angeles area. So I thought, for a little fun, I would point out to the folks here in Kansas City why the Los Angeles real estate investor likes this area for their dollar.
First, a few disclaimers. Finding LA comps to KC rental properties was not easy. After all, we in Kansas City have different style of architecture in our duplexes and let’s face it, our area is much, much smaller than the Los Angeles area. So when you are reading below just know that for the Los Angeles numbers I did the best I could in diligent research trying to find a two bedroom duplex that had a garage and was in a “nicer” part of the Los Angeles suburbs. After I found one on craigslist (why don’t more real estate agents in LA have user-friendly websites?) I then went to rentometer to find accurate rents.
So the long and the short of it is that I did the best I could on the Los Angeles numbers. If you feel I’m a little off here and there, feel free to adjust my findings accordingly. But I don’t think I’ll be too far off…
The goal is to get the rental homes in each city to “pay for themselves” when considering principal, interest, taxes, insurance and a 7.5% property management fee. No vacancies, reserves or other miscellaneous items have been figured in. So you know it’s not real world but it will get the point made.
I found a duplex located on Vanowen Street in Lake Balboa, California. It appears to be in pretty good shape from the photos, has two bedrooms on each side, one car garage for each side (shared) and I don’t know how many bedrooms. My research showed rents would be in the $1,300 per side range. It is being offered at $599,995. So let’s do some math.
$2,600/mo rent collected
– $ 195/mo property management
– $ 300/mo taxes
– $ 175/mo insurance
= $1,930/mo available for P&I
Making a cash investment (not including closing costs) of $294,995 would leave you with a $305,000 mortgage at 6.5% interest amortized over 30 years. That’s $1,928/mo. That’s $24 a year cash flow.
On Friday I closed a duplex in Olathe, Kansas that was asking $199,950 that featured two bedrooms, one and one half baths and a private garage for each side. My Buyer payed $194,000 for the property. Both sides are rented with fresh one year leases totalling $1,475/mo.
$1,475/mo rent collected
– $ 110/mo property management
– $ 225/mo taxes
– $ 90/mo insurance
= $1,050/mo available for P&I
Making a cash investment (not including closing costs) of $38,800 (20%) would leave you with a $155,200 mortgage at 6.5% interest amortized over 30 years. That’s $981/mo. That’s $828 per year cash flow.
WHICH CITY WINS???
Early in the game it looks like Kansas City has taken the lead. By putting down only 13.2% of the money in Kansas City than you would in Los Angeles you have created break-even to very modest cash flow. In Kansas City you are committing much less money up front and committed to a bank for a much lower mortgage balance.
But we are only at half-time of this match. (Or the 7th inning stretch, whichever you prefer.) Tomorrow we’ll discuss appreciation. Who do you suppose will win that battle? You might be surprised.