I remember years ago when a good acquaintance of mine used a better-buddy realtor friend to buy three fourplexes up in Kansas City, Kansas. He followed a few simple mathematical formulas that he had learned (his Realtor buddy leading him all the way) and decided that not only would these properties pay for themselves but they would also kick-off cash flow. After all, they were priced about $15,000-$20,000 under the available comps in the area.
Now, I have never, nor will I ever, advise a client of mine to buy investment property in this area of Kansas City, Kansas. The value of the investment property there was not realistic for KC rental property. Way over-valued. Crime is/was abundant. Quality tenant? No. Housing voucher bums that float from apartment to apartment after dismantling the one they are in were plentiful. (No. Not everyone that uses a housing voucher is a bum. Just most of them in this area.) And they weren’t in that great of repair, anyway.
Have I ever been in his units? No. I don’t need to. I’ve seen others in the neighborhood. He bought at $140,000. Rents were about $525/mo. Slam dunk, right? NOOOOOOOOOOOOO!
He called me earlier this week. He had comped the area (with the same agent he used before!) and said that the values were down to about $40,000 each in today’s market. That’s $100,000 less than what he paid for each of the three four years ago. Vacancy? He’s currently half full.
He’s going to attempt a short sale and was seeking buyers. What’s worse is his notes are held by Bank of America. Now, Bank of America can get you loans. They can even service them to a certain extent. But when it comes to work-outs and short sales I cannot imagine a more incompetent bunch of case managers. I mean, without a single exception, none of them understands what is going on and how long buyers will/will not wait around.
And there could be more trouble brewing. What if he does get them short saled? When does the statute of limitations end for BOA to come back in and try to recover their losses from the personal assets of this individual? He has a nice income, an even nicer personal residence and other assets. I like this guy. I really do. But it’s frustrating when I hear people choose to let the banks take the loss or share in the loss and hope to have no more responsibility. If he had made $100,000 per unit would he have allowed anyone, BOA for instance, to share in the responsibility of the profits?
You simply must get professional advice before investing in real estate. QUIT USING REALTORS THAT DON’T KNOW WHICH WAY IS NORTH ON A MAP REGARDING INVESTMENT PROPERTY!!!!!!!!! (Phrase borrowed from Jeff Brown. – I had another phrase in mind.) Or it could cost you just about everything you’ve worked for.
I pray for this guy and others like him.