Real Estate Investing Goals

What are your real estate investing goals? It’s one of the first questions I ask would-be or experienced real estate investors. Some of what I hear is;

• Flip a house to create cash
• Create monthly cash flow
• Replace my income
• Secure my retirement

To be sure, there are other goals out there, but for income property owners, these are the four I hear most commonly.

The best way to determine which of these is best for you is to sit down with someone to talk over what you are looking to accomplish in the end. Are you looking for a certain amount of built up cash? Or equity? Are you looking for monthly cash flow? If so, how much?

And as far as “Secure my retirement”, well, there are so many factors here. What other investment vehicles are you currently utilizing? What percentage of your retirement are you looking for real estate to contribute to?

For those income property owners that we work with at Ad Astra Realty I’m always happy to set aside 20-30 minutes of my time on a regular basis to coach them through their goals and execution. If you are not yet a rental owner or buyer with us, feel free to reach out so that we can have an initial conversation to see what may be right for you. After all, I am a certified coach as well as a real estate investing broker here in the greater Kansas City area, licensed in both Kansas and Missouri.

Our team is here to help you create your “Retirement worth having.” So give us a call. We’d love to talk about your real estate investing goals.

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.”

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.

 

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.

**************************

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

Comparison_Plus

Market_Conditions_Addendum

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.

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.

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

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.