The New Year is fast approaching and I have to ask; Is it time to evaluate your investment property?
Many of our clients purchased their rental properties during the Great Recession. They bought low and now may be the time to sell high. Or is it?
The very first thing you need to know in order to make an intelligent decision is to get a comparative market analysis of your income property. Listen, it doesn’t have to be detailed. But if you can be plus or minus 3%-5% you can have a good idea as to how to measure your future options.
- Should I continue to hold because I’m making good money on my investment?
- Should I 1030 Exchange myself in to fewer but more valuable income properties?
- Should I sell, pay the tax and relax?
There are, of course, a few other options and variables not the least of which is “where are you in your life?” What I am saying is that the real estate market in Kansas City has changed by leaps and bounds since 2009 and so may have your investment needs.
So, is it time to evaluate your investment properties? If it is, give me a call at 913-568-1579. I’d love to help.
Here are some of the more common mistakes I see real estate investors make year after year in the real estate investing business.
- Hiring a “home” agent to help them buy or sell.
- Not double checking their assumptions regarding rents, expenses and loans.
- Not choosing the right property management company.
- Buying when prices are at their peak.
- Multiple bid situations.
- Buying too much too fast.
- Not acquiring to a strategic plan based on future need.
Just a little food for thought for you.
Listen, I’m as cost conscious as the next guy. But it just drives me crazy, almost literally, when a real estate investors’ first question about our Kansas City property management services is “What are your fees?”
Can I give you a tip?
Stop asking about fees as the first question.
Seriously. A vast majority of our 110+ owners are counting on their rental property (or multiples) to partially or fully fund their retirement incomes. Essentially, these investment assets are more than just a rental property, they are a future.
To me, the first question is “How do you go about protecting my asset(s)?”
Here are questions I would ask before I got to fees. And, yes, I’d ask about the fees, as well. But seriously, the value of your asset can rise and fall on the property management. Get that right. It is every bit as important as the asset itself.
- How long have you been managing properties?
- If required by state law, are you licensed to manage rental property?
- What are your money practices? ie, How do you hold deposits? When are collected funds disbursed to the owners? Are you subject to state or owner audit?
- How do you go about selecting tenants? ie, What are your advertising practices? Do you show in person or do you do lock box showings? What are the credit and income criteria that you use to qualify, financially, the tenants?
- How do you document the condition of my investment property when you take it over from me or my current property manager?
- How do you document the condition of my investment property before and after a tenant moves in/out?
- What are your best practices when it comes to legal challenges?
- What is your vacancy rate?
- What is your turnover rate?
- How long does your average tenant stay with you?
- What is your eviction rate?
There are more questions, of course. Those are what I’d start with, however. Spend as much time choosing your property manager as you do selecting your investment house. You will be glad you did.
I have been watching Kansas City property management evolve here in these last two years. In fact, I think high quality, business-oriented property management companies are one of the great things that came about as a result of our Great Recession here in the United States.
Here-to-fore property management had always been mom & pop and not on a grand scale. Some mangers cared more than others in the past, and the same can be said of today. But, property management is growing up. More KC property managers are a part of NARPM, or the National Association of Property Managers as are we here at Ad Astra Property Management.
But it is more than that. A new generation of managers has realized that customer service matters. That image matters. That the better condition the property offered is in the more likely you will draw a tenant that appreciates that property and is willing to take care of it.
Tenants used to be easily and quickly dismissed as “tenants”. Which is to say, that they were some how second class citizens that didn’t appreciate safe, clean housing. Many owners used to “milk” their rental properties for every dollar they could get at the expense of ongoing repairs.
With housing values as high as they are today and retirements at stake, most of our investment property owners are on board with taking care of the maintenance on their rental homes and making sure we are not deferring too much maintenance. After all, it is literally “pay me now or pay me later” when it comes to maintenance.
In short, I’m proud of our vision here at Ad Astra Property Management. And I’m proud of much of our competition. The game is getting more competitive and that is a good thing for both the tenants and the owners.
Here is an email I sent to an owner regarding a property he purchased back in the fall of 2012. He was trying to get an idea of how he had done on his property. What do you think?
Please find attached a report from 10/1/2012 – 7/1/2013. The tenant moved in on July 1, 2013, so that income shows.
It shows your total expenses to that point of $60,517.73. Your purchase price was $81,000 on 10/12/2012.
You paid some closing costs but I don’t have the Settlement Statement with that amount readily available. I can dig that up if you like but it wouldn’t have been too awful since you paid cash. Probably around the $900 range.
That means your “all in” expenses on the house before it was set in to service are $142,400, more or less.
Hope that helps.
Now, let us have some fun.
From Day 1 through Today you have spent $66,541 on expenses plus your purchase with closings costs of $81,900 totaling $148,441. You do not have the property leveraged so that is all your money in.
From Day 1 through Today you have earned income of $50,100.
Today’s estimated value is between $175.000 to $188,000 depending on a few things. Let’s say $175,000 to be conservative.
I’m going to go ahead and subtract sales costs of 7.5% (for commissions, closings costs, etc) to figure our real return…which would add up to $13,125. Plus you’ve paid your own home owner’s insurance and property taxes. I don’t have those exact numbers. But let’s say since October of 2012 those have added up to $12,500 ( a rough guess).
Therefore, your true value is $161,875.
Your “all in” minus the income you’ve earned is $110,841.
You have invested $110,841.
Your current market value is $161,875.
That is a 46.0% increase in your monies.
Kinda fund to figure all that, right?
The City of Overland Park has lost their minds on their proposed new city licensing of rental properties. Their new legislation would make property managers responsible, financially, for deferred maintenance of properties under their care.
Now, as an owner you may think this is great. I can tell you will not have any property manager taking part in that program…at least at their current rates. Simply put, for all Overland Park rental properties I would have to re-evaluate my management agreements and raise hefty reserves and cost mitigation strategies. Who ultimately pays? The owner. Then the tenant.
Here is the link to what they are proposing for rental properties;
Here is the snippet of concern in 5.75.060 A5;
The Owner’s Agent shall be jointly and severablly liable with the Owner for;
Are you kidding me? How can a city of any stature make me responsible for a property I do not own? What is going on here? This is still America, right?
To express your thoughts on this go immediately to;
This must be corrected or property management in Overland Park will get much worse or much more expensive. Either way it doesn’t serve the public interest.
I have been blogging about real estate investing in Kansas City since 2006 and during that passage of time I have seen seller’s markets, buyer’s markets and have lived through the Great Recession. Sometimes these markets have lasted months to years and sometimes it seems that they have oscillated back and forth with the seasons.
But I believe it is safe to say that Kansas City, especially on the Kansas side, has been in a seller’s market for quite some time now (a solid year, at least) and so we need to think about the effect that has on the real estate investor.
- Adding inventory to your portfolio is more costly and therefore returns are lower.
- You current inventory is worth substantially more than when you purchased it as supply and demand has increased the base price of housing stock.
Should you wait, therefore, to add additional inventory to your rental property portfolio? Well, when will the economy change? We know that it will. History proves that. But when? And how drastic will the change be? How long can you stand to have your money in a stock market that is now solidly under-performing? What alternatives do you have to the stock market and real estate?
Should you sell the inventory you have while prices are still high? Could be. Especially on the Kansas side. But are you looking to 1031 exchange? If so, will you be able to find suitable replacement property that will give you equal or better returns be that here in Kansas City or elsewhere? Is it time to sell, pay the capital gains and depreciation recapture and move on?
There are no easy answers, as usual. Your choices must be carefully considered. I can tell you that as a owner of Ad Astra Realty’s KC Property Manager that vacancies on the Kansas side have not begun to rise and on the Missouri side of KC they are only up slightly, say 2-4%.
If you’d like to set up a time to discuss your income property portfolio to see what your options may be, feel free to contact myself or Jimmy Geisler. We’d love to help.