It seems it's been a while since I discussed, or re-discussed more-rather, the basics of real estate investing in Kansas City. Maybe it's because the market has been so darned fluid this last year. But a funny thing has happened on the way to the Great Kansas City Real Estate Collapse. It just never happened.
Now to be sure, as I write this, our market is still very fluid and quite weird. On the one hand the market is red-hot. My clients have been out-bid on 5 of the last 7 offers we've written. Now these are all properties at the $135,000 price point or below. And the lower you go the hotter the market. And when markets heat up, real estate investor usually make bad decisions
The point of ALL real estate investing, it seems to me, is to have more at the end than you did at the beginning. And that "more" needs to be more than you could have gotten in other investment vehicles. Why? Because owning rental property, even when you use a property manager, is much more labor intensive than owning stocks/bonds/mutual funds. Your capital isn't as liquid. Your ongoing need for reinvestment more possible and real.
When I speak of invesing in real estate I'm thinking of the following;
- Buy & Live - A great way to start especially with limited capital. You buy a home to live in that would also be suitable for rental later down the road. you live there a year or two and then buy another home. You keep this home and rent it out. Now you have two homes, one a rental, and both on owner-occupied mortgages and their corresponding down payments. If you are in your twenties, this is a fabulous way to start.
- Buy & Hold...appropriately - Buy a house that will be a rental property. If you have a good solid income, 20% to 25% to put down ( a necessary in this currently lending environment) and enough reserves so that I can sleep at night this is the way to go. When I say Hold I don't necessarily mean for the rest of your life. In KC I think 5-8 years is about the sweet spot. That's taken on a case by case basis. Then you turn that property in for one or two other properties to start the cycle over again.
- Buy, Rehab & Rent - This can be very lucrative if you have two things; 1) Cash to make the down payment, cash for reserves and cash for repairs (construction loans are few and far between right now) and 2) Time on your hands. Someone has to supervise the rehab. True, you can farm it out but then profits are slashed further and you really have to find the rare property that meets the financial requirements. But through this method you can end up with the most sweat-equity.
Through the years I've written about the 4 Benefits To Real Estate Investing
and if you go over to the Categories section of this blog you can search and click on that subject to bring up literally years of posts and comments on the subjects. Over the next week I promise to re-visit how to pencil a house to see if the numbers work. Keeping in mind the "numbers working" is a subjective value that can change from investor to investor.
For those of you who are considering house flipping as real estate investment I suggest you walk on over to BawldGuy's Treadmill post
. There you can read his excellent dissertation on the subject and my comments, as well. You do need to be forewarned that you may not like what you read. And anyone that considers house flipping in Kansas City had really better know what they are doing. Our numbers in KC are much tougher than other regions because of the lack of explosive appreciation that is possible in other places.
Kansas City real estate investing is for those that can live with and/or like a "slow and steady wins the race" philosophy
. I've never advocated that an out-of-state real estate investor should have all of his/her portfolio here. But I do very much believe that a portion of your real estate investment holdings should be here. You'll see why if you poke around this blog.