April 2017: Kansas City (MO) Pulse Check

[Rohan J.]

To anyone investing in Kansas City (MO), I wanted to start a discussion on what you guys are seeing as of April, 2017. 

I live in Los Angeles but I like to purchase buy & holds in KCMO. I tend to buy Single Families North of the river, and multi families in East Independence. Feels like prices have definitely risen notably, and I'm having to focus mainly on off-market deals.. getting harder to find good value for sure. Good deals are getting snatched up instantly. I've also been looking for small apartment complexes with good value, but this feels pretty non-existent in KC. 

1) What is your current strategy with KCMO? Have you changed anything given how hot the market is? 

2) Where have you seen the most opportunity for appreciation in rent amounts? What about appreciation for property value?

3) Is there any notable commercial developments in the area worth keeping an eye out?

4) Is there any corporations building offices or creating economic growth in any of the C+ or better areas?

5) Is the market starting to get too saturated? :O

[Chris Dawson]

@Rohan J., here are my responses:

1) Finding good deals is definitely harder to do in this market. Finding a good rental property that needs less than $5k worth of rehab and that isn't overpriced, is just about impossible to find. What we have been doing is going after the properties that require a lot more work to get them rent ready. Flipping in this market is supper easy to do AFTER you find a good property to rehab. Finding the property to flip is the hard part. You really have to use alternate means to find these properties and by alternate, I mean anything outside of the MLS.

2) On the Kansas side, you can't hardly ever go wrong with Johnson Co.  Rents and property values always seem to be increasing in this county.   On the MO side,  I am seeing rent and property values increasing just about everywhere, except in those D areas that should be avoided at all costs.  Personally, I am a big fan of the North side of Kansas City.  Areas like Gladstone, NKC, Liberty, and Parkville are all seeing rents and property values increase.

3a) This is one area that I would disagree with Andrew and probably a lot of other investors.  Yes the Cerner Trails Campus in south KC is worth keeping an eye on, but not for SFRs.  Let me explain why. 

For those who don't know what we are talking about, the Cerner Trails Campus is a 10 year, $4.5B office building development on 290 acres in south Kansas City where the old Banister Mall used to be.  

This has been a C class area both for residential and commercial, for as long as I can remember. The first of 16 phases was just completed after about 1.5 years of construction.  This phase consists of 2 office towers that will hold about 3000 engineers.  The finished project will have 16 office buildings and will hold around 16,000 Cerner employees; mostly IT jobs.

Since the project was officially announced back in 2014, I have seen countless investors scramble to scope up as many SFRs in this area as they can, betting on increasing rents and property values. If you look at property values and rental rates from 2014 to now, you will see increases in both rents and property values. I could find rent ready properties under $50k all day long here in 2014, but now its tough to find anything under $70k that is rent ready. I truly believe the rents in this area are quickly approaching their maximums while property values will probably continue to increase a little bit more due to an over-inflated market; mostly perpetuated by SFR investors and this Cerner Trails Campus. Why do I think the rents are maxing out and won't continue to increase due to all of this development? Simply put, those 16k new employees DO NOT want to live in a Class C neighborhood. They want to live in Johnson County or down on the Plaza. That means the current tenants in these neighborhoods will continue to live in these neighborhoods and continue to earn the same level of income that they do know, which means they can't and won't be paying higher rents. Check out this article in KC Star for more thoughts on this: http://www.kansascity.com/news/business/developmen...

Now, if you are a commercial investor, especially in retail, then this area should ABSOLUTELY be on your radar. There is huge potential for retail and restaurant services in this area! As for SFR investors, you are quickly approaching the top of the buying curve in this area. I would hate to see the same thing happen here that happened in neighborhoods like Ruskin Heights before the mortgage crisis.

3b)  OK, now for my recommendation for a notable commercial development..... "One North".  Haven't heard of this yet?  One North is the new $134M mixed use redevelopment of industrial land at the south east corner of HWY 210 and I35 in the city of North Kansas City.  North Kansas City, MO is a small separate city from Kansas City, MO., which, as it's name would suggest, is just north of Kansas City, MO.

This area has also been traditionally a Class C neighborhood for both commercial and residential.  This specific project area has always been Industrial with just a few retail spots sprinkled in.  Why do I think this has so much potential?  This development is focused both on increasing residential and commercial property values.  The potential for commercial AND residential properties in North Kansas City to see an increase in value due to this development is high.  Another great benefit to this area is it's proximity to downtown Kansas City.  It literally takes 5 minutes to get from downtown KC to NKC.  

4) See 3a.

5) The KC market is not yet saturated, but I think a lot of the "popular" areas to invest in are getting too saturated.  The key is to do your research and find those areas that have real potential to become the next "popular" area to invest in.

Sorry for the long post, but I hope this helps.