Help Analyzing Small Multiplex Property in Kansas City

[Michael Catausan]

First of all, I am a newbie RE Investor and just starting out on BP and enjoying reading all of the helpful posts.  I want to be a helpful contributor eventually but you have to start somewhere.  I have read a few recommended books, viewed several podcasts and went through many forum posts trying to help me find and analyze deals but I believe with the ever changing market that some information may be dated already so please forgive me for asking similar questions that have already been covered.   I am looking at a property in Kansas City in what I believe is in a C Class neighborhood.  Here are the numbers for a 4plex in Raytown MO (Suburb of KC).

Purchase price: 200K

Repair/Rehab Costs: 10K 

ARV: 210K

Financing with 25% down at 4.5% for 30 years (150K Loan)

Total Cash needed $65,806 (Down payment+Rehab+ClosingCosts)

Monthly Income $2375, Monthly Expenses $1939.86 with NOI $14342.00

Expenses (Vacancy 7%, CapEx 5%, PM 8%, Tax 6%, Repairs 11%, Insurance 7%, Snow/lawn 6%)

Cash Flow $435.14

CoC: 7.93%, Pro Forma Cap: 6.83%, Purchase Cap 7.17%

All numbers were taken from BP calculator and my estimates are based off of last years figures because the apt is fully tenanted.

My concern is the CoC and Cap rate seem low for a C Neighborhood and my initial cash outlay also seems high. I am hoping you all may be able to shed some light on KC market currently to see if this deal is worthwhile or too risky and should pass.

Thanks for everyone's help and I look forward to many future deals!

[Drew Kimminau]

First off, Welcome Michael :)

I don't have any properties in Kansas city but I am currently looking. I think for Raytown standards you might want a little high rent to price ratio. Another C class neighborhood you might want to look is independence. Based on your numbers I think you would want to get this property for less than 200,000. With CoC under 8%, I think it would be better off just throwing your money in an S&P index fund (Historically around 8%). Less headache too. Much of Kansas City is expanding South (Overland Park area) and even some north in Liberty area, but Raytown might be getting left behind so I like that your not banking on appreciation. Some things to keep in mind too is if you can lower expenses somehow that would make your numbers better. Snow/lawn of around $150 a month, maybe a tenant could be responsible for that, and give them a $50-$100 credit. Could save some money! Also PM, something to look out for is many management companies have a typical 8%-12% monthly fee which your accounting for but they also have a fee for leasing. This fee for leasing can be up to one full months rent. If this property is in a C class area, the turn over could be high which means you could pay up to another $2375 a year in just leasing fees if every unit needs leasing once a year ($197 a month). Just my thoughts!!!

Best of luck :)