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Updated over 4 years ago on . Most recent reply
3 Signs Kansas City Looks Like a Strong Real Estate Market:
What's up, BP? At the beginning of this year, I started investing in Kansas City. Wanted to talk about three reasons why I choose to expand into the Kansas City market and three things to watch out for when embarking into a new market. When searching the country for strong real estate markets, we look for a combination of job growth, population growth, and affordability. When you find a market that has all three of these factors, you’ll likely be able to find excellent investment opportunities. However, it’s essential to understand: even strong real estate markets have bad investments.
3 Signs Kansas City Looks Like a Strong Real Estate Market:
1. Kansas City has job growth. ( https://www.bestplaces.net/economy/city/missouri/kansas_city)
This economic growth has been led by the healthcare sector, finance, insurance, the automobile industry, IT, and manufacturing. Additionally, K.C.’s location in the dead-center of the U.S. makes it one of the most reliable distribution centers in the country. The city is ranked #1 for rail freight volume and features the 2nd largest rail centers in the U.S. behind Chicago.
2. Kansas City has population growth. ( http://worldpopulationreview.com/us-cities/kansas-city-population/)
Kansas City makes up 32% of the KC metropolitan areas population, and the region’s growth rate was at a very healthy 11% from 2000-2010. It's difficult to say what Kansas City will look like in the coming decades but its growth is healthy, and it is growing twice as fast as nearby St. Louis.
3. Kansas City is affordable. ( https://www.edckc.com/kansas-city/affordability/)
As prices continue to increase in coastal cities, Kansas City remains a relatively cheap, and healthy market for investors looking for cash flow. Kansas City is a large, prosperous, self-sufficient and culturally rich city with overall lifestyle affordability. With the cost of living 2.5 percent below the national average, from groceries to gas, utilities, and housing, Kansas City is one of the most affordable cities in the Midwest.
Recently, Kansas City, Missouri, ranked seventh for the most affordable single-family homes for the working class. Of the 40 large cities surveyed, 82 percent of two-to four-bedroom homes listed in Kansas City were found to be affordable.
Here are three ways investors can get hurt in markets like Kansas City:
1. Everything looks better on the internet
Finding a partner on the ground will allow you to avoid making an expensive mistake. Don’t trust photos. You need to see the property to understand what you’re getting yourself into. If investing out of state, hire an independent 3rd party appraiser or inspector. Never blindly trust the seller, always get the property inspected before closing. Not only does it give you a better idea of the properties condition, inspections are an excellent way to negotiate for a better deal.
2. Bad neighborhoods can look good.
On paper, these bad neighborhoods can you amazing, for investors wanting generous cash flow. We have concrete buy boxes in Kansas City, and we keep to these guided lines no matter how good a deal looks.
Many out-of-area investors have bought property in these neighborhoods because they can be so deceiving. The homes look nice, and the returns look even better on paper!
Low-income, high crime areas are not for the faint of heart, and certainly not suitable for the out-of-town investor. You will likely find yourself feeding a money pit. Tenants who feel unsafe will leave so that turn-over can be high. Unfortunately, when a home is vacant in a high-crime area, everything inside can disappear. This can cost thousands of dollars to replace, only to find it all stolen again.
Do not only rely on proforma. As I said before, find a local person, who can give opinions on neighborhoods that you are interested in, this is beneficial and can save you from costly mistakes. You can also talk with local property managers, talk to local police or firefighters to better understand the crime rates before buying. We buy for the cash flow and position ourselves for great appreciation.
3. Revitalization can take years
While some dilapidated areas near downtown may be part of a city’s master plan to revitalize, don’t expect it to happen overnight.
Huge profits can be made if you own property in areas that are being improved, but you need to be able to hold the asset in the meantime. I would not recommend the high crime areas for new investors Stick with B neighborhoods. Here’s a quick summary of how I classify neighborhoods.
“A” neighborhoods are higher end. (Doctors and lawyers)
“B” neighborhoods are middle class. (Nurses and teachers)
“C” neighborhoods are lower-middle class. (Fast-food employees)
“C-“ neighborhoods. (Maybe they don’t work at all – welfare)
“D” neighborhoods. Well… maybe they work but more on the street level…
Kansas City can be a fantastic place to invest in property that cash flows beautifully with great potential for appreciation. With the excellent job growth, strong populations and affordability, we are incredibly excited for years to come in Kansas City. We currently have 5 active rehabs and are working on ramping up more in the coming year. With a growing team, the Kansas City expansion is shaping up to be a significant investment. Next week we should have the appraisals back on a couple of finished projects, I will post a link in the comments for those articles. Would love to discuss the Kansas City in more details and elaborate on what neighborhoods we have identified to have great potential,
Most Popular Reply
Great post @Benjamin Riehle . I'm still in the process of identifying my first target market as an OOS investor and Kansas City currently tops my list.
Good info, thanks for sharing. What price point seems to be the sweet spot in the city? Either target pickup prices, or ARV / rent ranges.
Sounds like you are fixing and flipping SFs? @Benjamin Riehle
What areas do you like in KC?
@John B. Thank you for reading! That's a great question. In our specific buy box, we like the $50-100k properties, with the rent range of $725-$1100. Anything under the $700/mo rent in KC has been shown to cause more trouble than its worth. Currently, working on 3 BRRRR strategies investments. We have flipped one SFH in Kansas City, and are now working on another for an out of state investor.
MO: We like the Manheim Park Neighborhood and Ivanhoe Neighborhood for rentals and flips. We buy rentals in Raytown and Gladstone as well. If you DM me your email, I will send a PDF with more information on our targeted areas.
KS: We like the Roland Park for rentals and Strawberry Hill. We still see the potential for appreciation in these areas.
I have also found this magic number in rents, I won't buy any rental that has a renovated market rent under 750/mo! The expenses are just too high without the income!
@Lee Ripma That's great! Are you investing in KC? What other markets do you like?
Great post @Benjamin Riehle . I'm still in the process of identifying my first target market as an OOS investor and Kansas City currently tops my list.
Yes! I currently own 14 units and under contract on another 8. I only invest in KC and LA (where I live). Both are great markets, for different reasons. I was a lot of work to learn the KC market, so as long as I can keep finding deals I'll stick with KC as my out of state market!
Another thing to note is understand your renter... plenty of "bad" areas for a family that are really good for younger people. But, you want the 2/1 or 2/2 NOT the 3/1 + because no one wants to have bunch of roommates in a tiny bedroom. Plaza/Waldo areas can support up to 1500, after that it's pushing it... still can be done but longer vacancy and MUCH smaller tenant pool.
Flip side of that is the suburbs, if you can find the popular schools and get the right place you have long term tenants. Note that it's not always the "best" school on paper... some are just local favorites or good at sports etc...
@Lee Ripma that is fantastic! We are seeing great returns in Kansas City, and planning on increasing the investment activities out there in 2018.
Originally posted by @Benjamin Riehle:
@Matt K. Thanks for the insight, Matt! Do you have any recommendations on suburbs we should consider?
Really depends what you want to go after ...
Our central hub in Tucson has a full service licensed construction company. We are currently getting our license for Missouri. We currently have 3 licensed contractors we are working with in KCMO and our Designated GC in Tucson and project managers review the projects weekly. We currently have around $1 Mil. of renovation work in process in KCMO.
As for deal flow we are very active with off market deals but also have a brokerage team in KCMO and find solid deals on the MLS, just takes more creativity.
Originally posted by @Warren Fanaken:
Duplexs are all over the place but can go quick. There's pockets of 4plexs sometimes they are good but more often then not the ones that hit MLS are rough areas. Triplex's really don't seem to be a thing in KC for whatver reason...
@Warren Fanaken I agree with @Matt K. Duplexes are all over the place in KC. There are a large number of 6 to 10 unit apartment buildings. The lack of supply in the 3 to 4 unit properties can be overcome by the massive SFH that can be converted to 3 or 4 unit apartment buildings. Currently, we are renovating two SFH into fourplexes.
Originally posted by @Lee Ripma:
I have also found this magic number in rents, I won't buy any rental that has a renovated market rent under 750/mo! The expenses are just too high without the income!
Lee, you address a good point about lower rents. Even if you can find good tenants at the lower end of the rent spectrum, maintenance and CAP Ex is too high as a percent of rent to make numbers work. It costs just as much to fix a leaky pipe or replace an HVAC system in a house that rents for $700/mth as it does in one renting for $1000/mth.
Originally posted by @Lee Ripma:
What about the numbers? I'd be curious construction costs overall pretty high in KC right now...I'd imagine converting old house to 4plex would be good sized project? Also what target rents you looking at on these conversations?
@Warren Fanaken active land lord in kcmo and kck. only have 3 doors so far, would like to chat more if interested
@Benjamin Riehle There is definitely a lot of activity in Manheim Park. I have an SFR in Manheim and most of the houses on the street have been bought up ...still a few vacant ones though. Heading over to Ivanhoe there are a ton of vacant/rundown ones.
What is your experience with reselling properties in Ivanhoe? Are you finding many buyers for that area ...it's still pretty rough. Have you run into additional costs with rehabbing 100+ yr old houses.
I have another SFR under contract nearby ...in Westport.
Great analysis @Benjamin Riehle. I would also add Squier Park, Center City and Western Blue Hills are all solid areas to check out. Northeast KC, especially the northwestern part (Scarritt Renissance and Pendleton Heights), is definitely also worth checking out.