Kansas City Buy & Hold Investment (part 2) - Actual Cash Flow Single On Family Homes

[Luther Wilson III]

The engagement was strong for the post last week regarding a property I believe would make a great long-term investment. We hadn’t even gotten to the juicy part yet!

It’s a single-family home in the Kansas City area, and I gave an example of what some of the numbers could look like for a purchase using traditional investor financing with 25% down.

6205 Northern Ave, Raytown, MO 64133
MLS #: 2496940
Listing courtesy of Rodrigo Pulido - Chartwell Realty LLC

Listed at $199,000 it is now under contract. Houses in the KC market are still being sold rather quickly and remain close to 100% of list price.

So for this particular investment model we buy house that are livable, and we use long term financing or cash. Then we offer seller financing to families helping to create more home ownership, generate cash flow and eliminate a majority of the main pain points rental owners experience.

If you recall this example, I proposed we do a lease option for a $5,000 upfront fee, the cash flow was close to $400 a month and the cash-on-cash return around 7%. Well, it gets better.

No one asked what the long-term exit is like or about the dynamics of the lease option agreement. Tsk, tsk.

On this one we'd do a lease with a 10-year option to buy. We’re going to use 5% a year appreciation as a general figure and in that case the amount needed to exercise the purchase is $300,000.

Refer to the last post and run #’s. If the property was purchased at list price with 25% down using a 30-year, fixed-rate, non-QM mortgage @ 8% interest the current loan amount is just under $150,000.

Here’s where more fun happens. Let’s say our lease option residents stay, take care of the home, consistently pay on time with just a few late payments along the way, and then choose to exercise their option at year 8. At this point our existing mortgage balance is around $136,000.

The house appraises for $290,000 we negotiate a bit, and get it done. Even with closing costs & commissions at 8% of the sales price along with some concessions we're left with $261,000. Subtract out our existing mortgage and we walk away with $125,000. Check the numbers and you will see a cash-on-cash ROI legitimately well above the 20% mark.

Not only were we able to cash flow on this investment for 8 years, but we did it without all the same struggles that all landlords have. Plus, we helped a family get into a home that they can truly call theirs. Not to mention we still enjoyed plenty of tax benefits.

Plug in with me, fam. This is the stuff I’ve been talking about lately. Kudos to John Burley & associates for showing us a more efficient & sustainable way to invest in real estate and encouraging us to keep learning.

You may need more info or want to dig in a bit. We’re here making it go. The market has shifted and more investors are waking up. Send a message or reach out if you want to learn more about how you can adjust & continue to expand your real estate business.