How does this market compare to “normal”?

Question

Hey everyone,I’m working to analyze deals and get a feel for different pockets of the KC Market. From what I’ve learned from my own analysis and networking it seems that even a good deal, let alone a great one, is tough to come by...which got me thinking...

How “out of hand” or “overpriced” has this market become? It seems the lack of supply and lack of banks being able to foreclose has driven the demand and subsequently pricing higher and higher.

For example, it seems finding a house in Independence or KCMO under $100k is tough so cash flow seems even tougher to come by with rents being on the lower side.

Maybe I’m off in my analysis or rambling at this point 😆, but any thoughts or insight into how this market compares to a more “normal” or “average” condition?

Sorry for the rambling, but figured I’d try to get a discussion started. Thanks!

Andrew Syrios · Answer

Not sure there is a "normal" market but right now is about as hot as I've ever seen it.

Matt K. · Answer

You need to understand what you're up against...and simply put it is people/groups with a ton of capital to deploy. KC is still cheap for many in coastal areas and it's easy to sell high priced home elsewhere and get literally anything in KC. Everything can cash flow with enough money down, "overpaying" to you still presents a good return to many especially once capital gain defferals are factored in...

The second part of this is at the same time you're against people desperate to make their housing more permanent and or better suite their needs. These buyers are competing against the investor and sometimes the only way to compete against cash offers is to go higher and hope you win.

what happens is all the "normal" people looking for a starter home get priced out at certain point and go back to renting (which drives up rents). Then you have people who go in on the higher end of their budget for a home that previously would of been towards the lower end...they were already ok with that home then, they're going to be able to afford it now...even if it means "overpaying".

Now you're basically left with a group of people who have money and need a property. The pandemic hasn't effected high earners the same as low earners so if you're strong finically there's a lot of access to loans. Plus if you're upgrading the property you get rid of likely appreciated pretty well too...

I don't say this to discourage you, rather level set and point out having money or access to money doesn't give you an advantage right now. Running numbers in a spreadsheet doesn't set you apart or give you a secret insight into a deal...

You need to focus on something that makes a deal and find a way to apply it to the market. Maybe that's because you understand rents or potential rents better then your competition, maybe you have the time to cold call, maybe you have a better level of understanding/networking in construction and repairs.  Any of these work, but they won't work unless you're an EXPERT in it...and better then the majority of people you're competing against.

Figure out your niche, hone your craft and perfect it...don't try to be good at everything, be great at something.

This is coming from a Coastal person who's invested in KC before the craziness but I've already seen an entirely new level of crazy local that isn't anywhere close to KC yet.

James Rodenberg · Answer

Thanks for the info Rick!

(Side note: I'm trying to tag you in my reply and the formatting isn't cooperating)

I have gathered that it seems you need to be able to recognize a deal almost instantly with your funding pre-approved so you can move QUICKLY! I don't want to use the excuse, "the market is too hot" or "there aren't any deals out there" because I'm sure there are deals if I keep my head down and work to find them.

Also, I sent you a PM so hopefully, we can connect soon to get to know each other.

Thanks!

Rick Novotny · Answer

I've been buying at all kinds of prices and they work. I'm not sure how many deals you've been running numbers for, but it might be a lot before you find a good one since the market is so hot right now. You might even need to buy something that needs work because the "turnkey" properties are the ones that don't seem to work right now. When you do find the right property for your portfolio, make sure you're ready to pull the trigger and write an offer immediately.

I bought a duplex in November of 2019 for $147,000 in Grandview, now worth about $180-190k. I bought a 4-plex in Blue Springs for $425,000 in December of 2019 which is now worth nearly $500,000 and rents are increasing. I also bought 2 duplexes in Belton for $145,000 each in November of 2020, worth about $160,000+ each already after renovations. The mortgages are about $700 per month each and 3 units are rented around $900 per month while I live in one of them. So it definitely works!

I hope all the best for your journey!

Feel free to send me a message with any questions you might have.

Will Fraser · Answer

Hey James, by helicopter money I mean the way the government (in a bi-partisan effort, spanning multiple presidencies across the isle) have been mailing out checks indiscriminately to pump up the economy.  "Look, there's a fire down there.  Let's toss them some supplies. . . here's a block of cash, will that do?" the administrators in the helicopter must be saying.  Well, it works in some ways, but I guess we'll need another decade to see how this giant financial experiment we're all in will play out.

On the subject of familiarity with a deal . . . for me it was a happy accident.  I was running numbers in an area that I was flipping homes in and focused out of necessity, not having the time or (more relevantly) mental bandwidth to analyze deals in other pockets of my city.  Because of this "survival-focus" I spent 6-months or so analyzing everything that hit the market in my little 1 mile radius and then I began to focus on just .5 circular miles within that.  Looking back the thing that ended up being rocket fuel for my business came when I started to spot trends that allowed me to shortcut the process.  For my area it was stuff like "it's 1,400 sq ft and 4 bedroom?  How awkward is the add-on?" and "40 foot wide lot?  Nah".  The more I became familiar with the things that made a property desirable in this box the faster I could get to a real ARV and later a real rental value.

So, if I was advising someone in how to get comfortable with values I would say:  niche down.  Look in a finite area and dig into every sale that happens there.  How long are homes on the market?  What're things selling for?  What's true of the ones netting the most from the sale?  What's true of the ones that are selling more slowly?  Then, as you develop an intuition for these homes, move outward from there OR find other pockets of the city that follow roughly the same trends.

Will Fraser · Answer

You're spot on, @James Rodenberg . . . these factors (and many more) have driven prices up substantially. It's hard to know what few-year period in the past 20-years to call "normal" as a baseline here, but suffice it to say that the current balance between supply and demand, alongside the continually low interest rates and helicopter money, lead to a higher nominal price for the same home than we would have seen 2 years ago, even adjusting for the normal appreciation in the market.

However, a deal is a deal. Analyze what you come across with realistic numbers and you'll be more apt to recognize a deal when it presents itself. They may be few and far between right now, but not altogether absent.

However, a deal is a deal.  Analyze what you come across with realistic numbers and you'll be more apt to recognize a deal when it presents itself.  They may be few and far between right now, but not altogether absent.

Matt K. · Answer

Where's analysis paralysis towards the start of your chart haha

Suzanne Player · Answer

I should have added that this page contains a more detailed description of the event listed at https://www.biggerpockets.com/...

(we're not just talking about the Kansas City, MO market): https://www.meetup.com/real-estate-rocks-investing-group/

Suzanne Player · Answer

We'll be talking about the Kansas City, MO, market (along with a few other key markets) at our event here:

https://www.biggerpockets.com/...

You might also like to check out this Bigger Pockets article which mentions KC:

6 Cities with great cash flowhttps://www.biggerpockets.com/insights/articles/cash-flow-unicorns

James Rodenberg · Answer

@Will Fraser

Thanks for the explanation on Helicopter Money. It will be very interesting to see how it pans out in the long run.

Your response on the familiarity of recognizing a deal is amazing! Thanks! It seems I need to narrow my search areas a bit to make sure I can build up the experience so I know when a great deal comes my way. Do you still use a radius around your house?

I'm thinking (correct me if I'm wrong) it'd be a good idea to identify specific neighborhoods in cities I'm interested in. That way I can start focusing to identify the deals. The tough part is with the lack of supply I might not see many properties depending on the neighborhood since supply is so low. Hoping the supply picks up over the next few months going into the summer.

I'm also going to get a spreadsheet created so I can list out all the homes sold in my target areas. My mom is a real estate agent which also helps with that so I can get her to run some reports on the MLS while I track the off-market deals from wholesalers or FB groups.

Thanks again for the thoughts Will!

How does this market compare to “normal”?

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