What Do You Think of This Kansas City Deal?

[Account Closed]

My contact in KC offered me this deal. What do you think? 

10338 Sycamore, Kansas City, MO

Price: $74,500.00
Rent (gross income): $950.00/per mo.
Property Mgmt Fee: $95.00/per mo.
Insurance Expense: $45.00/per mo.
Taxes: $66.19/per mo.
Net Income Per Month: $743.81
Net Income Per Year: $8925.72
Cap Rate: 12%

Was fully rehabbed, and will be rented as of march 1. It looks attractive to me esp with mortgage rates I'm seeing.KC, from what I read, has a lot of renter, about 48% of the market, high occupancy rate. 

[Joel Owens]

"Was fully rehabbed"

I would QUANTIFY fully rehabbed.

Fully rehabbed to me would be stud up gut job. All new windows, plumbing, electrical, roof, water heater, etc.

A turn key operators definition of "fully rehabbed" or "newly renovated" tends to be slap some cheap carpet and paint and update a few fixtures and one mechanical item. I do not count those as fully rehabbed.

Everything will appear fine for awhile but then you get hit with big ticket items and the cash flow over the years goes down and down and down.

950 per month stated rent and started net of 743.81 a month is claiming only 22% annual expenses.

These lower income type assets tend not to appreciate well and are mainly cash flow only plays so it is important to get the expected expense numbers right. If something is newly rehabbed the first few years might have less expenses but the pendulum will move way over to other side in mid to later years of owning the asset.

I think turn keys use fluffy numbers myself and are often targeted to the newer investors who are misinformed and not very experienced at buying properties. The property is typically marketed in the best light possible with the lowest expenses to extract the highest price from a potential purchaser.

I only play in the commercial space but these residential properties "fully rehabbed" tend not to be because of the cost it would take versus the price point of ARV they can sell it for. Special attention needs to be paid to the vintage ( year built ) of the property because older properties tend to have multiple things you have to watch out for ( lead based paint, knob and tube wiring, unpermitted additions and updates, asbestos, galvanized plumbing, etc.).