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,
