All Forum Posts by: Jin Zhang

@Jin Zhang

I would only measure pros and cons against a goal. So I would rephrase the question as: what are the pros and cons of Kansas City for buy and hold small multifamily when my goal is cash flow or what are the pros and cons of Kansas City if my goal is fix and flip SFH with large margins on each project. I'll still try to answer the question:

Pros of Kansas City for buy and hold small multifamily rentals:  

Hybrid market so you get some cash flow and some appreciation (con if you want only cash flow or only want appreciation) 

Inventory of 2, 4, and 5-50 MF buildings (not true of a lot of markets that only have SFH and very large complexes 100+ units)

Relatively low property taxes, although check for the city and state you are in (e.g. Overland Park, KS vs Kansas City, MO) 

Very landlord friendly, worst case eviction is usually 8 weeks + $500 + lost rent (cannot comment on individual cases and this is not legal advice) 

Large diverse metro area - variety of jobs, companies, people can have a career in KC. Lots of medical in KC - hospitals, medical school, etc. Medical destination with excellent care.

Arts and culture of a large metro and THE BEST football team (plus the Taylor Swift boost!) 

Affordable relative to the rest of the US so great place to work remote or just enjoy a reasonable life without being hugely cost burdened 

Cons: 

A lot of older than 1980s construction (you 100% can be successful with these properties just have more to check during due diligence) 

Need to be mindful of market rents in the area and not overspend on renovations where there is not ROI to do so, you can't usually exceed $2 sf on rental rates and average price per sf is 1.25-1.5 sf (neighborhood, unit type, and finish level specific).

KC is not a boom and bust market, you don’t get the high highs or the low lows. Note this can be pro or a con depending on your strategy. You don’t get CA level appreciation in Kansas City.

Some areas are high crime so need make sure you understand the neighborhood you are investing in, like any city all locations are not equal.

Very car centric city, mass transit is not widely used, people don’t walk, they drive outside of a few very walkable locations in heart of the city. 

Weather - you need to make sure tenants are warm in the winter and cool in the summer. You also have snow removal and salting when you own apartments and it can be pricey. Weather also makes insurance more expensive - wind and hail damage properties. 

Clay soils mean that drainage is really important to prevent foundation issues. Very common to have structural issues caused by soil movement. 

That’s a few to help you understand what I see as pros and cons of small MF buy and hold investing. It is what I personally do and I help clients do. It really can be a great market for real estate investing, depending on your goals! 

@Andrew Syrios

So much appreciate the feedback! I changed Grandview and Raytown to be B-/C+ neighborhoods. They have median household incomes of 52k and 55k respectively. I struggled with how much to get down into the B+, B, B-. I now have B+, B, B-/C+ and C. Those four classes are where the majority of investors will buy rentals. 

From my experience the median household incomes really determine the neighborhood class. In KC I'm using the following splits: 

A 99k+

B+ 75k - 99k

B 56k - 75k

B-/C+ 48k - 56k

C 28k - 48k

D under 28k 

Here is the updated guide by zip codes with the new class of B-/C+ created. 

Guide to Kansas City Zip codes

B+ zips

Blue Springs

64015

64014

Grain Valley

64029

Lee’s Summit

64068

64063

64081

Raymore

64083

Kansas City, MO

64145

64112

64101

Liberty

64158

Northland

64152

64151

64154

64155

Shawnee Mission

66217

66216

66219

66215

66210

Olathe

66026

66061

Prairie Village

66205

Gardner

66030

B zips

Kansas City, MO

64105

64114

64111

Kansas City, MO

64137

64138

64108

64111

64131

64110

Independence:

64055

64056

64057

North Kansas City

64119

Overland Park/Merriam

66202

66203

66204

66214

66212

66214

B - /C+ zips

Gladstone

64118

North Kansas City

64116

64117

Independence:

64052

Raytown

64133

Grandview

64030

Belton

64012

Kansas City, KS

66112

66106

C zips

Historic Northeast:

64124

64123

Kansas City, MO

64129

64130

64109

64132

64134

Independence:

64053

64054

64050

Kansas City, KS

66102

66103

66104

66105

Riverside

64150

D zips

Kansas City, MO

64125

64126

64127

64128

Kansas City, KS

66101

Licensing and financing can be difficult. Keep in mind with this investment strategy you are more so running a business than you are investing in real estate. There's nothing wrong with that, just something to be mindful of.

I have found great info from https://grouphomeriches.com/ and their podcast. 

Our main insurance risks seem to be wind and hail.  For example we often talk about 20 or 30 year roofs, but rare is it that I see one that is that old.  Seems like we get them replaced about every 8 years or so.  One consideration is to always check the Clue report with your insurance agent during the option period to see insurance costs and potential coverage and past claims.  

We have had a couple of freezes over the past 10 years or so that wrecked some havick that we normally don't count on.  Not always preventable, but also good to prepare your tenants and take precautions. Gas heat access is better than electric for example if you have a choice.  While the heater has electrical components and didn't work while our electric was off or rolling, the fireplace did and saved my pipes.   Don't just leave tenants on their own to resolve this stuff.  The may either not know or not care.  For example dripping faucets...and covering outside faucets.  If you have to, pay a handyman to do it.  Protect your asset.

As @Ali Radoncic mentions, foundation issues are common.  My advice is normally don't buy one with issues or repairs if you can.  Plenty don't so try your best to stick with those.  #2 don't buy homes that are prone to foundation issues.  There are certain areas of town that are worse than others, and also design features that are better than others...also foundations that are better than others.

As @Ali Radoncic mentions, I've never thought about wildfires in DFW area.  Giant one in the Panhandle maybe 5 hours from DFW and one a couple of years ago West of Ft. Worth.  That's where big empty fields are that are not always maintained, and some unique dry conditions.  I wouldn't really expect that in the city.  Personally I'm not really worried about natural disaster type issues in DFW.  I've seen tornado damage, but I don't think I've known anyone personally that was affected...and really not common.

I would normally estimate about .75% of the value of the house for yearly insurance.  However it can depend on a lot of things like your deductible, your credit, coverage.   Pick a house and call your agent for an estimate.  One thing I've seen is DO NOT GO CHEAP on insurance.  I see way too many people find some cheap unknown provider on a website.  Easy to buy, but not easy to get them to pay.  Stick with the big well known companies that you've heard of.

Property tax is generally anywhere from 2-3%.  Around 2% in some of the cheaper areas, up to 3% in the more expensive tax areas.  Watch out for PID/MUD taxes in some of the newer areas.  Those aren't always nice and could range anywhere from $500-1% a year...that's for sewer and water or flood control improvements.  While it is a consideration, I wouldn't only focus on low tax vs higher tax areas.

 Insurance is going up nationwide.  In Dallas it can range between 3,000-4,000 a year.  I lived here my whole life and never even thought about wild fire risk.

We do get pretty wild and random thunderstorms, hail, and some high wind speeds.  Hail is the bigger issue in my opinion.  Its comes out of nowhere seemingly! 

Property taxes are considered to be high in Texas.  That is the number one thing I hear from out of state investors.

From a rehab standpoint, North Texas is infamous for foundation issues.  We basically build our foundations on mud and clay here so movement is inevitable.  If a home owner doesn't properly maintain their home, you would think an earthquake hit their house from some of the stuff I have seen.  The combination of hot long summers (soil dries out) and lots of moisture in winter and spring (saturates the soil) causes the ground to constantly expand and contract.

Out of state investors get freaked out by foundation issues but being that its such a normal occurrence, you have a plethora of foundation companies that know how to fix them with relative ease.  You can pay as high as 1,000 per pier or as low as $175-200 per pier if you're well networked. 

Dallas is a highly competitive market.  I wouldn't say it got as crazy as Austin did, but Dallas has been competitive consistently over time.  Maybe I'm biased but I would also say that Dallas is kind of the barometer when it comes to economics in Texas.  I deal in distressed properties and I see deals sell in as little as 30 min to an hour on a daily basis. 

The buy and hold strategy has shifted more to an equity play rather than the cash flow play we have all been taught and love.  You can still cash flow in some areas, but it will more than likely be in D class neighborhoods.  Multifamily properties at a discount are hard to come by, especially if you are looking in the nicer parts of town. 

The population here is rising and development increasing,  Form me, I remember when Allen was basically a field. Frisco wasn't a thought, and McKinney was farm land.  Now These areas are arguably some of the best places to raise a family in country. 

I'm sure some folks here on Bigger pockets remember when Plano was up and coming, but that was before my time haha.