All Forum Posts by: William Robison

Sorry I missed this notification. When I negotiated with the bank on the cost of repairs, yes, I did give them estimates on the larger items on the contractor estimate form. For the rest of the house, I used my own, which they knew I was developing. As for the banks knowing what they have to sell. I couldnt disagree more. REO and Short Sale agents are now in a volume business. They have so many reports to complete for the lender, but rarely does this include a comprehensive look at the property. When the agents do have a deeper scope of the needs, they often do not know the true cost to remediate/renovate. This does not include the great agents on BP. Most of them have good knowledge, but there are so many agents without this skillset that are making these sales and lacking the overall knowledge of the renovation industry.

Further, yes, this is 2019 now, and much has continued to change.  The smaller the asset company, the better chances of a realistic conversation now.  Timing can also be important with the bank asset manager.  The have monthly or quarterly goals.  If they are short, they can be more aggressive, if they have hit their goal, they prefer to not even sell until the next cycle.  I like closings that are fast because it is closer to goal time, and I pay attention to these time cycles.  Close early in the month or quarter, or offer to close fast at the end of a quarter.  

On the REO deal with the dual agent...I agree. Keep presenting offers. In some states, you can ask for verification that the offer was presented. They are more interested in dealing right before price reduction time than they are after a reduction has been made. They expect the market to bear a bunch of offers with the reduction and will want to wait for the new full price offer. If there is a pattern to their reductions, find it, then offer 7 days before you expect the next reduction.

Great advice Brant.  Yes, the trick to those, which are far fewer these days than several years ago, was to provide a very professional scope of work with the offer to substantiate why their listing is worth far less than they believe that it is.  Here is why:  Typically, a bank hires a BPO (Broker Price Opinion) or an agent to provide a estimated value in the current condition.  While many agents are professional and understand the value of needed repairs, many others are not.  With that, the bank often gets too low of an estimate and believes that their asset is worth more.  With substantive formal presentation to the asset manager, an investor can sometimes impact the perceived value of the asset.  I used this successfully several times in the frenzy of short sales, and the last time it was effectively used in the current hot market, was late 2016 on a house bought for myself.  I was able to use this tactic with Bank of America, so even the big banks can be swayed with the strategy, but it takes work on presentation....and some luck.

Hello @Logan Freeman and @Ryan Fox

Kansas City has added a lot of rental inventory over the last couple of years. Its important to note that MFH housing adds and SFR housing adds have been quite different. Multiple funds added hundreds of SFRs to the mix each, per year for the last couple of years. Inventory of MFH saw a significant boost for the last several years and during the MFH boom in KC, we were adding double the historical absorption rate, but leasing maintained close pace.

Seasonality is more important than property type, location, rate, or nearly any other factor.  March 1 through Thanksgiving is optimal leasing time, with April through June the most ideal.  Since there continues to be more inventory than current demand, its important to keep track of other analysis.  

Zillow reported a couple of months ago that KC was witnessing about a 1-2% rent rate retraction.  This is nominal overall, but could hedge a trend.  Conversely however, most of the funds have stopped acquisitions, and as inventory is absorbed, I believe we will be able to maintain flat rates with the economic pressure.

Lastly, inventory, since that was the question.  Actually, vacancy.  

Here is an article in the KCStar that identifies vacancy per market in the KC area.  This is a very recent article at the end of 2018.  Location is an important consideration, as it will have a lot to do with the inventory additions of the last couple of years.  Downtown has seen the most growth in terms of units of MFH built, and currently a higher vacancy rate.  

Summary...I dont have access to specific data points, especially per county.  However, 2018 was a huge year for fund growth, which added more inventory than was absorbed.  2019 should flush out this inventory, as most, but not all, funds have ceased acquisitions.  Professionally, for our company, we expect to be at normalized levels by the end of Q1 2019.  

Good KC property management is more than a google review.  KC is a large market area with lots of PM firms to choose from.  First suggestion is to find a PM firm that specializes in the area which your property is located.  Our firm only accepts 25-30% of the KC market area.  It's the area that we know and understand.  Next, Google is a great resource, as I use it every day.  It also is typically a compilation of those that are frustrated with their service, more so than those that are thrilled.  You go to a great restaurant and have a good dinner, you might post it on Yelp.  The same isnt always true for a service that is like an attorney.  The attorney may get your job done, but rarely are you perfectly happy with the results.  PM companies mediate everyday between owners that want to increase revenue and minimize costs versus tenants that want a well maintained home without cost pressure.  Last item to consider on reviews, some businesses will review themselves with glowing reviews to boost their ratings.  We do not.  We have below average ratings because we have mediated for the benefit of our client and the tenants weren't thrilled with the results.  

My suggestion is to interview PM firms in the market area of your property.   Don't just ask if they are in the area, as too many will take all listings to increase revenue.  Look at their online listings to validate.  If they cover the entire city (larger than 9 times SFO), are they doing a good job?  Next, There is a great questionnaire floating on BP that is a valuable resource.  I  keep one answered to share.  Ask questions far beyond what the management fee is.  Add-on costs for maintenance, as an example, is what drives many PM company profit lines.  The PM business is an ancillary business line that we offer our clients, not the main focus of our company, which is the development of investment properties.  

Best wishes on your investment property.

@Kevin Lefeuvre Insurance costs is far more a consideration of distance from a fire station and/or fire hydrant than it is to do with theft.  Just contracted a house in the smoky mountains and the insurance is through the roof only because of the fire risk.

I will concure with @Russell Brazil on the 1% rule as well as the multiple investment strategy to spread risk and reward.   I sometimes share the rule of four.  One is a bust, one does okay, one breaks even, and one is a slam dunk.  This rule is what I typically apply to the courthouse steps purchases, but can be across all investment real estate overall.

Back to the 1% rule.  In our current economy, a solid B class property is going to yield the 1% rule and that will give off cash flow.  I also agree that you cannot look at a single spreadsheet economic to determine performance.  Sometimes we lease a house the moment it hits the market, and on a 2 year lease.  Thats two years with no vacancy cost.  Sometimes the tenants take great care of the property and we barely remember they are in our management until we check on them twice a year.  So many variables.  In the grand scheme, the industry expense metric is 40% of rents for all but debt service.  Our company runs closer to 36%.  Using a more broad, flexible expense ratio like that aids in the process.  We also view some of our capex as cost basis, and rarely exceeds the realized appreciation the market is realizing at the same time.  

Using these ideals and experiences, it better helps you realize that the 1% rule is good.

From Kansas City, home of the Royals, who won the World Series in 2015.  If you know much about baseball, you know that these guys did it on singles and not home runs.  For real estate, it means that getting a bunch of singles and doubles in real estate could help you beat the guy waiting and waiting on a home run.

All the best with your investments!

@David MIller  Squire Park is a bit out of our normal, but I believe it is starting to gain some traction.  Hyde Park and other areas nearby are shrinking in terms of opportunities.  Gentrification is beginning to expand in other directions and crossing Troost is an inevitable step should this continue.  Squire Park is basically from Troost to Paseo, between 39th and Armour.  Troost stood for decades as the line to not cross, but slowly, certain blocks have seen some redevelopment occur.   Whether that will continue is to be seen, but there isnt much sign of slowing down.  Much of it will hinge on transportation and safety in my opinion.  Those willing to move further from the center of the gentrification hot bed still want to live the same lifestyle with good access points and walkability.  It took many years for Hyde Park to gentrify.  I dont believe KC is like Austin or other cities that explode in short time with demand surges in these areas, but over the course of the next decade, I would not be surprised to see these areas turn.  

Depending upon your market area, capex could come into play a lot sooner than 15-30 years.  Consider the lifespan of major systems.  Furnace is a solid 25-30 years typically, but an AC unit could last 10-12+.  Water heaters aren't built well anymore, so I typically account for them every 7-10 years.  At 7 years and $700, thats about $8 a month.  Roofs:  shingles are rated for 25, 30 and 50 years, but rarely does one last that long in a market with extreme temps or hail storms.  Age of the structure will play into it as well.  Even with a new renovation, and even ours are quite extensive, I account for at least some capex.